A Friday earnings call helped analysts quantify the potential of Tripadvisor's new direct-to-consumer subscription product. New numbers for the company as a whole were also hopeful. But wary hotel chains, resentful online travel agencies, and raging virus variants still pose risks.
Tripadvisor is courting partnerships with the issuers of credit cards to help boost awareness and usage of its new subscription product Tripadvisor Plus.
The Plus subscription product offers hotel discounts and other benefits to travelers, as first reported by Skift.
The travel company based in Needham, Massachusetts, said on an earnings call on Friday it is looking at a couple of ways to work with credit card companies.
Issuers of higher-end credit cards that already offer travel benefits might add a Plus subscription as a fresh reward to paying cardholders.
“That type of model would generally have the financial institution paying Tripadvisor [the subscription cost, at a discount to the list price] on behalf of the customer,” said Stephen Kaufer, president and CEO. “Those deals take a little while to put together.”
This model is similar to what an Amsterdam-based startup Bidroom negotiated with Visa for cardholders in Europe for its similar subscription service. Higher-level Visa cardholders got free access to Bidroom’s discounts on more than 120,000 hotels, mostly in Europe.
Another model would be for a financial institution to offer a discount on the Plus product to cardholders.
In April, about three out of four U.S. users had a chance of seeing a test of the product. The company plans to fully unveil the service to all U.S. users by June, an executive said at Skift’s Loyalty and Subscription Summit in mid-April.
Subscriptions are one cause for hope that Tripadvisor will have a better financial performance in the second half of 2021, compared with the first quarter.
Tripadvisor’s first quarter earnings showed that revenue fell 56 percent year-over-year to $123 million. That was well below the $376 million in revenue it generated in the first quarter of 2019, before the pandemic.
Its net loss was $80 million in the first quarter of 2021, compared with a $51 million profit in the first quarter of 2019.
Tripadvisor’s Subscription Aspirations
The most promising growth story at Tripadvisor is its new direct-to-consumer subscription product. The company didn’t break out early performance figures for Plus during an earnings call on Friday. Yet some analysts are positive.
Naved Khan and Youssef Squali at Truist Securities did a study of Tripadvisor Plus. They found an average discount of 30 percent on urban hotels and about 20 percent on non-urban properties. They believe the discounts are deep enough to offer a compelling proposition for subscribers.
Tripadvisor had Plus member rates on 7.6 percent of the listed hotel properties across 27 major U.S cities, showing broad supplier participation, too, according to Truist.
A smattering of deals is okay with Kaufer.
“We want to present dozens of deals [for any given destination], but we don’t need to display hundreds of deals,” Kaufer said on Friday.
On the supply side, Tripadvisor saw more immediate interest from independent hoteliers than from chains, though the company said it is negotiating with hotel suppliers of all sizes.
“We’re signing up independent hoteliers, and they’re comfortable,” Kaufer said. “We’ve had some pushback from some chains, but they really don’t speak with one voice. A number are coming forward saying, ‘It’s exciting.’ We’re in conversations with every single chain.”
Tripadvisor didn’t say any large chain had signed up yet. Chains typically had two concerns, the company said.
“They want to make sure their properties essentially get their fair share of bookings from this product,” Kaufer said. “Other chains are a little bit more nervous about how we’re showing the rate. And we’ve taken that great sort of constructive feedback, and we’re addressing it.”
Deutsche Bank analysts predicted Tripadvisor would gain 115,000 subscribers by year-end and generate $76 million in Plus revenue in 2022.
“I’m getting more bullish on the opportunity,” Kaufer said on Friday. He noted that the discounts should be compelling enough to drive consumer demand.
Today, Tripadvisor passes a hotel’s full discount to the consumer. The average savings per trip for consumers is $300, well over the current $99 a year fee.
“Down the road, we could always choose not to pass along the full discount to the consumer, but that’s not our plans at the moment,” Kaufer said. “We want this to catch fire with consumers as quickly as possible, and maximizing the discount is one way to do that.”
Kaufer said that, in three to five years, he expects to have “tens of millions of subscribers because it’s such a logical fit into the ecosystem.”
Yet some analysts remain cautious in their optimism. Richard Clarke of Bernstein Research noted that the availability of discounted inventory came down last month.
