TripAdvisor’s Instant Booking rollout proving to be costly

TripAdvisor’s global rollout of its Instant Booking initiative may be more costly than many financial analysts had initially anticipated.

While TripAdvisor executives in May said Instant Booking’s financial impact so far this year was in line with company expectations, some analysts said that the effort by the world’s largest travel-review site to add overseas hotel inventory to the feature will cost the company more than it was expecting.

“Much work still lies ahead in terms of closing the monetization gap versus [metasearch] as well as driving greater consumer adoption for Instant Booking,” Cantor Fitzgerald analyst Naved Khan wrote in a May 5 note to clients. “We expect top-line growth to remain pressured as management works to addresses these issues.” Khan has put a “hold,” or neutral rating, on the stock.

After boosting revenue 20% in 2015, TripAdvisor’s first-quarter revenue fell 3% from a year earlier, to $352 million, while net income dropped 57%, to $27 million, as selling and marketing expenses rose about 10%.

With hotels and OTAs battling it out for distribution share of room bookings, TripAdvisor has been reaching agreements with both sectors to widen the inventory on Instant Booking, which enables visitors to the travel-review site to book rooms without leaving the website.

After launching Instant Booking in June 2014 with inventory from Choice Hotels International, TripAdvisor added Marriott International as a distribution partner in spring 2015, then reached an agreement with Priceline Group’s Booking.com last fall. Piper Jaffray estimated earlier this year that TripAdvisor takes about 8% commission on Instant Booking’s room revenue.

TripAdvisor offers Instant Booking for about 500,000 hotels on its site, up from about 400,000 at the beginning of the year. In Las Vegas, the largest U.S. hotel market, Instant Booking was available for all of the first 10 properties listed on a TripAdvisor search for hotels early last week. In Los Angeles, eight of the first 10 hotels listed offered Instant Booking, while in New York, seven of the first 10 offered the feature.

TripAdvisor CEO Stephen Kaufer, on a conference call with analysts last month, said much of the company’s investment in Instant Booking during the first quarter involved broadening inventory in Europe, Asia Pacific and Latin America, so that those hotels were bookable in time for the increase in travel spending typical for the second quarter. Kaufer said the Instant Booking rollout was “mostly complete.”

That effort, however, has been costly. During the first quarter, selling and marketing expenses equaled 49% of TripAdvisor’s revenue, up from 43% in 2015.

And, like Khan, Oppenheimer analyst Jed Kelly in a May 5 note cited the global rollout of Instant Booking as a primary reason for the company’s missing first-quarter earnings and revenue estimates from analysts.

TripAdvisor executives acknowledged the negative financial impact of the Instant Booking rollout, with CFO Ernst Teunissen associating what he called “a few teething problems” with the broadened inventory. Still, Kaufer expressed optimism that Instant Booking would start being an earnings driver later this year. He also noted, however, that TripAdvisor will hedge its bets by continuing to enable its visitors to use the site as a metasearch gateway to their preferred OTAs and hotel suppliers.

“Obviously, we expect instant-book share to grow as we continue to roll it out, as we drive more repeat usage,” Kaufer said. “But I really don’t foresee the time when meta is an afterthought and it’s just Instant Booking.”

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