What TripAdvisor's Management Wants You to Know

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TripAdvisor (NASDAQ:TRIP) recently posted second-quarter results that kept the travel booking specialist on track to meet its modest 2018 financial targets. The numbers weren’t as strong as some investors had hoped, though, as the company’s profit-boosting initiatives came at the expense of sales and market-share growth.

CEO Steve Kaufer and his team held a conference call with analysts to discuss the latest results in more detail. Below are a few highlights from that chat .

A couple checks into a hotel.

Image source: Getty Images.

Making a more profitable business

Our results further demonstrate how we are changing the profit trajectory of our hotel segment.

TripAdvisor shifted gears early in the year and decided to change its focus from generating growth to producing sustainable profits in its core hotel shopping business. At the time, management told investors to expect higher margins, but that there would be “trade-offs in term of hotel shopper growth.”

That story played out in the second quarter, as lower spending on direct marketing sent hotel shopping profit margin up to 28% of sales from 26% a year ago. That success allowed earnings in the segment to rise 6% even though revenue ticked lower by 4%. TripAdvisor again saw a decrease in its shopper traffic, but management said they were happy to trade that slight decline for a more dependable earnings posture.

The strategy is working

Our product and marketing execution, as well as stable auction dynamics, drove improved revenue per hotel shopper performance.

Many of TripAdvisor’s core growth metrics posted declines during the quarter, including click-based revenue from advertisements and average revenue per hotel shopper. Yet executives highlighted the fact that these trends, while still negative, improved compared to the prior quarter, which suggests the company’s rebound strategies are working. Other bright spots included stabilizing prices for TripAdvisor’s advertising space, surging engagement within in its mobile platform, and rising conversion rates.

More growth ahead in booking experiences

We expanded our marketplace, reinforcing our leadership position as the world’s largest online platform to book and sell tours, attractions, and travel experiences.

TripAdvisor roughly doubled its portfolio of bookable experiences, which helped its nonhotel segment continue to outshine its core hotel shopping business. Executives believe there is a huge long-run potential for the company to branch out into this over-$100 billion market for travel spending on products like tours, attractions, restaurants, and outdoor activities.

Sales growth in this segment slowed sharply, falling from 36% to 22%. However, management argued that the bigger picture, which shows revenue up 28% over the first half of the year compared to a 26% increase in the prior-year period, continues to support a bullish outlook for this operating unit.

Stable 2018 outlook

Our first-half results and recent performance make us incrementally confident in our consolidated adjusted [earnings] growth expectation.

Kaufer and his team affirmed guidance that calls for modest overall profit growth in 2018. The core hotel business will contract modestly, they still believe, while profitability rises. Investors will want to keep an eye on click-based revenue trends over the next two quarters, given that management is predicting these will improve in the back half of the year.

TripAdvisor’s nonhotel segment should grow at about the same rate that it did in 2017.

Judging by the 60% stock price rally through the first six months of the year, investors may have been expecting an upgrade to the travel specialist’s 2018 forecast in this report. That elevated optimism likely contributed to the 11% slump that immediately followed the earnings report. Still, TripAdvisor shares are significantly outpacing the market so far this year, and those gains should persist as long as the company continues to make progress toward its turnaround goals.

Demitrios Kalogeropoulos owns shares of TripAdvisor. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.

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