best known for online travel reviews, has struggled to get the most out of its hundreds of millions of users.
That may soon change. The company launched a new travel subscription service, Tripadvisor Plus, which offers discounted hotel rates and other perks. It could rekindle interest in what has also been online travel.
(ticker: BKNG) and
Tripadvisor (TRIP) shares, now around $ 36, look cheap, having dropped from a high of $ 65 in March and trading at half their level five years ago.
“The core business is north of where the stock is, and Tripadvisor Plus offers an option on the upside,” said Naved Khan, analyst at Truist Securities. Khan is pricing the stock at a buy with a target price of $ 65. He rates the main activity at $ 50 per share and says Tripadvisor Plus is worth $ 15 per share.
Tripadvisor has reduced its reliance on hotel search revenue, where the Google unit of
(GOOGL) dominates and focuses on its “experiments” activity. This leverages its online travel reviews and generates commission revenue when consumers use the Tripadvisor site to book vacation activities such as museum tours, boat tours, and helicopter tours.
“This is a fragmented market that calls for a strong aggregator,” says Richard Clarke, an analyst at Bernstein who has an outperformance rating and a target price of $ 58 for the stock. He notes that about 75% of vacation activities are still booked in person or over the phone.
Tripadvisor Plus, on the other hand, could offer a big advantage. Wall Street gives it little credit amid uncertainty over hotel membership. The $ 99 per year subscription service offers members discounts on hotel rooms, experiences, and other perks. It aims to provide members with hotel and other savings averaging $ 350 per stay.
Tripadvisor has high hopes for the service. CEO Stephen Kaufer spoke on the May first quarter earnings conference call of the potential to attract “tens of millions of subscribers and a multi-billion dollar recurring revenue stream.”
Even a fraction of that would be significant, given that Tripadvisor generated $ 1.6 billion in pre-pandemic revenue in 2019. Analysts predict revenue of around $ 900 million this year and $ 1.3 billion. in 2022.
Truist’s Khan conservatively assumes that Tripadvisor can reach 3.3 million subscribers in five years. A bullish sign is that a small European online travel site,
(EDR Spain), has attracted one million subscribers to its subscription service.
The challenge is to convince the big hotel chains. Hotels have sought to maintain rate parity nationwide, meaning that the rates displayed on Booking and Expedia, the two major online booking sites, and the hotel’s website should be the same or similar.
Tripadvisor’s argument is that hotels can save the estimated 15-20% commission they pay to Booking and Expedia and deliver those savings directly to Tripadvisor Plus subscribers. Discounted rates would only be available to Tripadvisor Plus members. Hotels would get more detailed information about customers to remarket to them information they don’t get from sites like Expedia.
Three smaller chains, Barcelo, Millennium and Pestana from Portugal, with a total of nearly 500 properties, have agreed to offer rooms on the service. “These are small steps, but it shows that decent hotel groups are ready to play ball,” says Clarke of Bernstein. “It’s not Marriott or Hyatt, but it’s going in the right direction.”
Large chain rooms are available on the service, but they are likely from wholesalers. On Tripadvisor Plus, Barron found deals from mostly independent hotel companies for hotel stays in New York and San Francisco this summer.
|Company / Memometer||Recent price||Modification of the current fiscal year||2021E P / E||2022E P / E||2021E EV / Ebitda||2022E EV / Ebitda||Market value (bill)|
|Reserve assets/ BKNG||$ 2,194.03||-1%||71.2||23.9||40.4||17.1||$ 90.1|
EV / Ebitda is the value of the business compared to earnings before interest, taxes, depreciation and amortization. NM = Not significant. E = estimate
Ashim Mehra, manager of the Baron Atlas fund, is optimistic about Tripadvisor Plus. He is also encouraged by the presence on the board of directors of Greg O’Hara, founder of Certares Management, whom he considers to be one of the most savvy investors in the travel industry. Certares investments include
Hertz Global Holdings
(HTZZ), as well as Tripadvisor.
Mehra notes that Tripadvisor generated more than $ 400 million in earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2019. According to him, $ 600 million in Ebitda is possible by 2022 or 2023, on the base of more than $ 200 million annualized cost. savings since the pandemic. It could be worth at least $ 6 billion in value at a multiple of 10, or about $ 45 per share, he says.
If Tripadvisor can attract 10 million subscribers to its subscription service, that would generate around $ 1 billion in revenue and $ 500 million in free cash flow, Mehra said. This could be worth $ 10 billion, for a total of around $ 16 billion, which could put the Tripadvisor stock above $ 100.
“The risk / reward ratio with Tripadvisor is compelling,” he says. Indeed, investors can book one of the best travel turnaround stories.
Write to Andrew Bary at [email protected]