Tripadvisor Earnings: Weak Meta and Strong Experience and Dining Demand Continues; Shares Attractive

No-moat Tripadvisor’s TRIP experiences and dining business remained stout, but its hotel metasearch platform continued to lag the hotel industry in the first quarter, causing shares to drop around 10%. We expect these trends to endure, driven by the company’s lead in experiences and dining remaining in place due to relative high barriers to aggregating these fragmented markets and prudent investment, while lower metasearch barriers face ongoing competition from Google, and in the future Meta and Amazon. We plan to reduce our $27 fair value estimate by a high-single-digit percentage on higher marketing expense, which we see as required to maintain our sales forecast. In fact, marketing as a percent of sales was 59%, up from 54% last year, and we plan to model it at around 51% on average during the next 10 years versus about 50% prior. Still, we think investors are severely discounting the company’s experiences and dining assets. We think renewed talk of a potential IPO for Viator could serve as a catalyst for shares, although we don’t expect that to be on the table until financial market certainty improves.

TA’s branded hotel segment revenue (45% of total sales) reached just 78% of 2019′s level in the quarter, down from 90% last quarter, and well below the 113% mark we calculate for U.S. hotel industry revenue per available room in each of the last two quarters. This result is behind the roughly 90% mark we modeled for the business in 2023, which we plan to lower toward 80%, while maintaining a low-single-digit growth rate on average during 2024-32.

The experiences and dining brands (combined 40% of total sales) posted sales at 261% and 125% of 2019′s level, respectively, up sharpy from the 208% and 94% last quarter, and tracking ahead of our 195% and 110% forecast for the full year. We plan to increase our experiences and dining forecast for 2023 to around 225% and 120% of 2019′s level, respectively, offsetting the lower prognosis for the metasearch business.