TripAdvisor (TRIP - Free Report) has had a turbulent 2019, so far. Despite the company’s continuous efforts to bolster business strength by focusing on new strategies such as non-auction revenue growth initiatives, cost structure evaluation and returning capital to shareholders, it has failed to instill investor confidence.
We believe declining auction-based revenues, rising competition and weakness in the Hotels, Media & Platform segment, which were major headwinds in 2019, are expected to persist in 2020 as well. Additionally, mounting marketing expenses does not bode well for the company’s financial performance in the near term.
Notably, shares of this Needham, MA-based company, which is one of the largest online travel research companies globally, have lost 43.9% over a year. Meanwhile, the Zacks Internet -Commerce industry it belongs to, the Zacks Retail – Wholesale sector and S&P 500 has rallied 30.4%, 26.2% and 27.9%, respectively, in the same timeframe.
Further, the company has an unimpressive earnings surprise history, having missed the Zacks Consensus Estimate in three of the trailing four quarters, the negative average surprise being 5.82%.
One-Year Price Performance
2020 Earnings Estimates Diving South
We note that the Zacks Consensus Estimate for 2020 earnings has been revised down 12.7% to $1.92 per share over the past 60 days.
Further, the Zacks Consensus Estimate for 2019 earnings has moved down 6.4% to $1.75 per share over the past 60 days.
Moreover, per the Zacks’ proprietary methodology, stocks with the favorable combination of either a Zacks Rank #1 (Strong Buy) or 2 and VGM Score of A or B, only offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
But this is not the case here. TripAdvisor has a Zacks Rank #5 (Strong Sell) and a VGM Score of D.
Sluggish Hotels, Media & Platform: A Grave Concern
The pessimistic view on TripAdvisor can be primarily attributed to weakness in Hotels, Media & Platform segment, which is the largest contributor to the company’s total revenues. Notably, the segment accounted for 56% of TripAdvisor's third-quarter 2019 revenues.
TripAdvisor continues to grapple with challenges in this segment, which are affecting the segment’s auction-based revenues. Strengthening search engine optimization (SEO) initiatives by Alphabet’s (GOOGL - Free Report) division Google is the primary reason behind this downside.
Consequently, Google’s increasing practice of directing search traffic toward its own travel businesses and strong endeavors toward enhancing the search results with innovative search tools are anticipated to continue hurting the segment’s revenues in 2020.
This, in turn, will affect the company’s overall revenues.
Intensifying Competition Poses Threat
Apart from Google, TripAdvisor faces tough competition from other social media and marketplace platforms and companies like Facebook, Microsoft’s Bing, Yahoo, Baidu, Alibaba, and Amazon in its Hotel segment.
Further, the company faces rising competition from Expedia (EXPE - Free Report) , Booking Holdings (BKNG - Free Report) , Airbnb and Yelp among others in the online travel market.
Additionally, companies like HomeAway including Airbnb and Booking are providing strong competition to TripAdvisor’s non-hotel segment and rental services offerings.
The abovementioned competitors pose a serious threat to TripAdvisor’s market position. The company has been witnessing persistent decline in average monthly unique visitor base, which remains a headwind.
Moreover, this highly competitive scenario is likely to result in pricing pressure, which might impact margins negatively.
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