TripAdvisor (TRIP) suffered its worst single-day loss in history on Tuesday after reporting quarterly results that disappointed Wall Street. The company lost a full fifth of its value, or about $1 billion in market capitalization.
While earnings of $0.36 a share beat the estimate by a penny, sales for the quarter increased only 4% over last year to $439 million, coming in well below the $454 million analysts were looking for. The bulk of TRIP’s sales are derived from its hotel division, which disappointed with revenue of $312 million versus the expected $326 million.
Any time the CFO of a company makes a comment about a specific business segment struggling, it’s a cause for concern for investors. Well, that’s exactly what TripAdvisor’s CFO did regarding the hotel division. And considering so much of the company’s business model is based on hotel reservations, investors are selling first and asking questions later.
Revenue per hotel shopper fell 11% in the quarter and hotel revenue declined 3% as more growth was focused in smaller attractions, vacation rentals and restaurant bookings.
A Flawed Revenue Model
The main issue at TripAdvisor is one that a lot of online companies and apps have to deal with: traffic that doesn’t translate into revenue and earnings. Similar companies that are in the same boat include Twitter (TWTR) and Snap (SNAP). All three have great followings and are growing their user bases, but those factors have yet to equate to sales that can back up higher share prices.
I am the perfect example of a TRIP user that does not contribute directly to its revenue stream. I use the app a lot – it’s a great tool when you’re travelling in a new place. But when it comes time to actually book a hotel, restaurant or adventure reservation, I turn to another app or website.
Until the company can transition to a better and more reliable revenue model, it will continue to be a stock I avoid. With increasing competition in the online travel space, it’s either “put up” or “shut up” for TripAdvisor over the next 12 months.