Turbulence at TripAdvisor: Travel Review Site Is Losing Altitude Fast


It seemed like a great idea at the time. Leading travel portal Expedia (EXPE) spun off TripAdvisor (TRIP) -- the longtime hub of online travel reviews -- this past December.

Expedia would be able to focus on its strengths as a global booker of travel, and investors would be able to latch on to the faster-growing yet smaller TripAdvisor as a standalone play on the Web 2.0 revolution, where user-generated content and engagement dictate success.

TripAdvisor has been around since before the dot-com bubble popped. The site was launched in 2000, at a time when Internet victories were weighed more by eyeballs than actual monetization. Travelers needed a place to rant or rave about hotels or local eateries they frequented, and TripAdvisor thrived as the go-to destination.

In the current era, when Yelp (YELP), Twitter, and Facebook (FB) feast on user-generated content, investors ate up the TripAdvisor offering. By the time the shares peaked last week at $47.81, the stock had soared nearly 90% higher year to date.

Then came Tuesday night's earnings report -- and the captain turned on the "Fasten your seatbelts" light.

Turbulence Ahead

TripAdvisor closed out its second quarter with disappointing results. Revenue climbed 16% to $197.1 million, well short of the $202.8 million that analysts were targeting.

That's disappointing, of course, but it could be worse. Earnings, adjusted earnings, cash flow, free cash flow, and adjusted EBITDA all grew even slower than TripAdvisor's 16% year-over-year advance on the top line. In other words, margins aren't exactly cooperating even though it was TripAdvisor's revenue miss that led to the share sell-off after the report.

A closer look reveals a problematic trend closer to home. International growth actually helped pad TripAdvisor's success during the period. Domestic revenue actually climbed roughly 7% higher during the quarter, and investors may want to see what's at the root of its decelerating stateside growth.

Could it be that info-seeking travelers in this country have turned to new resources? TripAdvisor may brag about the 56 million unique visitors that it attracted during the month of May, but Facebook generates 10 times as many unique visitors in a single day as TripAdvisor attracts in an entire month.

Yes, TripAdvisor has amassed 75 million reviews and opinions over the years, but are they reliable? Wouldn't you rather ask your friends and family on Facebook where the best place to stay in Seattle or eat in Tuscany is than sort through countless reviews by possibly biased strangers?

Gaming the System

The problem with most review sites is that they're easy to game. A hotel operator can bash rivals under different aliases and praise his own properties.

If you don't think that there's an ethical disconnect, conduct a little experiment by actually going to TripAdvisor.com. Punch in your hometown and a few cities that you know fairly well. Are the top-rated hotels really the best lodging establishments?

Let's take Miami for a test drive. I know the city well. I was Citysearch Editor for Miami from 2002 through 2010. The highest rated hotel is a Hampton Inn. It's a reasonable hotel. The chain is solid nationwide. But I can still assure you that there are more than a dozen better and more memorable hotels in town.

Then we get to specialties outside of lodging.

Eat up

TripAdvisor used to be the go-to place for restaurant reviews, but that was before Yelp arrived on the scene. Between Yelp's reviews and OpenTable's (OPEN) online reservations platform, there really isn't much of a need to hit up TripAdvisor for dining recommendations.

Even though TripAdvisor has been around far longer than Yelp, most restaurants have more reviews on Yelp than TripAdvisor. Even TripAdvisor's top-rated restaurant in Miami has twice as many reviews on Yelp.

Unlike TripAdvisor, Yelp is trendy and isn't hampered by archaic design. Yelp also encourages participation by rewarding active users of the site with special events.

We also can't ignore Angie's List (ANGI). It raises the bar for user reviews by applying a cover charge. It may seem silly to pay a premium to read and share opinions on local services and providers, but the difference is that vetted reviews are harder to game.

TripAdvisor had its time in the sun, but the prospects of decelerating growth and the rise of the next generation of user-review sites point to more weakness in the future.

