TripAdvisor (TRIP) apparently hit some turbulence in the second quarter.
TRIP stock is off about 10% this morning on disappointing Q2 earnings … and while it seems like a reasonable rest for shares after a fiery run (TRIP still is up 60% in the past year), there might be legitimate reason for concern going forward.
The TripAdvisor earnings report wasn’t all bad. Specifically, the top line jumped by 31% to $323 million, which was enough to clear the analyst consensus estimate of $321.8 million.
Things got stickier once we hit the bottom line.
For Q2, TripAdvisor earnings came to $68 million, or 47 cents per share — while up from 46 cents per share in the year-ago period, that translated to adjusted earnings of 55 cents per share that fell under Wall Street estimates for 61 cents.
The primary reason has been a ramping up in marketing expenditures — something TripAdvisor has little choice in given the clout of its juggernaut competitors, Priceline.com (PCLN) and Expedia (EXPE), which have been aggressive too.
Yes, the ad war is on, and war isn’t cheap. In the latest quarter, TripAdvisor launched a new TV campaign to the tune of $10 million, and these expenditures will accelerate for the rest of the year.
TRIP is getting encouraging results from its ad dollars, though. TripAdvisor saw a 25% increase in MAUs (monthly active users) to 280 million in Q2, with about two-thirds of that traffic coming from international markets. TripAdvisor launched sites in Austria, Israel, Finland, Hungary, Czech Republic and Vietnam over the past quarter.
Meanwhile, the user base has been active, with the site boasting 170 million reviews at a current rate of more than 100 reviews posted per minute.
Mobile has also been a solid driver for TripAdvisor, with total downloads topping 128 million; in fact, almost half of TRIP’s overall traffic comes from mobile devices. This has been boosted by innovations such as its “Instant Booking” feature and the ability to view content offline.
TripAdvisor also has expanded into the category of restaurant reviews — the company recently purchased Lafourchette — adding a nice complement to the core business that should help keep growth robust. The Lafourchette platform has more than 2.3 million restaurant listings and more than 200 million monthly restaurant page views.
TripAdvisor is no doubt making smart moves, which should help in the long term. The problem is more of a nearer-term one — namely, its costs will continue to be a drag on earnings, which should make it tougher for TRIP stock to get traction.
Also making it tough — a hefty price-to-earnings ratio of 34 despite today’s losses, which doesn’t compare favorably to the more reasonable 17 and 19 P/Es of EXPE and PCLN, respectively.
TRIP stock is a fine longer-term play, but now’s not the time to enter.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.