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TripAdvisor Inc. (TRIP - Free Report) reported adjusted third-quarter 2016 earnings of 41 cents per share, which missed the Zacks Consensus Estimate by a penny. Adjusted earnings exclude one-time items but include stock-based compensation expense.

Shares of the online travel research company were down 0.52% in response to the third-quarter results.

Revenues

TripAdvisor reported revenues of $421.0 million in the third quarter, up 7.7% sequentially and 1.4% year over year. The increase was due to higher click-based and transaction revenue per hotel shopper growth. However, revenues missed the Zacks Consensus Estimate of $439.4 million.

Earlier, TripAdvisor had changed its reportable segments to reflect changes in management’s reporting structure. The new segments are Hotel and Other.

Revenues of $320.0 million from the Hotel segment increased 6% from the year-ago quarter but made up 76% of total revenue. This segment includes click, display, subscription and transaction-based revenues from hotels, air and cruise, including that from the company’s largest subsidiary, SmarterTravel, as well as from operations in China.

Revenues of $101.0 million from the Other segment increased 35% year over year and contributed the remaining 24% of the total revenue. The increase was driven primarily by acquisitions falling under the attractions and restaurants businesses. This segment includes revenues from attractions, restaurants and vacation rentals businesses.

Revenues by Source

Revenues of $206.0 million from Click-based advertising fell 10% from the year-ago quarter and accounted for 49% of total revenue. Revenues from Display-based advertising increased 1% year over year to $73.0 million and brought home 17% of total revenue. The other hotel revenue component was $41.0 million and accounted for 10% of total revenue. Non-Hotel revenue component contributed the remaining 24%, accounting for $101.0 million in revenues, up 35% year over year.

Revenues by Geography

Geographically, on a year-over-year basis, only North American revenues increased 6% to $233.0 million, representing 56% of total revenue. Latin America revenue component decreased 22% to $14 million, accounting for 3%. Revenues from the EMEA (Europe, Middle East and Africa) region increased 1% to $136.0 million and contributed 32% to total revenue, while revenues from the Asia-Pacific decreased 12% to $38.0 million, bringing in the remaining 9%.

Operating Results

TripAdvisor’s adjusted operating expenses of $336.0 million increased 4.0% sequentially and 8.0% year over year. The adjusted operating margin of 17.6% was up 325 basis points (bps) sequentially but down 604 bps year over year.

On a GAAP basis, TripAdvisor recorded a net profit of $55.0 million or 37 cents per share, down from the year-ago figure of $74.0 million or 51 cents.

Pro-forma earnings fell to 41 cents per share from 45 cents in third-quarter 2015.

Balance Sheet & Cash Flow

TripAdvisor exited the quarter with cash, cash equivalents and short-term investments of roughly $727.0 million, down from $853.0 million in the prior quarter. Accounts receivables were $221.0 million, down from $230.0 million in the last quarter.

Long-term debt was $20 million versus $91 million in the previous quarter.

Cash flow from operations was ($87.0) million, significantly down from $237 million in the previous quarter. Capex was $21.0 million, up from $19.0 million in the second quarter. Free cash flow was ($108.0) million, significantly down from $219 million in the previous quarter.

TRIPADVISOR INC Price, Consensus and EPS Surprise

 

TRIPADVISOR INC Price, Consensus and EPS Surprise | TRIPADVISOR INC Quote

Our Take

TripAdvisor is an online travel research company that features reviews and advice on hotels, resorts, flights, vacation rentals, vacation packages and travel guides, to name a few. The company reported a weak third quarter with both the top line and the bottom line missing our estimates.

The company’s solid fundamentals, growth initiatives, partnerships to boost hotel bookings, strong focus on developing its mobile products, expansion into the international restaurant reservation space and improvement in user growth and engagement, especially related to mobile devices will help the company to achieve desired results.

Additionally, TripAdvisor’s acquisitions complement its travel product portfolio. These also improve efficiency and expand user base, on the one hand, while increasing traffic, hotel shoppers and profits, on the other. Over the long term, the company is well positioned to grow, given its expanding user base, improving margins and increasing monetization of social and mobile platforms.

However, mounting expenses due to new initiatives and investments are hurting the company’s profits. Also, lack of visibility and intensifying competition from Priceline, Expedia and Alphabet remain the future growth concerns.

Currently, TripAdvisor has a Zacks Rank #4 (Sell). Some stocks to consider in the industry include EVINE Live Inc. (EVLV - Free Report) and Mercadolibre, Inc. (MELI - Free Report) with a Zacks Rank #1 (Strong Buy), and Groupon, Inc. (GRPN - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EVINE Live Inc. delivered a positive earnings surprise of 6.25%, on average, in the trailing four quarters.

Mercadolibre, Inc. delivered a positive earnings surprise of 23.58% in the trailing four quarters.

Groupon, Inc. delivered a positive earnings surprise of 31.07% in the trailing four quarters.

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