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TripAdvisor’s new threat: Google

As profit disappoints, big rival gears up

Michele McDonald for The Boston Globe

Stephen Kaufer is chief executive of TripAdvisor, the Boston area’s largest consumer Internet company, which went public in December.

Its stock pummeled after reporting disappointing profit numbers, its reputation for the truth under attack, the travel review site TripAdvisor Inc. has had a tough first two months as a public company.

And now Google is ramping up the competition.

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Fifty million people a month visit Newton-based TripAdvisor to discover which hotel is “disgustingly filthy,’’ as one user called a Cape Cod motor court, or “impeccable,’’ a compliment for a historic Boston inn.

With 1,200 employees worldwide, and 500 in Massachusetts, TripAdvisor is the Boston area’s largest consumer Internet company.

The company became a stand-alone, publicly traded company in December, when it was spun off from the online travel service Expedia Inc. of Bellevue, Wash.

TripAdvisor’s first earnings reports, released last week, showed 2011 revenue of $637 million, a 31 percent jump over the previous year, and net income of $177 million, a 28 percent increase.

But Wall Street was not pleased.

CEO Stephen Kaufer said Newton-based TripAdvisor has increased ad spending in China and Brazil, where it expects growth.

MICHELE MCDONALD FOR THE BOSTON GLOBE/FILE 2011

CEO Stephen Kaufer said Newton-based TripAdvisor has increased ad spending in China and Brazil, where it expects growth.

Weaker profit numbers than expected by analysts, coupled with increased spending on marketing and TripAdvisor’s projection of slower revenue growth, pushed the stock price down 15 percent in one day, to $30.04.

“From a short-term perspective, we are disappointing some,’’ said Stephen Kaufer, cofounder and chief executive.

Yet he defended the company’s actions, saying TripAdvisor increased advertising spending in markets such as China and Brazil, where it is banking on growth.

It currently has websites that operate in 30 countries and in 21 languages.

But as TripAdvisor grows, so does Google Inc., the giant Internet service that in preparation for entering the online travel sector purchased ITA Software Inc., of Cambridge, for $700 million in 2010.

Google recently launched a flight tool that uses airline search technology it acquired from ITA. In a challenge to TripAdvisor, it also launched a hotel search engine and has more of its users writing travel reviews on its Google Places site.

“Google is certainly not going to make life easier for [TripAdvisor],’’ said Henry Harteveldt , a travel analyst with Atmosphere Research Group in San Francisco. “Google is entering into more and more travel places, but Google is approaching it from the standpoint of technology, and hoping people use it.’’

A Google spokesman said its travel services are an extension of its search functions. “Whenever people come to Google looking for travel information, our goal is to show them the most relevant results as quickly as possible,’’ he said.

Kaufer appears ready to fight. “If they can predict what consumers want better than I,’’ he said, “then they deserve to win.’’

TripAdvisor had a circuitous journey to Wall Street. In 2004, the Internet conglomerate IAC, then the owner of Expedia, bought TripAdvisor. A year later, it spun off its travel sites under the umbrella of Expedia. Then in December, TripAdvisor itself was spun off.

TripAdvisor and Expedia were growing at different rates and in different directions, Kaufer said, so the two were separated.

TripAdvisor is also under pressure because of its reviews of hotels and other travel resources, the heart of its brand. Some hoteliers and other critics have attacked the company’s reviews since it began posting user comments on its website 12 years ago. This month, the British Advertising Standards Authority banned the company’s UK site from saying reviews “were from real travelers, or were honest, real, or trusted,’’ since it does not verify the identity of every user behind every review.

No asset is more important to TripAdvisor’s future than its reputation for truthful reviews, Kaufer said. “If we would ever lose the trust that people have that our site is accurate,’’ he said, “the sky would come crashing down.’’

But protecting that reputation is a daunting challenge, and TripAdvisor goes to great lengths to verify reviews posted on the company’s site. Kaufer said TripAdvisor’s efforts have resulted in significant user trust, noting that “98 percent of the folks that use TripAdvisor said they found the reviews accurate or highly accurate’’ in a July survey commissioned by the company.

Yet doubts persist. Harteveldt said that “while TripAdvisor has taken steps to remove reviews that are patently fake, it’s often not easy to tell which reviews are legitimate.’’

Michael B. Farrell can be reached at michael.farrell@globe.com.
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