TripAdvisor sees great financial potential in Instant Booking, especially as consumers looking for hotels on its sites increasingly use mobile phones, but for now the feature is dragging down revenue and earnings.

In fact, the rollout of TripAdvisor Instant Booking, currently available in all of the company’s English-speaking markets on mobile and desktop and slated for a global rollout in the next few months, adversely impacted 2015 revenue and EBITDA by $36 million and $26 million, respectively.

Part of the reason is the shift to mobile as TripAdvisor’s mobile hotel shoppers, including those opting to book on TripAdvisor or to click on metasearch links to third-party sites, grew 36 percent in 2015 compared with 10 percent growth for desktop and tablet users.

The hitch is that hotel shoppers on TripAdvisor using mobile phones monetized at just 30 percent the rate of desktop and tablet users in the fourth quarter of 2015, although that was an improvement from 19 percent in the year-earlier period.

Instant Booking Headwinds

“Looking ahead to 2016, though Instant Booking will continue to dilute our near-term results, it positions our business for significant long-term growth,” said TripAdvisor CFO Ernst Teunissen as the company released its fourth quarter and full-year 2015 results on February 11.

Teunissen said TripAdvisor sees conversion improvements in Instant Booking and customers booking higher-value hotels but results won’t improve until the second half of 2016 and into 2017.

“It may take a year or two to perfect our Instant Booking offering, to get all the room content in line, to make an even better more seamless booking experience and to educate more users about our unbeatable offer,” said TripAdvisor CEO Stephen Kaufer during the company’s earnings call with analysts.

Kaufer said he’s confident that adding hotel brands — eight of the largest 10 have signed up — as well as the Priceline Group as a partner helped improve Instant Booking conversions because of the availability of great rates, a comprehensive offering and room-level descriptions and photos.

Not everyone is pleased with how things are going. Expedia isn’t part of TripAdvisor Instant Booking and its CFO Mark Okerstrom said February 10 that TripAdvisor’s diversion of traffic from metasearch, where Expedia participates, toward Instant Booking adversely impacted Expedia’s room night growth in the fourth quarter by 100 to 200 basis points, although it had negligible impact on profitability.

Expedia is signaling that it is much more willing to join TripAdvisor Instant Booking in the near future than it was initially because of the improvements in branding that partners get and the consequent lack of confusion for consumers.

The North Star

Kaufer, meanwhile, said the next few months for TripAdvisor will entail bringing additional brands, such as Starwood, on board and “mostly tuning.”

“There’s a lot of properties that are available,” Kaufer said. “We want to make sure that we have great pricing on as many of them or all of them that we can. We want to make sure we have a great experience in terms of someone entering the booking flow and getting all the information that they need in order to trust us with their credit card. We are storing the credit card. We are doing all the things. That’s why we would point to the improved rate.”

Kaufer see the financial trajectory of the Instant Booking rollout as similar to that of metasearch, which was introduced in 2013.

He gets mystical about this path to profitability, twice making reference in the call to the prospect that TripAdvisor’s mission involves following its “North Star.”

“While the global Instant Booking launch will mask our core growth this year it is an imperative step as we follow our North Star, navigating our path toward creating the best user experience in travel,” Kaufer said.

Investors could care less about TripAdvisor journey toward the North Star as long as it means great returns on their investments, which ultimately is Kaufer’s goal, as well.

Giri Reddy of Quantam Capital Management, which is an investor in TripAdvisor, looks at TripAdvisor Instant Booking from a long-term perspective.

“I continue to believe in the promise of Instant Booking both as a defensive move, to contend against what looks like a duopoly in the OTA space that could have suppressed auction prices for metasearch, and as an offensive move intended to aggregate a higher portion of commissions to TripAdvisor,” Reddy says. “For the latter to happen, they would have to get a similar conversion of clicks into bookings that a purchaser of clicks had historically got.

“So far, they haven’t succeeded but they did indicate on the call that they are getting there which is a good sign. Even then, Instant Booking can fully succeed, in raising TripAdvisor’s commission share, only if they are able to get a majority of smaller hotels to sign up, which is probably a few years away.”

Photo Credit: TripAdvisor Stephen Kaufer appearing on CBS News. CBS News