“There isn’t as much into Memorial Day as there was a couple of months ago,” Clarke said, based on analyst checks.
Kaufer said that it was less seasonally related to hoteliers not wanting to discount in peak summer months as it was because of a shift in how Tripadvisor is sourcing supply. The company is moving beyond the aggregators it originally used. It’s adding direct connections with hoteliers and other aggregators.
Some hoteliers are also concerned about how Tripadvisor displays their directly pulled inventory. They don’t want Tripadvisor too obviously competing on rate with their direct channels.
A key question is whether subscriptions cannibalize the company’s cost-per-click-based hotel lead-generation revenue. Tripadvisor lets brands advertise on its sites. The advertising cost depends on how many travelers click on the links, multiplied by a rate set in auctions.
Kaufer said it’s too hard to say what the complete return on investment for the subscription product will be. The company doesn’t have data on renewal rates yet. The company also needs to clean up a few of the loose ends on the conversion path.
But Kaufer said he is “quite confident” that the net gain in subscription revenue will overtake any dilution in auction revenue.
There’s a separate worry about the auctions, though. Lloyd Walmsley, a research analyst at Deutsche Bank noted in an April report that there’s a risk of online travel giants pulling back from the ad auctions if Tripadvisor’s subscription product becomes too successful.
Tripadvisor saw its U.S. ad auctions return in April to about 80 percent of April 2019 levels. Walmsley of Deutsche Bank pointed out that 80 percent is “a little bit behind” at least some of the online travel agency giants commentary on U.S. booking levels.
“CPCs [cost-per-clicks] are recently roughly at 2019 levels,” Teunissen said. “So the auction is very healthy indeed. And the OTAs [online travel agencies] obviously are actively participating in that. It’s a good sign for what may happen with our European business, which is now very suppressed, in the second half of the year.”
Tripadvisor is also working on another direct-to-consumer service. Reco, a travel concierge service Tripadvisor unveiled in the second half of 2020, connects travelers with a curated community of expert trip designers in local travel destinations. The company is charging a fee for every trip planned.
Need to Revive the Reviewing Habit
The flagship growth driver for Tripadvisor has been keeping consumers in the habit of reviewing. The pandemic slashed the pace of reviewing. That’s not surprising.
But consumers breaking their habit is a danger. As the world reopens, consumers will be up for grabs in the eyes of digital marketers. Travelers could be lured to new places to post their reviews. Google, of course, is ever-ambitious and financially well-capitalized. Other giants such as Expedia Group, Booking Holdings, and Trip.com Group are also set to grab share.
Is Tripadvisor worried that fewer people are posting reviews on its branded sites? Maybe. To hide the fact, the company has stopped quarterly reporting of its review numbers.
The company last reported figures for September 30, 2020, when it had 878 million reviews and opinions on 8.8 million places to stay.
Tripadvisor didn’t report comparable figures in its latest quarterly filing. But it did note in a chart in an investor presentation that it now had 887 million reviews and opinions on an unspecified number of items. That was paltry rise over six months.
Look back to the first quarter of 2019. Back then, Tripadvisor reported having 760 million reviews and opinions on approximately 8.3 million places to stay, places to eat, and things to do.
Again, consumers have fallen out of the reviewing habit. The challenge is for Tripadvisor to re-engage them.
Fewer people have been visiting Tripadvisor overall. To hide that, the company stopped reporting its unique monthly visitor numbers in fall 2019. It today says it has “hundreds of millions” of unique visitors, rather than the 463 million monthly unique visitors it claimed in September 2019.
Kaufer has been transparent about how traffic matters less as the company evolves from reliance on reviews to a focus on services and other products. See Skift’s June 2020 story: Tripadvisor CEO to Trade Traffic Goals for More Repeat Usage.
The company noted on Friday that, in the U.S. market where the travel recovery is furthest along, its monthly unique users in March 2021 had “approached nearly” 80 percent of the March 2019 level.
That’s a remarkably high number for March.
Consider the case of Expedia Group, which traditionally derives a majority of its gross bookings from U.S. markets. In the first quarter, Expedia recorded $15.4 billion in gross bookings. That was roughly half the $29.4 billion in gross bookings it billed in the first quarter of 2019, before the pandemic.
