TripAdvisor’s friendship with Facebook hits its bottom line this quarter

TripAdvisor has been diversifying its paid-search marketing away from Google and toward Facebook, and its stock took a beating over the last couple of days because of the new strategy.

That’s because the new search engine marketing tactic, which is designed to increase partner conversions when users navigate from TripAdvisor to its hotel and online travel agency advertising partners, was cited as a key reason for TripAdvisor falling short of analysts’ revenue expectations for the second quarter.

Revenue came in at $197 million, while the consensus expectations among analysts was a buffed up $207 million to $210 million.

TripAdvisor’s stock was trading around $34.77 this morning, down about 23% since Monday’s close.

Stephen Kaufer, TripAdvisor CEO, has repeatedly stated he isn’t going to manage the newly public company based on winning friends and influencing Wall Street investors over the short-term, but will steer the company based on its long-term needs.

And, he points to the new strategy as a case in point.

TA’s tactics

What TripAdvisor has been doing since the second quarter with its “traffic quality improvement initiative” is to reduce SEM spending on Google that was targeted at what turned out to be lower-converting traffic, and instead is pouring additional paid-marketing money into Facebook campaigns.

Of course, there has been no love lost between TripAdvisor and Google over the last couple of years, as TripAdvisor charged that Google threatened to perform a disappearing act with TripAdvisor search results if the hotel-review king didn’t provide its content to Google Places, now known as Google Local.

It isn’t known to what extent TripAdvisor’s anger toward Google has gone into TripAdvisor’s ever-increasing coziness with Facebook.

“We view this as a new steady state for our business,” Kaufer told analysts July 24, referring to the traffic improvement plan, “as we strive to optimize and diversify our traffic sources, but we can easily increase SEM spend if the opportunity arises.”

The move has certain — albeit limited — parallels with the move by online travel agencies to diversify their global distribution systems several years ago. That trend reduced over-dependence on one GDS partner or another, but also revolved around increasing sources of airline content in case a carrier dropped out of one or two GDSs.

Of course, many travel sites are overly dependent on getting traffic from Google, so TripAdvisor’s move to hedge its paid marketing bets and increasing its efficiency can be considered a wise move.

The future with Facebook

TripAdvisor views its use of Facebook partly as a branding initiative, but also as a way to increase TripAdvisor’s global footprint, Kaufer says.

In April, TripAdvisor merged its TripAdvisor and Cities I’ve Visited Facebook apps into a single app, which TripAdvisor says is the second most popular Facebook app, citing AppData findings.

Facebook called out Citiies I’ve Visited for praise in its IPO paperwork.

And TripAdvisor achieved a milestone during the second quarter — it has surpassed 75 million reviews and opinions on its sites.

For the second quarter, TripAdvisor’s net income rose 2% to $53 million compared with the second quarter of 2010. Revenue hit $197 million, up 16%.

Kaufer noted that although the traffic improvement program hurt revenue, it helped TripAdvisor improve EBITDA numbers.