TripAdvisor (NASDAQ:TRIP) cannot seem to catch a break. The stock is hovering near 52-week lows. Plus, with the coronavirus from China spreading in the region, no one wants to travel anywhere near the epicenter of the disease. The company is so lost that it is thinking of rebranding. Add in the upcoming job cuts, which Bloomberg reported on Jan. 22 and impending competition from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), and the prospects for TRIP stock appear very dim.
Google improved its search tools to enable its users to plan trips on a budget. By capturing an audience in need of finding places to stay and searching when to stay, TripAdvisor’s relevance weakens. Unfortunately, the company’s response to the heightening competition is to spend more on ads.
What other option does the company have?
Dealing With Competition From Google
TripAdvisor’s search engine optimization (SEO) scoring will weaken over time as Google enters this space. Markets anticipate that Google will take more of the travel search market. So, TripAdvisor will need to spend more on advertising just to sustain its brand name relevance. That might mean more revenue for Google, but it hurts TripAdvisor’s bottom line. On the company’s conference call, CEO Steve Kaufer said “you can’t go to Google or an OTA [online travel agency] or any of our incredibly strong competitors and look for recommendations from people like you about where to go and how to maximize your precious vacation time.”
Looking ahead with TripAdvisor’s strong content and recommendation engine, the company still has the ability to scale its business. But because Google is at the top of the funnel in bringing in traffic, that disconnection will hurt its website traffic.
Site Modifications
TripAdvisor is growing its review count to increase the appeal of its site for travelers. It added a few social features on the site in the hope of bringing inspiration to site visitors. Plus, it is polling its membership base through user feedback surveys. These efforts will strengthen the trust that people have in the TripAdvisor brand.
In the middle of 2020, TripAdvisor will release a new app. It will improve the app’s speed and performance. For example, its users will likely get a less cluttered, clearer app interface that displays the relevant information quickly. So, by modernizing the user experience, planning the trip should be seamless. That focus on user experience will increase the site stickiness. If that drives visitor traffic and increases the time spent on the site, then TRIP stock will stop falling.
Valuation on TRIP Stock
Seven analysts who cover TripAdvisor stock have a $32.33 price target, implying less than 10% of upside. Conversely, cautious investors may use a five-year discounted cash flow growth exit model. This uses the perpetuity growth formula (also known as Gordon Growth) to calculate terminal value after five years. With the following assumptions, the stock has some downside risks ahead.
| Fair Value | ||
| Metrics | Range | Conclusion |
| Discount Rate | 8.5%-10% | 9% |
| Perpetuity Growth Rate | 2.5%-3.5% | 3% |
| Fair Value | $23.32-$31.79 | $27.61 |
Source: finbox.io (click on this link to change assumptions)
TripAdvisor stock is a risky turnaround play for the time being. The company’s redesign projects have not yet been implemented. Until it is rolled out, investors cannot be sure that the site’s usage improves. Exercise caution before holding too big a position in TripAdvisor stock.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.