Why TripAdvisor Inc. Stock Fell 13% Last Month

By Markets Fool.com

Shares ofTripAdvisor Inc.(NASDAQ: TRIP)lost altitude last month, falling 13% according to data from S&P Global Market Intelligence. The stock was tripped up by a disappointing earnings report early in August as the chart below shows.

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TRIP data by YCharts.

So what

TripAdvisor is in the midst of a transition away from its core business of selling ads against its travel reviews and instead selling direct travel accommodations for hotel bookings and flights. However, investors seem to be disappointed with the pace of the transition as recent results have been underwhelming.

In its second-quarter earnings report on Aug. 3, the company reported a 3% drop in revenue and a 30% slide in adjusted EPS. The results weren't far below expectations, as management had promised that such investments would cost the company profits this year, but still missed on both sides. Nonetheless, CEO Steve Kaufer was positive about the quarter, saying the company had taken important steps on its key initiatives and that it is "playing the long game" to develop the best user experience in the travel industry.

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Now what

Click-based ad revenue fell by 15% in the quarter, meaning the company is losing income from its most important revenue stream as those ads make up more than half of its revenue.

While results on the booking side have been more promising, TripAdvisor is competing with heavyweights likePricelineandExpedia in that industry, which may make success more challenging. TripAdvisor owns the travel-review space, mastering a business that has been challenging for others, and making the site a one-stop shop for bookings make sense.

However, with an elevated P/E ratio and falling profits, the stock could slide further before it bounces back.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.