Viator And TheFork's Global Expansion Will Drive Future Growth Through App Innovations

Key Takeaways

• Tripadvisor's growth strategy leverages its leadership in experiences, aiming for faster growth than the industry through app innovations and international expansion.
  
• Viator and TheFork enhance Tripadvisor's growth by improving conversion rates and unit economics, promoting diverse revenue and net margin improvements.
  
• Increasing competition and execution risks in geographic and product expansion, alongside macroeconomic dependencies, could challenge Tripadvisor's revenue growth and impact investor confidence.

Catalysts

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

• Tripadvisor intends to expand its leadership position in the experiences category, leveraging secular tailwinds and low online penetration, to drive faster growth than the travel industry. This growth strategy is expected to positively impact revenue and profit share of the overall group financials.
  
• Viator is focused on balancing growth with investment by enhancing its app bookings and leveraging Tripadvisor's trusted brand and high-intent audience, leading to higher conversion rates and repeat booking growth. This approach is anticipated to improve revenue and net margins, contributing to a durable foundation for future growth.
  
• TheFork is positioned to sustain strong momentum as the largest dining reservations platform in Europe by improving unit economics and leveraging partnerships with strategic partners. The growth in new and repeat diners and restaurants is expected to provide diverse revenue growth across B2C and B2B channels, enhancing net margins and earnings.
  
• Tripadvisor aims to transform its business by focusing on growth opportunities in travel planning, guidance, and booking experiences through an evolving app and membership features, which may improve revenue, engagement, and profitability over the long term.
  
• Geographical and categorical expansion in experiences, including international supply partnerships and AI-assisted enhancements, are potential growth levers for Tripadvisor. These innovations and expansions are likely to enhance revenue growth and improve net margins by capturing more high-intent travelers globally.

Tripadvisor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tripadvisor's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 5.1% in 3 years time.
• Analysts expect earnings to reach $110.6 million (and earnings per share of $0.77) by about December 2027, up from $36.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $161.3 million in earnings, and the most bearish expecting $66 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.5x on those 2027 earnings, down from 52.2x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 0.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Tripadvisor Future Earnings Per Share Growth

Risks

• The competitive landscape is becoming more challenging as a large competitor is scaling efforts in the U.S. experiences market, which could pressure Tripadvisor's market share and impact revenue growth.
  
• Tripadvisor's transition from legacy hotel meta offerings to new growth strategies involves structural headwinds, particularly in the hotel business, which have already led to a 12% revenue decline in Brand Tripadvisor, potentially impacting overall earnings.
  
• Execution risk related to geographic and product expansion, particularly in Viator and other parts of the business, could result in inefficient investment and slow revenue growth if not managed effectively.
  
• Dependencies on macroeconomic stability, including potential fluctuations in travel demand due to economic conditions, pose a risk to maintaining stable booking volumes, which could affect net margins.
  
• An ongoing consideration of strategic alternatives may create uncertainties or limitations in capital allocation, including share repurchase activities, which could influence stock valuation and investor confidence.

Valuation

• The analysts have a consensus price target of $17.5 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 $27.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.2 billion, earnings will come to $110.6 million, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 8.0%.
• Given the current share price of $13.49, the analyst's price target of $17.5 is 22.9% 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.