best known for online travel reviews, has struggled to make the most of its hundreds of millions of users.
That could soon change. The company has started a new travel subscription service, Tripadvisor Plus, that offers discounted hotel rates and other benefits. It could rekindle interest in what has been online travel’s also-ran to
(ticker: BKNG) and
Shares of Tripadvisor (TRIP), now around $36, look inexpensive, having fallen from a March peak of $65 and trading for half of where they stood five years ago.
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“The core business is worth north of where the stock is, and there is optionality on the upside from Tripadvisor Plus,” says Naved Khan, an analyst at Truist Securities. Khan rates the stock a Buy with a $65 price target. He values the core business at $50 a share and says that Tripadvisor Plus is worth $15 a share.
Tripadvisor has been reducing its reliance on revenue related to hotel searches, where the Google unit of
(GOOGL) dominates, and is focusing on its “experiences” business. That leverages its online travel reviews and generates commission revenue when consumers use the Tripadvisor site to book vacation activities like museum visits, boat tours, and helicopter rides.
“This is a fragmented market that is crying out for a strong aggregator,” says Richard Clarke, a Bernstein analyst who has an Outperform rating and a $58 price target on the stock. He notes that an estimated 75% of vacation activities are still booked in person or on the phone.
Tripadvisor Plus, meanwhile, could offer big upside. Wall Street is giving little credit for it amid uncertainty about whether hotels will get on board. The $99-a-year subscription service offers members discounts on hotel rooms, experiences, and other perks. It aims to offer members hotel and other savings averaging $350 a stay.
Tripadvisor has high hopes for the service. CEO Stephen Kaufer talked on the first-quarter earnings conference call in May about potentially attracting “tens of millions of subscribers and a multibillion-dollar recurring revenue stream.”
Even a fraction of that would be meaningful, given that Tripadvisor generated $1.6 billion in prepandemic revenue in 2019. Analysts project about $900 million in sales this year and $1.3 billion in 2022.
Truist’s Khan is conservatively assuming that Tripadvisor can get to 3.3 million subscribers in five years. One bullish sign is that a smaller European online travel site,
(EDR.Spain), has attracted a million subscribers to its subscription service.
The challenge is persuading the big hotel chains. Hotels have sought to maintain so-called rate parity domestically, meaning that rates shown on Booking and Expedia, the two main online booking sites, and the hotel’s website should be the same or close.
Tripadvisor’s pitch is that hotels can save the estimated 15% to 20% commission that they pay to Booking and Expedia and offer those savings directly to Tripadvisor Plus subscribers. The discounted rates would be available only 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 of Portugal, with a total of nearly 500 properties, have agreed to offer rooms on the service. “It’s baby steps, but it shows that decent hotel groups are willing to play ball,” says Clarke of Bernstein. “This isn’t Marriott or Hyatt, but it’s moving in the right direction.”
Rooms from the big chains are available on the service, but they likely come from wholesalers. On Tripadvisor Plus, Barron’s found offerings from mostly independent hotel companies for hotel stays in New York and San Francisco this summer.
|Company/Ticker||Recent Price||YTD Change||2021E P/E||2022E P/E||2021E EV/Ebitda||2022E EV/Ebitda||Market Value (bil)|
EV/Ebitda is enterprise value to earnings before interest, taxes, depreciation, and amortization. NM=Not meaningful. E=estimate
Ashim Mehra, manager of the Baron Atlas fund, is bullish on Tripadvisor Plus. He is also encouraged by the presence on the company’s board of Greg O’Hara, the founder of Certares Management, whom he views as one of the smartest investors in travel. Certares’ investments include
Hertz Global Holdings
(HTZZ), as well as Tripadvisor.
Mehra notes that Tripadvisor generated over $400 million of earnings before interest, taxes, depreciation, and amortization, or Ebitda, in 2019. His view is that $600 million of Ebitda is possible by 2022 or 2023, based on more than $200 million of annualized cost savings achieved since the pandemic. That could be worth at least $6 billion of value at a multiple of 10, or about $45 a share, he says.
If Tripadvisor can attract 10 million subscribers to its subscription service, that would generate about $1 billion in revenue and $500 million of free cash flow, Mehra says. That could be worth $10 billion in value, for a total of about $16 billion, which could put Tripadvisor stock above $100.
“The risk/reward with Tripadvisor is compelling,” he says. Indeed, investors can book one of the better turnaround stories in travel.
Write to Andrew Bary at [email protected]