Tripadvisor’s Inflection Point: Viator Surpasses Hotels

Tripadvisor reached an historic milestone: For the first time since acquiring Viator nearly a decade ago, revenue from this tours and activities brand in the second quarter surpassed that of what has traditionally been Tripadvisor’s foundational business, hotel metasearch.

And that inflection point is likely to be the case for full-year 2023, as well.

In a research note earlier this month, BTIG’s Jake Fuller and Kevin Dolan estimated that Viator’s 2023 revenue would increase 46% to $718 million while Tripadvisor’s branded hotel, or metasearch, business would fall behind at $641 million. BTIG characterized Viator’s growth, which has dragged down Tripadvisor’s profitability, as “a bright spot,” even as the financial services firm lowered its full-year 2023 EBITDA estimates for Tripadvisor to $300 million, from the prior $332 million. “At Viator we are reinforcing our leadership position in experiences by investing in awareness, enhanced products and repeat bookings to capture more market share,” Tripadvisor CEO Matthew Goldberg told financial analysts August 3.

The implications of this turning point are significant. Among them, it places Tripadvisor to a greater degree in the boots-on-the-ground online travel agency space because Viator is a booking business while metasearch is an advertising enterprise.

Viator isn’t profitable, and even if there is a path to profitability, profits in tours and activities — as well as the shopping cart size — generally are smaller by a number of measures compared with the hotel advertising business.

Advertisers Moving Spend Away From Hotel Metasearch

Tripadvisor’s 2014 acquisition of Viator for a mere $200 million is looking increasing smart. It has been the fastest-growing part of the Tripadvisor business over the past few years, and Viator is considered by many to be the leading player.

Viator’s revenue is overtaking Tripadvisor’s increasingly challenged hotel metasearch business as major advertisers such as Expedia Group and Booking Holdings over the last few years have removed a portion of their advertising spend in metasearch and applied it increasingly toward enticing app downloads and loyalty program sign-ups, as well as brand marketing.

Google has certainly hurt metasearch competitors, including Tripadvisor, Kayak, Trivago and Skyscanner, but Google Hotels is facing pressure of its own from big advertisers diversifying their spend toward other channels, and a barrage of looming antitrust efforts.

But observers wonder about Viator’s path to profitability — it lost $2 million in adjusted EBITDA in the second quarter — given significant content management and customer service costs, as well as portions of its revenue coming from relatively expensive third-party partnerships.

On both a percentage and absolute basis Viator’s profit prospects don’t appear to be gigantic. Case in point is Booking.com, which withdrew from building its own tours and activities business, arguing that it had higher priorities.

“If you look at the total addressable market, what is the total amount volume of money in the attraction business? It’s substantially lower than some other verticals like accommodations,” said Booking Holdings CEO Glenn Fogel in September. “You can never make the same amount of money. Just the size of the two verticals is very, very different.”

One way to grab more shareholder value in theory would be for Tripadvisor to spin off Viator into an IPO — it confidentially filed the paperwork to do so in 2022 — but public markets have been ungenerous with fast-growing but unprofitable companies.

For its part, Tripadvisor sees integrating tours and activities within the hotel booking flow as driving more engagement, and it is testing such as scenario.

“So we will add over the coming quarters, hotels, bookable tours and we’ll be able to drive that user into the hotel flow,” Goldberg told analysts during Tripadvisor’s second quarter earnings call. “Whether it be to look at prices in meta, we’re to think about hotel as a category and (can) serve up multiple products and services that get the consumer to the right hotel and really benefit our partners. So we think this is a really good first step and as we collect more learnings as we roll it out, we think the monetization opportunities will be meaningful.”