Using that as a proxy for travel purchases quarter ending in March, U.S. demand remained at roughly half pre-pandemic levels. Given that context, it’s impressive that Tripadvisor had recovered four-fifths of its U.S. visitor numbers by March.
Tripadvisor’s revenue recovery in the U.S. is notable, too. Teunissen said that the recovery continued through the first week of May.
“Our revenue very recently has been above 90 percent in the U.S. versus 2019,” said Ernst Teunissen, senior vice president, chief financial officer, and treasurer.
That is a good signal that Tripadvisor will reactivate its reviewers and visitors worldwide once the pandemic stops deterring travel, especially if a subscription product could make consumers more loyal.
Net Loss on Sale of SmarterTravel
The pandemic boom in vacation rentals as people have avoided hotels and urban areas didn’t benefit Tripadvisor much. It’s a shame because the company saw the opportunity ahead of other players. It first acquired a rental search brand FlipKey in 2008.
Skift’s Dennis Schaal reported in March 2020 that Tripadvisor was trying to sell its vacation rental businesses. Silence a year later about that plan suggests that no one wants the rental brands.
Tripadvisor has an “other” category for revenue from its businesses in vacation rentals, flights, cruise, and car rental. Before the pandemic, in the first quarter of 2019, Tripadvisor generated $8 million in revenue from these categories.
Compare that with the first three months of this year, when Tripadvisor generated $7 million in revenue from this category, at a time when most cruises weren’t sailing.
The company said to have had “753,000 listings” of vacation rentals. But the rentals generated something less than $7 million in revenue from them during the first quarter.
The business might have to “give away” the brand. Consider how in June 2020 Tripadvisor sold its SmarterTravel collection of consumer media sites.
Tripadvisor revealed in a filing this year it took a $6 million loss on the sale of its SmarterTravel business. Said more formally, the company’s ultimate disposition of the operations resulted in an accounting recognition of a value of the assets below their book value, including goodwill, of approximately $6 million.
The company might not be able to afford to sell its rental businesses if it means recording another loss anytime soon.
Tripadvisor’s Other Successes
Tripadvisor has innovated elsewhere. Under Lindsay Nelson, Tripadvisor’s chief experience and brand officer, the company has developed a modernized advertising suite spanning native, video, and programmatic solutions.
On Thursday, a quarterly filing added entertainment and spirits to the team’s target list of advertising client prospects. That shows a successful branching into “non-endemic” clients, meaning beyond airlines and other travel segments.
In mid-April, Booking.com added Tripadvisor’s Viator, to its growing attractions business as a distributor of tours, activities, and experiences.
“We’re thrilled with the partnership with Booking.com,” Kaufer said on Friday. “They’re excited on the experiences side. They have some of their own plans, and we’re able to complement it globally.”
If the second half of the year is a gold rush in travel, Tripadvisor’s workers will have a lot on their plate.
As of March 31, the company had 2,579 employees, which includes approximately 400 furloughed workers primarily in Europe at restaurant discovery brand TheFork. That was down 34 percent compared with before the pandemic. That statistic showed that Tripadvisor had made sequential cuts to its workforce, as it had only laid off about 25 percent of in April 2020.
As an aside: Kaufer’s total compensation for last year was $919,000, according to a financial filing. Kaufer gave up most of his salary, which contributed to a 63 percent year-over-year drop, but he still enjoyed non-equity cash bonuses.
Kaufer’s championing of the first large-scale direct-to-consumer subscription product from the publicly held travel brands presumably helped him earn the bonuses. He’s understandably excited about the product.
“When we’re getting the 10, 15, 30, 40 percent discounts, those [properties] become best sellers pretty quickly,” Kaufer said. “We’re really helping those hotels fill those empty rooms. And that’s why the model is so powerful.”
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Tags: earnings, loyalty, online travel, subscriptions, tripadvisor
Photo credit: The Royal Purnama Bali, an exclusive boutique retreat in Bali, Indonesia. Tripadvisor’s annual Travelers’ Choice Awards picked Bali as the top destination for 2021. On Tripadvisor's first quarter 2021 earnings call on Friday, CEO Stephen Kaufer said consumer signals improved month-over-month. The Royal Purnama