Analyst Says Sell TripAdvisor Ahead Of 'Difficult' Q3 Report
The shares of TripAdvisor (TRIP) are declining after Credit Suisse downgraded the stock to Underperform, its equivalent of a sell rating, from Neutral. Among the reasons cited for the downgrade were the firm's belief that the company will increase its TV ad spending next year and its contention that the third quarter looks like it will be "difficult" for the company. TripAdvisor advertises travel deals online.
TV ADS: TripAdvisor will spend $150M on TV ads next year, predicted Credit Suisse analyst Paul Bieber. He had previously estimated that the company would spend $115M on TV ads in 2018. As a result of this increase, Bieber lowered his 2018 earnings before interest ,taxes, depreciation and amortization estimate for the company to $304.4M from $339.4M. Analysts' consensus estimate for the company's 2018 EBITDA is $363.8M ,according to Bieber. Moreover, since other online travel agencies such as Priceline (PCLN) and Expedia (EXPE) are spending more on TV ads than TripAdvisor is, the efficacy of its TV ads are uncertain, the analyst stated.
Q3 SETUP: Last month, TripAdvisor reported that it had faced a number of revenue headwinds in the second quarter, including the testing of its new user interface and competition from trivago (TRVG), Bieber reported. Noting that analysts had expected TripAdvisor's click-based and transaction revenue to jump 5%-9% in Q2, Biber says the company has a "difficult set-up" in Q3. He noted that for the company to meet its guidance for at least 10% growth this year, its branded click-based and transaction revenue growth will have to accelerate in 2H17.
PRICE TARGET: Bieber cut his target on TripAdvisor shares to $34 from $40.
PRICE ACTION: In morning trading, TripAdvisor fell about 3% to $36.82 per share.
Disclosure: None.