TripAdvisor: Don’t check out yet!

TripAdvisor Q1 results are out and they are ugly as expected. Q2 will be even worse but TripAdvisor should be able to ride out this downturn.

TripAdvisor has cut expenses dramatically including 22% of its workforce while suspending CEO salary for the rest of 2020.

In a worst case scenario where sales drops to zero, annual cash burn will be USD650 million based on my estimates.

TripAdvisor currently has:

  1. USD798 million of cash
  2. USD300 million from its revolving credit facility

The next few quarters will be ugly but TripAdvisor should be able to last at least 20 months even in a zero sales scenario.

Anyway, a zero sales scenario for the next 12 months seems unlikely.

Let’s start with the Experiences & Dining segment. TripAdvisor’s dining app (The Fork) is the largest restaurant reservation app in Europe and dining is probably one of the first segments to recover once countries begin easing traffic restrictions. Who wants to eat at home for the next 12 months? Restaurants however are unlikely to be allowed at full capacity immediately so The Fork will play a crucial role for restaurants and consumers. Consumers can use the app easily to see if a restaurant has availability while restaurants will be eager to tap on TripAdvisor’s network of consumers to maximize demand and to manage capacity.

TripAdvisor’s Experiences booking services should also get some activity from domestic bookings. With millions of families and people trapped in their homes for the last few months, there’s probably a lot of pent-up demand to go out and do something fun. Shanghai Disneyland will be re-opening next week and tickets for the opening week were sold out within minutes.

TripAdvisor’s Hotel segment will probably be the last segment to recover with hotels and Online Travel Agencies (OTAs) like Booking and Expedia cutting performance marketing spend. But revenue should eventually bottom out because of the superior ability of TripAdvisor ads to target consumers and measure effectiveness compared to traditional media spend. If Booking doesn’t bid for a metasearch auction, someone else will eventually bid for the ad!  In short, OTAs and hotels will spend on TripAdvisor’s Hotel metasearch and display ads as long as their returns exceed spend.

Lastly, history has shown that it’s not if but when international travel will travel. Check out this chart from Skift and TripAdvisor on how international travel has grown through various terrorist events and disease outbreaks.

International trips

TripAdvisor is now trading at 1.5x trailing sales – close to its lowest levels in 7 years. Sadly, I bought at much higher levels. The next few quarters will be ugly but it looks like a big chunk of bad news has already been priced in. Don’t check out yet!

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