Why TripAdvisor Stock Got Torched Today

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What happened 

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Tripadvisor Inc (NASDAQ: TRIP) was having another bad trip as the stock tumbled today following an underwhelming third-quarter earnings report. Shares were down 17.9% as of 10:56 a.m. EST.

The travel recommendation specialist suffered from continuing challenges in its hotel segment, its biggest category, as it struggles to transition from desktop to mobile ads and deals with a decision by Priceline Group (NASDAQ: PCLN), the world's biggest online travel agency, to move away from partnering with sites like TripAdvisor.

So what

Revenue growth continued to slump as the top line increased just 4.3% to $439 million, well below expectations at $451.8 million. Hotel revenue dropped 3% to $312 million as click-based transaction revenue continued to fall, but nonhotel revenue surged 26% to $127 million, due to strength in attractions and restaurants, making up for it. 

On the bottom line, adjusted earnings per share fell from $0.53 to $0.36, which edged out estimates by a penny, though that was little consolation for investors. An 18% increase in sales and marketing expenses to $247 million, which comes as the online travel market becomes more competitive, ate into profits.

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CFO Ernst Teunissen acknowledged that "Re-igniting near-term hotel growth has been more difficult than expected," though he noted momentum in the nonhotels segment, especially attractions. 

Now what 

Management did not offer specific guidance for the fourth quarter, but its forecast indicates that the challenges it faces this year will persist. CEO Stephen Kaufer said, "Recent partner bidding trends and our reallocation of dollars away from online channels with short-term payback will cause click-based and transaction revenue growth to slow further in Q4." As a result, he sees just low-single-digit revenue growth for the year, below the analyst consensus at 7.2%. He also said that challenging trends in the hotel segment would continue into 2018.

TripAdvisor shares are now down 30% this year, but the stock isn't cheap, trading at a P/E of 28. If earnings continue to evaporate, the stock will fall further.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group and TripAdvisor. The Motley Fool has a disclosure policy.