Think TripAdvisor’s business model is broken? Think again
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Think TripAdvisor’s business model is broken? Think again

Last year, TripAdvisor moved from an advertising-based business model to a transaction-based one. In real terms, this new business model is the roll out of the company’s “instant booking” feature. Rather than simply send its hordes of travel-obsessed users to third party sites to book their travel and accommodation, TripAdvisor has started offering an “instant booking” system that will let it capture a piece of the revenue generated by such transactions.

This is damaging the company’s revenue in the short term – but long-term, it has the potential to leverage TripAdvisor’s most valuable asset – it’s enormous, and growing, community of users.

The problem is not the proposition – instant booking and ordering features are popular all over the web – but rather, the speed at which this proposition is being picked up by users. In recent discussions over the company’s decrease in share price, management has admitted that it overestimated the speed at which its community would embrace instant booking. But, it is beginning to embrace it – after two quarters of declining growth in early 2016, the company moved back into the positive – first by 1%, then by 2% - in the last half of the year.

Although the company didn’t specify where the weakness lies specifically, mobile users are a likely problem area. In the third quarter of last year, mobile adoption of instant booking stood at just 30% of desktop booking.

All of this is less than ideal, but none of it changes the TripAdvisor story in the least. The site is continuing to grow at a phenomenal rate, with monthly unique visitors increasing by 14% over 2016, and user reviews and opinions growing a massive 45%. The ‘non-hotel’ segment of the site grew 27% in 2016, and now accounts for 20% of total revenue – a number that’s likely to continue its ascent into the near future. Not only is TripAdvisor’s total number of users growing more – it’s spending more too! Just not quite enough – yet – to compensate for the lack of advertising revenue the company shot to stardom on.

TripAdvisor is forecasting a return to revenue growth in the “double digit” region for 2017, and it’s well within the company’s capabilities. Influencing 40% to 50% of all online hotel reservations globally, TripAdvisor has claimed that it only benefits from “a tiny fraction of those transactions”. As the company pushes users to change that, it sits perched on a multi-billion dollar opportunity.

Disclosure
Dominion holds TripAdvisor in its Global Trends Ecommerce Fund.


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