The stock closed on Tuesday at a steep 29 times this year's earnings -- and a still hairy 24 times next year's projected profitability. There are cheaper and better travel plays out there.
Pack your bags. See the world. You'll find them.

Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook, Opentable, and TripAdvisor. Motley Fool newsletter services have recommended buying shares of TripAdvisor and Opentable.

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September 28 2012 at 10:39 AM Report abuse rate up rate down Reply
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September 20 2012 at 8:49 AM Report abuse rate up rate down Reply
Rozer Fedric

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September 20 2012 at 8:45 AM Report abuse rate up rate down Reply
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August 20 2012 at 10:52 AM Report abuse rate up rate down Reply
Mark Waltrip

Great article. The fact is that people are becoming much smarter about where they get their information from. Yelp and TripAdvisor are both examples of what is wrong with most internet review sites - anyone can say anything without proof or qualifications. You also made two very valid points about 1) how easy it is to game the system and 2) if you punch in your own city you will quickly find out that they "best" restaurants and hotels on these sites are rarely the best restaurants or hotels in your town.

August 13 2012 at 5:21 PM Report abuse rate up rate down Reply
Hi Susan

User Profile

YELP - 80 per cent are under 40 or so and thus have many years of buying power

Trip Advisor _ DEs are mainly retired people over 65; staying at home; and longing for love

As such, the problem with Trip Advisor is this:

1) Yelp users will continue to get older and will remain loyal to YELP as they have made friends there through all the parties and meet ups they promote. As such, there is a loyal herd mentality there - my friends are there; we're cool.

Now even though the YELP people think they will never be 40 - they will not want to go to a new web site to rebuild their friends. They don't want to wait years to be recognized as even a person, let alone an ELITE.
They will continue to be on YELP and will review on YELP and will promote places they love (but the list will increase as they will now venture into new places with kids, and so forth.0

Trip Advisor DEs hate anyone to crowd into their space so scare others off. They remember the good old days and their replies are for places they used to love - they may not have been to the place in years. They do not recommend great places to go to. ...So why is Top of the Mark the bar to go to for a 20 year old YELP person - its not, but its a place Trip Advisor loves.

Sorry to say by the Trip Advisor data will become worse and worse, DEs will remain (until like everyone in the world move on to a better place.)

Stock will at that point tank to probably $1.00

If you want a stock that may grow in the future (who really knows) the people who will have money to invest will probably be on YELP as the under 40 Yelpers move on up the age curve.

Just something to consider. Put your money on Trip advisor who promotes retirees; or on upcoming Yelpers...

Its your decisiion - your call - but its a real criteria to consider when investing.

July 31 2012 at 5:34 PM Report abuse rate up rate down Reply
Hi Susan

Other problem is the forums on Trip advisor. For example, one of the major California cities has a bunch of senior citizens on it who recommend things to do - the problem is they think that things that are good for a 70 year old would be loved by a 21 year old. These same seniors put down anyone who has good information to share who does not live in their city - as such, some of the cities are ruled by 70 year old bullies.

And as such, people find out and go to other sources like Facebook and YELP for more current information.

There is a way to report harrasment on Trip Advisor, Trip Advisor does nothing about it. As such, Trip Advisor has driven off some very knowledgeable people from their web sites who are sick and tired of the bullies there. These people had very useful information; had many loyal followers; and were well liked. Bullies drive the nicer people off and make fun of people now on Trip Advisor - its sad to see. Heard Trip Advisor promotes such behavior....have talked to several people who no longer regularly contribute or post there.

Restaurants should be avoided like the plague. Trip Advisor for some cities were listing grocery stores as the place to go for dining - although there were 200 other restaurants in the same city.

There are better written reviews with pictures on YELP for states like California than on Trip Advisor.

Problem with Trip advisor is that attracts mostly elderly people - who use it as their way to gab to others on the web site...and have lost its purpose of helping others with travel information. This is not all the forums - but many of them seem to be suffering right now by the same old worn out information from years gone by.

July 26 2012 at 2:27 AM Report abuse rate up rate down Reply