TripAdvisor Sees Hotel Weakness Lasting Into 2019

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The nature of travel has changed dramatically over time, and TripAdvisor (NASDAQ: TRIP) has had to try to adjust to changing consumer preferences. That's created some challenges for the online travel company, and tough competition has remained an impediment to TripAdvisor providing the kind of sales and profit growth that investors would prefer to see.

Coming into Tuesday's fourth-quarter financial report, TripAdvisor investors had expected to see solid gains in revenue and earnings. Results were reasonably good, but a combination of weakness in certain areas and concerns about the company's forecast for early 2019 weighed on investor sentiment.

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How TripAdvisor finished 2018

TripAdvisor's fourth-quarter results largely continued the trends that we've seen for some time. Revenue of $346 million was up 8% from year-earlier figures, which was a bit better than the 7% growth that most of those following the stock were expecting. Adjusted net income rose nearly fivefold to $38 million, and that resulted in adjusted earnings of $0.27 per share. However, that was a bit short of the $0.29 consensus forecast among investors in TripAdvisor.

A closer look at the company's segments showed ongoing challenges in the hotel division. Revenue for the business was down 2%, as a 20% plunge in what the company calls "other hotel revenue" from non-TripAdvisor branded websites offset flat to slightly higher results from sources bearing the TripAdvisor brand. Adjusted pre-tax operating earnings for the hotel segment were strong, though, rising 25% and contributing substantially to overall bottom-line gains.

From a revenue standpoint, the non-hotel segment played a key role in the company's growth. The division's top line expanded 38% from year-earlier levels, and the unit produced $8 million in adjusted pre-tax operating earnings, improving from break-even performance in last year's fourth quarter.

TripAdvisor's fundamental metrics showed mixed performance. Average monthly unique visitors picked up 2% in the fourth quarter, but monthly unique hotel shoppers were down 11% versus the previous year's quarter. However, revenue per hotel shopper jumped 14%, and the company now sports 730 million reviews covering 8.1 million different accommodations, experiences, restaurants, and airlines worldwide.

Can TripAdvisor climb into 2019?

CEO Steve Kaufer built up enthusiasm coming into the new year. "We reinvigorated hotel segment profitability," Kaufer said, "reinforced our leading positions in experiences and restaurants, and laid important groundwork for future growth." Kaufer said he was pleased with the progress that TripAdvisor has made in finding growth opportunities while also paying close attention to profit margin levels.

Yet TripAdvisor's outlook for 2019 had both good and bad elements. On one hand, the company still expects that adjusted pre-tax operating earnings growth will remain in the double-digit percentages, building momentum from past periods. The company sees particularly strong opportunities to invest in experiences and restaurants, taking advantage of the competitive advantages that TripAdvisor has over its online travel peers in those areas.

Yet the company sees tough conditions during the first half of 2019 for the hotel segment, citing currency impacts and the timing of its reductions on marketing spending. An emphasis on maximizing profit for rental properties and other hotel revenue could put pressure on sales as well. Even so, it believes that the second half of 2019 should be stronger, and it's optimistic about its prospects for 2020 and beyond.

That was a bit of a tough sell for shareholders hoping for a more immediate payoff from the company's efforts, and TripAdvisor stock dropped about 5% in after-hours trading following the announcement. Even if the company's long-term prospects remain good, investors seem to want assurances that it will get there with a minimum of delay and difficulty.

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