Tripadvisor: Moat Rating Downgraded to None From Narrow on Intensified Metasearch Competition

We have downgraded our Tripadvisor TRIP moat rating to none from narrow as we expect eroding profitability in the company’s core metasearch business (64% of 2022 sales) due to competition from wide-moat companies Alphabet as well as Meta and Amazon (in the future). As a result, our fair value estimate moves to $27 per share from $31, although the shares still appear undervalued.

We think Alphabet’s Google metasearch platform is pressuring results in Tripadvisor’s core business. In fact, Tripadvisor’s branded hotel segment, which constitutes two thirds of its core metasearch business (the remainder is largely advertising) reached just 83% of 2019′s level in 2022, compared with the 94% recovery rate of the world online hotel industry, according to Euromonitor. Further, we believe Google Maps can enhance Google’s relative standing in travel metasearch over the next several years, driven by its superior location, user intent data, navigation, and artificial intelligence capabilities. Additionally, we think Meta could leverage artificial intelligence and its access to travel information provided by its subscriber base, which essentially represents all travelers globally. Meanwhile, Amazon has tested and in some cases introduced metasearch travel products (in India, for instance), which we see as signaling its interest in the industry. We would not be surprised to see Amazon venture further into travel metasearch during the next several years and believe it could be a formable competitor, aided by artificial intelligence and its shopping platform (for example, book a beach vacation and send sunscreen directly to your hotel). Given the intensifying competition, we model Tripadvisor’s core EBITDA margin to drop to 32% by 2027 versus the 39% and 36% reported in 2019 and 2022, respectively. Also, we expect this segment to see just 2%-3% annual sales growth in 2027-32, well below the high-single-digit rate we forecast for the online hotel industry.