TripAdvisor Inc. (TRIP, Financial) reported disappointing third quarter results as revenue picked up just 1% to $421 million, much less than the expected 5% growth. The adjusted net income of $78 million was flat from its corresponding period. The diluted EPS was at 53 cents per share. Revenue took a hit of two percentage points from the strong U.S. dollar.
TripAdvisor's click-based advertising and transaction-based revenue fell 10% from year ago levels, which offset the gains in display-based advertising and subscription revenue as well as hotel-related sales. But the company’s referral and transaction revenue performance disappointed investors by losing 9.6% in the third quarter. This weak referral revenue was affected after the company rolled out its instant booking feature, which allows users to book hotel rooms directly through the company’s website. TripAdvisor is promoting the feature by partnering with hotel chains like Marriott International (MAR, Financial) and travel website operators such as Priceline's (PCLN, Financial) Booking.com. While this feature could favor the company’s partners and enhance the customer experience, referral revenue could continue to be under pressure. TripAdvisor said on Tuesday that it had made instant booking more prominent on the mobile app by favoring user engagement over generating revenue in the near term. A 35% jump in non-hotel revenue sources was able to restrict the fall in top line.
Given this top-line pressure, the company’s adjusted EBITDA was $114 million, falling by 12% on a year over year basis. Cash flow used in operations was $87 million while free cash flow was negative $108 million. Cash and cash equivalents were at $756 million.
North America contributed 56% of revenue and recorded three percentage point growth over the corresponding period. The rest of the world, however, noted a single point drop in business.
On the positive side, the company’s assets continued to expand and customers keep seeing the value of its information. Average monthly unique visitors rose 11% to 390 million during the quarter. TripAdvisor now has more than 435 million reviews and opinions with about 1.05 million hotels, 4.2 million restaurants, 830,000 vacation rentals and 730,000 attractions and other experiences available. The click-based and transaction revenues per hotel shopper growth improved throughout the quarter.
Going forward, the challenge that TripAdvisor faces is monetizing its travel information. The stock plummeted 13% in after hours trading following the earnings announcement and made a gap-down opening of more than 14% today.
Disclosure: I do not own any shares or any stocks mentioned in this article.
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