Viator And TheFork Expansion, Along With Mobile And AI Investments, Will Strengthen Future Prospects

Key Takeaways

• Strategic growth in Viator and TheFork segments, coupled with app enhancements, is enhancing revenue, expanding margins, and improving customer acquisition and loyalty.
  
• Share repurchases and a streamlined capital structure could enhance earnings per share through improved capital allocation and strategic flexibility.
  
• Tripadvisor's focus on growth faces challenges from revenue volatility, strategic investments, and evolving market demands, potentially impacting profitability and financial stability.

Catalysts

TripAdvisor, Inc., an online travel company, engages in the provision of travel guidance products and services worldwide.

• Growth in the Viator experiences segment, driven by increased direct bookings and improvements in mobile app usage, is expected to enhance revenue and contribute to margin expansion through marketing efficiencies and better unit economics.
  
• The integration and expansion of TheFork into the European dining market, with strategic partnerships like those with Mastercard and Vodafone, are anticipated to drive revenue growth and a positive trajectory in net margins by enhancing brand reach and customer acquisition.
  
• Tripadvisor's focus on enhancing its mobile app and AI capabilities, particularly in experiences and hotel booking, is intended to improve conversion rates, customer loyalty, and ultimately increase earnings through more seamless booking processes.
  
• Expansion of B2B partnerships in the Viator segment, focusing on leveraging a vast supply network, is projected to offer incremental revenue growth opportunities, tapping into high-intent customer channels not easily accessible directly.
  
• Share repurchases and a simplified capital structure post-ownership consolidation are expected to provide Tripadvisor with strategic flexibility, potentially leading to enhanced earnings per share as a result of better capital allocation.

Tripadvisor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tripadvisor's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 5.4% in 3 years time.
• Analysts expect earnings to reach $120.3 million (and earnings per share of $0.86) by about March 2028, up from $5.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $148.7 million in earnings, and the most bearish expecting $84 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.0x on those 2028 earnings, down from 402.6x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.42%, as per the Simply Wall St company report.

Tripadvisor Future Earnings Per Share Growth

Risks

• Tripadvisor faces ongoing revenue challenges in its legacy hotel meta segment, with management noting a decline in branded hotels revenue and the need for sector stabilization, highlighting reliance on variable pricing dynamics that could impact revenue continuity.
  
• The company expects currency headwinds to affect segments like Viator, leading to potential revenue and earnings volatility due to its exposure to euro-denominated business, which may impact overall financial results.
  
• Tripadvisor's large investment in AI and data, important for future growth, is significant and may not yield immediate returns, potentially impacting net margins and cash flow if the expected efficiencies and growth do not materialize quickly.
  
• Management's focus on stabilizing Tripadvisor's business alongside increasing marketing and capital efforts could weigh on short-term profitability, indicating possible constraints on net margins and impactful execution risk.
  
• Economic variability and consumer behavior shifts could potentially undermine Tripadvisor's optimistic projections for experiences and dining segments, which together contribute significantly to growth expectations, thus affecting future earnings potential if market demands do not align with forecasts.

Valuation

• The analysts have a consensus price target of $17.806 for Tripadvisor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $120.3 million, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 8.4%.
• Given the current share price of $14.34, the analyst price target of $17.81 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.