TripAdvisor Stock Analysis: Instant Booking Platform Can Become A Major Growth Driver

  • TripAdvisor shares have rallied impressively on news that it has managed to bring Marriott Group of Hotels under its Instant Booking platform
  • TripAdvisor launched Instant Bookings a year ago, and describes it as a cross between a metasearch and an OTA
  • Though leading OTAs have refused to make their inventory available on Instant Bookings due to obvious competitive concerns, the platform has real potential to become a significant growth driver for TripAdvisor
TripAdvisor Stock analysis

Shares of travel review company TripAdvisor (NASDAQ:TRIP) have soared more than 14% on news that the company has managed to bring Marriott Hotels’ (NASDAQ:MAR) more than 4,200 properties under its Instant Booking platform. TripAdvisor launched Instant Booking a year ago to help people book directly from its website without having to navigate to OTAs the traditional way.

TripAdvisor describes Instant Bookings as a cross between a metasearch engine and an OTA. This is probably the reason why leading OTAs including Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE) refused to make their inventory available on the platform, obviously due to the fact that Instant Booking is a direct competitor to the OTAs. While the move by the two companies might have helped to temporarily stall Instant Booking’s bold march, the platform could soon gain enough traction and become an alternative booking platform for people who use TripAdvisor as their first base when looking for places to stay.

TripAdvisor’s Instant Booking Feature

TRIP-1

Source: Tnooz

Massive Traffic

Priceline and Expedia have a good reason to get scared of Instant Booking. People read hotel reviews on TripAdvisor then click through to the OTAs to do their booking. TripAdvisor receives about 2.5 billion unique visits every year, of which about 10% of this traffic is directed to the two companies. Both Priceline and Expedia place their ads on TripAdvisor; about 48% of TripAdvisor’s revenue comes from the two companies.

Despite TripAdvisor playing a friend-turned-foe, it’s highly unlikely that either Priceline or Expedia would be willing to cut ties with the company. TripAdvisor enjoys a huge moat in the industry with a market share reputed to be north of 60%. This gives it a lot of leverage when dealing with OTAs.

The fact that Instant Booking is a metasearch platform could also put it in the good books of younger folks. L2 Think Tank says that 39% of millenials prefer using metasearch platforms to do their booking as opposed to using branded sites and traditional OTAs.

Fair Pricing Model

Instant Booking uses an agency pricing model. Using this model, airlines, hotels and car rental companies become the merchants on record. OTAs receive a predetermined commission from the hotel when the customer is checking out. In the case of Instant Booking, the commission payable is 12%-15% of transaction amount. This model is favored more by hotels because more customers prefer to settle their accounts when checking out instead of paying upfront. The commission charged by TripAdvisor is quite low when you consider that a company like Expedia charges 25% of transaction amount to hotels. The low commission by the platform could prove to be a strong selling proposition. The agency pricing model entails lower service commitments than the traditional merchant pricing model hence the lower fees.

How Big Can Instant Bookings Become?

Instant Bookings has great potential to become a real revenue driver for TripAdvisor simply because of the popularity of TripAdvisor as a travel review site. TripAdvisor has accumulated more than 200 million reviews on more than 4 million properties on its website. The more reviews a review site accumulates, the more people tend to trust it. This becomes a virtuous cycle that feeds on itself and thus encourages even more people to use it. Though TripAdvisor has in the past been dogged by concerns about property owners manipulating reviews to paint themselves in a better light, TripAdvisor was investigated and later cleared by the authorities.

The biggest challenge right now for Instant Bookings is to bring as many properties as possible under its wings. The latest deal with Marriott Hotels will certainly encourage other properties to jump in. I estimate that Instant Booking could contribute about 10% of TripAdvisor’s revenue in 3-4 years, and grow at 30%-40% CAGR. Growth by the platform could give a 4%-6% boost to TripAdvisor’s top line growth by the end of the forecast period.

Note: You might be interested in our TripAdvisor Stock Analysis video.

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