TripAdvisor Sees Decline in Hotel Shoppers After Travel Industry Advertising Reset

TripAdvisor saw its growth soften in the three months ending June 30. The main cause was that the industry’s two largest online advertisers — Expedia Group and Booking Holdings — have in the past year reduced the pace at which they market their deals on TripAdvisor’s platform along with some other outlets.

In the second quarter of 2018, TripAdvisor booked revenue of $433 million, a growth of only 2 percent.

The revenue growth rate looked anemic compared to the 8.4 percent growth rate that the company enjoyed in the same period a year ago. It also looks sluggish against the 5.1 percent growth rate for the company in the full year of 2017.

In response, TripAdvisor had to cut its overall marketing spend, the company said Wednesday.

TripAdvisor shares were trading down 14 percent on Thursday.

In the second quarter, it spent about 10 percent less, year-over-year, on marketing. Most of the trimming came in online marketing, while the company grew its brand TV spending for its hotel and non-hotel products.

For the first time in memory, the company saw a decline year-over-year in the number of average monthly unique hotel shoppers. In the second quarter, the reviews and search company attracted 149 million hotel shoppers, a drop of 3 percent, year-over-year.

Investors responded by shaving more than 10 percent off the company’s share price, to about $57.

A Shift From Bookings Growth to Margin Growth

No one outside Expedia and Booking knows the actual decline in spending on TripAdvisor. Ernst Teunissen, chief financial officer at TripAdvisor, said that since the middle of the fourth quarter last year, the spending by the big companies in his company’s auctions had stabilized.

“Overall stability is what we’d like to emphasize,” said Teunissen.

Speaking broadly and not just about TripAdvisor, the giant travel conglomerates Expedia and Booking reduced their pace of year-to-year growth in marketing from 26 percent of total revenue in full-year 2016 to 20 percent of total revenue in full-year 2017, according to financial filings analyzed by Jake Fuller, a research analyst at Guggenheim Partners.

In full-year 2018 the companies will spend about 10 percent of revenue on marketing, according to a forecast by Fuller. This pattern would be a continuation of first-quarter behavior when Expedia spent only 8 percent of its revenue on marketing while Booking spent only about 15 percent.

The two online travel goliaths appear to be willing to trade off slower growth in the number of room nights booked on their platforms in exchange for having more profit per transaction, on average, Fuller noted.

Online travel agency groups Expedia Group and Booking Holdings spent about $8 billion on advertising in 2017, with 18 percent of that money going to two price-comparison search companies: TripAdvisor and Trivago.

As proof that advertising can be expensive, the roughly $2 billion in combined marketing dollars spent on TripAdvisor and Trivago drove only about 8 percent of their bookings as measured in room nights.

TripAdvisor had been one of the prominent beneficiaries of rapid growth in marketing dollars from the big giants. Now its own revenue growth has been impaired by the companies adjusting their tactics.

TripAdvisor, which has other operations such as attractions and restaurant bookings, has fared much better than Trivago, which, as primarily a search site, has been more dependent on Booking.com’s and Expedia’s business.

TripAdvisor has seen its profit recently show improvement, underlining how the company’s executives run a tight ship that has enabled it to weather the marketing storms much better than perhaps any of the other remaining independent online travel companies out there.

In the second quarter, the company booked $32 million in net income, a rise 18 percent over the same period a year earlier. In other words, for every dollar of revenue, the company dropped nearly $0.07 to the bottom line. The company said it was “incrementally confident” in its earnings outlook for the rest of the year.

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Things to Watch

During a call with investors on Thursday, CEO Stephen Kaufer gave reasons for optimism. He said the company had room to drive more revenue out of its existing visitors and shoppers without needing the world’s largest travel companies to resume advertising on it at past levels.

The reviews and media company offers more than just hotel rates. Overall it claimed 456 million average monthly unique visitors in the period.

Kaufer said that TripAdvisor is becoming better at persuading these site visitors, including travelers already in a destination looking for activities and restaurants at the last minute to buy through its mobile app and website.

If true, that could mean it is becoming a more efficient place for advertisers to spend their money, and that may woo back the major conglomerates to their former free-spending ways because those advertisers have few other options, other than Google, to reach that segment of consumers. For details, Skift Research subscribers can read the report, “The State of Online Travel Agencies 2018 Part I: Advertising.”

But the risk is Google, which is the only other player with a large head start at moving further and further into being a resource for travel inspiration and reviews, as well as transactions, at all phases of travel planning.

To counter this, TripAdvisor has been using TV to persuade people to think of it not just as a reviews site but as also a booking site. This effort has been proving more cost-effective than online marketing.

TripAdvisor has not been impaired by the tectonic advertising shift as much as Trivago, which has seen profits vanish and its business model go into a downward spiral. That said, Trivago will still likely outspend TripAdvisor this year in TV advertising, which may undercut the success of TripAdvisor’s TV brand advertising.

TripAdvisor’s product and user-experience focus may help, as the company appears to continue to fine-tune its products at a rapid pace relative to the industry average. A case in point: Consumers are more likely to buy if they like the photos they see, but presenting the best images algorithmically is a technical challenge. The company recently improved its travel photo search to show more relevant results.

The company has several advertising models but it continues to rely heavily on a cost per click model, known as CPC. Each time a shopper clicks on a hotel rate to book a room, TripAdvisor charges the hotel or online travel agency a charge that varies dynamically in an auction-like market.

Kaufer said that the CPC rates had stabilized after a fall in the second half of 2017. If they could return to growth, that would be an important catalyst for a future return to revenue — or even profit — growth.

“We’re looking at a nice trajectory in 2019,” Kaufer said.