Priceline & Expedia Could Undermine TripAdvisor Instant Bookings

  • Priceline & Expedia continue to stay away from TripAdvisor Instant Bookings.
  • Instant Bookings could remain under-utilized if big OTAs refuse to sign up.
  • TripAdvisor valuations make it a risky bet, even after the huge correction.

TripAdvisor (TRIP) has been expanding its mobile bookings platform, ‘Instant Bookings’. The feature has been a much anticipated one for the company following its meta-search roll-out. Combined with meta-search, TripAdvisor Instant Bookings, billed as one of the potential drivers for TripAdvisor revenue in 2014, allows users to look up various options and complete their bookings, all within the TripAdvisor mobile app. Due to its potential to increase conversion rates and drive bookings, TripAdvisor plans to roll out the feature across geographies and devices. However, even as the roll out is in progress, ‘Instant Bookings’ has hit some roadblocks with big OTAs like Priceline (PCLN) and Expedia (EXPE) continuing to stay away, while participating in similar bookings on other apps that compete with TripAdvisor.

TripAdvisor Instant Bookings

In the second half of 2013, TripAdvisor launched its meta-search feature which collates availability and bookings details for its listings, allowing users to search and compare various options on TripAdvisor. Until then, users had to visit advertisers’ sites to get such information. According to TripAdvisor, meta-search drove conversion rates and advertiser ROIs, and gave the site the ability to command better prices for ads or clicks.

In 2014, focus shifted to ‘Instant Bookings’, TripAdvisor’s mobile bookings platform, which allows users to complete their bookings within the TripAdvisor mobile app. Instant bookings is one step further in the user to booking conversion cycle, and could hold significant potential for TripAdvisor. Coupled with meta-search, the bookings feature gives TripAdvisor users end-to-end functionality, starting from listings and enabling comparison of availability, pricing and other bookings related data, to completion of bookings. Understandably, TripAdvisor has been quite excited about the feature and plans to expand its reach across geographies and devices.

As we’d covered in our TripAdvisor Q2 earnings, Instant bookings was first made available to its mobile users in the US. In TripAdvisor’s Q3 conf call, the company announced that it had begun rolling out the feature to users on desktops and tablets. For the time being, this roll out too, is restricted to the US. In due course, TripAdvisor expects to roll out instant booking on all devices and across the world.

Priceline & Expedia Shun TripAdvisor Instant Bookings

One of the things that’s critical to the success of Instant Bookings, is widespread adoption across hotels and online travel agents or OTAs. OTAs like Priceline and Expedia advertise on TripAdvisor, and reports suggest that TripAdvisor currently drives traffic to both the sites in exchange for referral fees. However, as per a recent report about Priceline and Expedia boycotting Instant Bookings, both companies have refused to participate, at least for the time being.

With the launch of Instant Bookings, users don’t really need to use Priceline’s or Expedia’s booking platforms at all. For that matter, they don’t even need to visit their sites. TripAdvisor is growing into a self-sufficient platform, and that could give the site significant control over the whole booking process. That’s probably why, competitors, Priceline and Expedia have decided to stay away. Besides, both Priceline and Expedia, own competing meta-search companies, Kayak and Trivago, respectively.

Exactly why they’ve decided to shun the option isn’t clear, given that Priceline and Expedia have made their inventory available for in-app bookings on the Kayak app, and also on smaller third party apps like Top10. The fact that Expedia has opened up to bookings on Kayak and not TripAdvisor suggests it could be more than just competitive strategy. Especially since Priceline and Expedia advertise with TripAdvisor, one would imagine that both entities, would in the normal course, be happy to enroll for something like Instant Bookings, if it translates to higher conversions and bookings.

Whatever the reason be, given their size and the potential business or revenue that’s on offer, TripAdvisor will be hoping for Priceline and Expedia to change their minds about Instant Bookings. If sign-ups with hotels and OTAs doesn’t go as planned, the potential of Instant Bookings will remain under-utilized.

TripAdvisor Valuations

TripAdvisor currently trades at $77.14 a share, translating to the following valuations:

  • TripAdvisor PE ratio - 52.5
  • TripAdvisor Price to sales ratio - 9.4

As both ratios indicate, TripAdvisor valuations are quite expensive, even after a 30% correction from its 52 week high of $111.24 a share. As highlighted in our TripAdvisor stock analysis video, nearly half of this correction has come following the TripAdvisor Q3 2014 earnings release.

TripAdvisor profit margins have been on the decline, a source of worry for investors. As is evident from the chart, TripAdvisor net income for Q3 has been falling in absolute terms, for two years in succession.
TRIP Net Income chart
Chart Source: TripAdvisor Net Income interactive chart by Amigobulls

Profit margins are likely to get worse in Q4, traditionally TripAdvisor’s worst quarter every year, in terms of profitability. Given the falling trend in profit margins, TripAdvisor valuations make it a risky bet. For now, TripAdvisor will be hoping to gain some ground with Instant Bookings. Billed as one of the potential drivers of TripAdvisor revenue in 2014, if Instant Bookings remains under-utilized, the impact is likely to be seen in the form of lower than expected revenue growth, and subsequently, profit margins as well.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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