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TripAdvisor Deals With Competitive Pressures

TripAdvisor (NASDAQ: TRIP) has sought to stake its claim to the lucrative online travel business, moving beyond its initial focus on travel reviews to offer the same sorts of booking services that its rivals do. TripAdvisor has taken short-term hits to its financial results in order to make the investments needed to support its efforts, and the jury is still out on whether the company's moves will be successful in keeping it competitors at bay and expanding its overall business.

Coming into Tuesday's second-quarter financial report, TripAdvisor investors were hoping for solid gains in revenue and earnings. TripAdvisor's top-line growth was adequate, but pressure on the bottom line left some investors wanting more. Let's take a closer look at TripAdvisor and what its latest results mean for the online travel specialist moving forward.

Image source: TripAdvisor.

TripAdvisor sees earnings trip

TripAdvisor's second-quarter results showed some of the pressures that the company faces. Sales were up 8% to $424 million, matching what most investors had expected to see. But adjusted net income fell 5%, and it took a reduction in share count to produce flat performance of $0.38 per share in adjusted earnings.

Looking more closely at the numbers, TripAdvisor once again got its best results from outside the hotel arena. Non-hotel revenue jumped 31% and now makes up almost a quarter of the company's total sales. Hotel segment growth was limited to 3%, with stronger performance in click-based and transactional revenue offsetting weaker gains in display-based ads and subscription revenue. Other hotel revenue was down 12%, reflecting weaker performance from non-branded sources.

TripAdvisor retained its popularity in the U.S., seeing its overall fraction of sales rising by 2 percentage points to 58%. European revenue held its own, with the boost domestically coming at the expense of the rest of world segment.

The company kept improving its internal resources. User reviews were up nearly 40% from year-ago levels to hit 535 million. TripAdvisor covers 1.1 million hotels and other accommodations, along with 800,000 vacation rentals, 4.4 million restaurants, and 830,000 activities and tourist attractions. As we've seen in past quarters, vacation rental counts were down even as other reviews became more voluminous.

CEO Steve Kaufer focused on long-term efforts from the company and the progress it made during the quarter. "We successfully launched our streamlined hotel shopping experience," Kaufer said, "and our new multi-year brand advertising campaign and have seen some nice early signs." The CEO also pointed to solid results in click-based revenue.

Can TripAdvisor gain altitude?

TripAdvisor also thinks it's on track for longer-term success. As CFO Ernst Teunissen said, "We continue to execute well against our stated three-to-five year growth strategy in our non-hotel businesses, and these results highlight our continued growth opportunity and this segment's attractive longer-term margin potential."

TripAdvisor is particularly excited about the streamlined hotel shopping experience it's now giving its customers. The company said that the system is more intuitive and works more quickly, providing better search capability.

That excitement is driving substantial spending in advertising going forward. The company said it spent $16 million on television ads during the second quarter, and it intends to accelerate that spending for the third quarter to encompass the majority of the $70 million to $80 million budget that it has for the entire fiscal year. Yet 2017 will be just part of a multiyear global advertising campaign to build the TripAdvisor brand and make it resonate more solidly against its peers.

TripAdvisor still faces uncertainty, however. The company noted that the shift toward mobile devices has reduced monetization, and weaker pricing on click-based ads has also resulted. It still sees click-based revenue rising mid-single-digit percentages during 2017, but TripAdvisor says that its visibility in predicting future financial performance is difficult because of competitive dynamics and the risk of adverse macroeconomic events.

Shareholders weren't happy with the decline in adjusted earnings, and the stock fell almost 9% in after-hours trading following the announcement. Even so, with industry peers also facing tough times after earnings today, TripAdvisor still has the opportunity to differentiate itself and become a more important player in the space going forward.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.