While most of the focus has been on TripAdvisor’s slow-to crystalize hotel-booking foray, CFO Ernst Teunissen says the company’s tours and activities business, which he believes can achieve $1 billion in revenue, could produce “hotel-like” margins and commissions.

TripAdvisor’s co-founder and CEO has talked previously about how tours and activities, built on the foundation of its 2014 acquisition of Viator, could be TripAdvisor’s next $1 billion business. But Kaufer hasn’t compared that with hotel commissions, which are generally considered to be the highest-margin portion of the travel industry — with the exception of the advertising sector.

“The margins that we see in that [tours and activities] business, the commission rates look very favorable, hotel-like, and we believe that business can have an attractive margin structure for us going forward,” Teunissen told attendees at the Raymond James Institutional Investors Conference in Orlando earlier this month. “So with the $1 billion revenue in the future an attractive EBITDA contribution, as well.”

Putting Things in Perspective

While Teunissen noted that “there is no large OTA [online travel agency] of attractions and with the acquisition of Viator we actually bought the most significant player in that space,” he referred to commissions being in the 10 percent to 15 percent range.

That commission level may be “hotel-like” for TripAdvisor Instant Booking, but it is considerably lower than commissions that Booking.com and Expedia generate from hotels, particularly independents.

Two companies, one a tech vendor and the other a relatively small tours and activities operator, said TripAdvisor/Viator command about a 20 percent commission. It is likely that larger players with high volumes pay a lower rate.

Justin Patterson, online travel at Raymond James and Teunissen’s interviewer at the conference, told Skift on Thursday that Viator is likely a 20 percent margin business and the going commission rate across the tours and activities sector, from Airbnb’s experiences to Viator, is around the high teens to 20 percent mark.

Growing Into a large Market

“It’s a similar commission to hotel and other tours and attractions businesses,” Patterson said.

Even with a small market share, “revenue potential could be significant over the long term given TripAdvisor is growing into a very large end market,” Patterson said.

Tours and activities looks to be a promising arena for a scale player like TripAdvisor, which draws the largest visitor base to its websites in the travel industry.

Tours and activities is part of TripAdvisor’s non-hotel sector, which also includes vacation rentals and restaurants, and generated 20 percent of TripAdvisor revenue in 2016. That revenue grew 27 percent last year to $290 million, but the EBITDA margin was negative 10 percent as the company focused on building supply, marketing and enticing booking conversions.

Teunissen predicts that TripAdvisor could eventually wrangle a “single-digit” or “high-single digit” share of what some estimate to be a $100 billion to $200 billion tours and activities market.

Growth in tours and activities won’t satisfy investors if TripAdvisor is forced to abandon Instant Booking — a course it has not signaled it’s anywhere near ready to follow — but attractions are potentially a big opportunity.

TripAdvisor’s non-hotel business represented $290 million in revenue, or 20 percent of total revenue, in 2016 and “it would be tough for that business to offset near-term monetization headwinds in hotels from mobile and Instant Booking,” Patterson said.

Photo Credit: Ernst Teunissen, TripAdvisor's CFO, says its commissions on tours and activities could turn out to be comparable to the company's hotel business. TripAdvisor