TripAdvisor: Innovation, Better Positioning on Deck

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Encouragingly, despite leveraging the marketing expense line over 400 basis points during the fourth quarter, total revenue grew 2% in the quarter, above our 2% decline forecast, which should calm fears of sustained elevated costs hindering profitability over the long term. We believe this points to traction that TripAdvisor is seeing in being able to effectively analyze marketing channel data, leading to cost efficiencies. We also think the stabilization in total revenue growth on this lower marketing spending indicates that initiatives launched last summer (new user interface and TV campaign) are taking hold, as we expected. And as highlighted in our January note, we expect the new restructuring initiative (the company plans to organize its hotel, attractions, and restaurant businesses into units that will be responsible for their bottom-line performance and contain their own dedicated personnel) to foster innovation and enhance competitive positioning in the long term.

As a result, TripAdvisor expects 2018 EBITDA to be roughly flat from 2017’s $331 million level, compared with our $325 million forecast. We will provide additional perspective, including any potential impact to our existing $55 fair value estimate (which incorporates over 10% average annual sales growth over the next five years, with operating margins expanding to 23% in 2022 from 8% in 2017) after hearing from management. However, at this juncture we don’t posit any material changes to our long-term outlook or valuation.

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