What's going on?
TripAdvisor’s shares took flight on Thursday, initially soaring almost 10% after the online travel company said that its revenue grew in its latest quarter much more quickly than Wall Street expected.
What does this mean?
TripAdvisor’s growth was driven almost entirely by its non-hotel business – think restaurants, city tours and bird of prey centers – where it provides online user-generated reviews and profits from associated clicks (e.g. bookings and ads). The non-hotel business helps differentiate TripAdvisor within the ultra-competitive online hotel (and airline) booking industry. It’s partly this “unique positioning”, in TripAdvisor’s words, that led the company to tell Wall Street that it expects faster revenue growth and increasing profitability (i.e. margins) in 2018. The news clearly went down well – earning the investor equivalent of five green bubbles.
Why should I care?
For markets: TripAdvisor’s stock has rebounded nicely in recent months.
An expensive advertising war with rivals Expedia and Priceline weighed on TripAdvisor’s profits last year and contributed to its stock falling 30% in 2017. But shares have been rebounding since November – partly off the back of speculation that one of its bigger competitors would buy TripAdvisor – and Thursday’s numbers encouraged more optimism.
The bigger picture: It’s tough to build an effective peer-review platform from scratch – which makes an existing one valuable.
Peer reviews, which barely existed 20 years ago, have become hugely important for service providers, especially in industries where small businesses are more prevalent (like restaurants). It’s difficult to create effective peer-review platforms because they require huge scale (e.g. lots of reviews) and a high degree of user trust – both of which take a long time to develop. Having such a massive community of users in place gives TripAdvisor a greater ability than many to either develop effective ways to monetize those users – or sell itself to someone that can (much as Angie’s List, the American home services website, did last year).