Although TripAdvisor Inc TRIP reported a fourth-quarter EBITDA beat Tuesday, this was driven by a decline in ad spend. Two sell-side analysts found the downside in core hotel revenues, with declining monthly unique hotel shoppers, to be cause for concern.
The Analysts
Guggenheim’s Jake Fuller maintains a Sell rating on TripAdvisor.
Bank of America Merrill Lynch’s Nat Schindler reiterated an Underperform rating with a $43 price target.
The Thesis
TripAdvisor reported Q4 revenue of $346 million, broadly in-line with consensus expectations. EBIDTA came in at $87 million, beating the Street estimate of $80 million on the back of lower ad spend.
Click-based revenue was $139 million, with growth accelerating on easier comps. Hotel revenue was $240 million, down 2 percent year-on-year and missing consensus expectations by 3 percent. The company recorded monthly unique hotel shoppers of 113 million, a figure that represents a steep 12-percent year-on-year decline and is 7 percent below the consensus.
The online travel agency's 2019 commentary “may not be well received,” Guggenheim’s Fuller said in a Tuesday note. The company expects both the first half of 2019 and the full year to be weighted toward the back end, with plans to prioritize Experiences and Restaurants investments over EBITDA growth, he said.
The company also indicated increased topline headwinds for the Other Hotel and Rentals segments. These comments suggest a lower EBITDA outlook than “bulls had anticipated,” Fuller said.
BofA's Schindler said that TripAdvisor’s decision to reduce direct ad spend by 22 percent in 2018 “creates sluggish top-line growth that could continue to build upon itself." The company’s “shrink to grow” approach seems “inherently short-sighted," he said.
BofA's Underperform rating reflects intensifying concerns around decelerating hotel revenue growth, the analyst said.
Price Action
TripAdvisor shares were down 7.53 percent at $55.84 at the time of publication Wednesday.
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