TripAdvisor built a global business around an endless stream of advice about the best places to stay, visit, or grab a meal.
But good advice only pays so much.
Nearly two years ago, the Needham company made a push into the reservations market, hoping that consumers scanning its travel reviews will stay and book on the site. The results, so far, have been mixed. Revenue has dropped, year over year, for the first time in the company’s history. Its stock price has fallen nearly 30 percent since the end of last year, making it more susceptible to a takeover and potentially threatening the independence of one of the region’s biggest consumer tech companies.
But TripAdvisor executives remain undeterred. They say the new focus on direct booking — which includes hotels, restaurants, and tour reservations — has made the site a more useful, comprehensive place for travelers and will pay off in the end.
For years, the company — whose site now has 350 million visitors a month — made most of its revenue through click-based advertising, by referring consumers to online travel agencies such as Expedia and Hotwire or hotel operators. TripAdvisor would receive a small payment each time it sent someone to those sites.
But that often meant that travelers wouldn’t return to TripAdvisor’s site, limiting opportunities to generate more attention or revenue from them.
“We built a great business . . . the most trafficked travel site on the planet,” said Steve Kaufer, TripAdvisor’s chief executive and cofounder. “But we were still sending you off to book somewhere else.”
So TripAdvisor spent the last year or so rolling out an alternative approach, its Instant Booking feature. With this new feature, TripAdvisor is trying to book a substantial amount of those visits directly. That’s especially important as more users access the site from their smartphones, which make it harder to juggle multiple sites on one device.
You can still book many hotels through the old approach, but the shift has meant that TripAdvisor has sacrificed some of the referral payments. And with the new direct booking platform, TripAdvisor doesn’t get paid until the traveler shows up at a hotel and pays for the room.
TripAdvisor officials say the company can make more revenue on a direct booking versus the payments for click-through referrals. And handling the transaction directly means the traveler doesn’t leave TripAdvisor’s site. That improves the consumer experience as well as the odds that TripAdvisor can boost its site traffic while pitching its other travel-related booking services.
“The transition they’re doing is positive when it comes to the majority of their users using a smartphone now instead of a desktop,” said Stephen Turner, an analyst with investment firm Hilliard Lyons. “It’s a better business for them because of the way people are using devices.”
Meanwhile, TripAdvisor, which reported nearly $1.5 billion in revenue last year, has used acquisitions of smaller firms to grow other kinds of travel booking revenue. In 2014, the company made two crucial acquisitions, snatching up France’s La Fourchette, a restaurant-booking business similar to OpenTable, and San Francisco-based Viator, which enables travelers to book a tour or another attraction. Other deals followed: Dimmi in Australia, BestTables in Portugal, and Citymaps here in the United States, to name a few.
Dan Wasiolek, an analyst at Morningstar, said these acquisitions have increased TripAdvisor’s nonhotel revenue to nearly $230 million last year, compared with $46 million in 2013.
And Piper Jaffray analyst Mike Olson said those deals could represent an important move at the right time.
“Any tweaks they can make to cause travelers that are using it as a resource to also become revenue-generating users by booking tourism attractions and restaurant reservations . . . that can be really positive,” Olson said.
The acquisitions also helped offset the corresponding downturn in hotel referral revenue.
TripAdvisor executives said they warned of a rocky transition and note that the company remains profitable. But last month, it reported that revenue for the first half of the year fell 3 percent, from the same six-month period in 2015, to $743 million. That compares with a 20 percent increase in revenue for 2015 over 2014. Meanwhile, revenue per hotel shopper, an important metric for TripAdvisor, plunged 19 percent in the first half of the year.
“The part that is in question is whether TripAdvisor is going to make it as a booking site,” said Dennis Schaal, executive editor at Skift, a travel news site. “There are a lot of investors out there who have doubts about whether TripAdvisor is going to succeed in this transition.”
The shift to instant booking isn’t the only challenge the company faces. Executives also partly blamed its recent lackluster earnings results on “macro events,” shorthand for global concerns, ranging from Brexit to the refugee crisis, that could deter leisure travel. The competition is also getting tougher as rival sites build their own massive databases of travelers’ reviews. Google, in particular, represents a formidable competitor — and not just because it can control where TripAdvisor shows up in Google searches.
Investors are getting impatient. TripAdvisor shares were trading at $85 a share at the end of December. Now, though, the stock trades in the $62 range. Investment bank Pacific Crest Securities issued a report last month stating that the company still has a considerable amount of work to do “before Instant Book can take off in the eyes of travelers, and investors.”
The stock decline — its market capitalization is now around $9 billion — has also spurred speculation that TripAdvisor could be gobbled up. A rival could offer a price that would be tough to refuse. TripAdvisor executives downplay the rumors, saying that they’ve heard similar talk before.
Priceline stands out as the most likely buyer, if one were to emerge, in part because the Connecticut company is one of the few travel-focused businesses with the heft to do a deal. (TripAdvisor previously signed an agreement with Priceline to supply hotel-room inventory for TripAdvisor’s instant-booking service.)
Dan Wasiolek, the Morningstar analyst, said Priceline could nab TripAdvisor at a discount, if it strikes now. “[But] it’s not a slam dunk that Priceline needs to do it or wants to do it,” Wasiolek said.
Dennis Schaal, the Skift editor, remains hopeful that TripAdvisor can pull out of this revenue slump. The company, after all, has successfully shifted revenue models before, enduring more than a few changes since it was launched in an office above Kosta’s Pizza & Seafood in 2000.
“CEO Steve Kaufer has a great track record,” Schaal said. “He built this site from nothing. It was over a pizza place in Needham. Now, it’s the largest travel site in the world.”Jon Chesto can be reached at email@example.com. Follow him on Twitter @jonchesto.