TripAdvisor shares plunge on marketing shift, international slowdown

Wed Jul 25, 2012 1:28pm EDT

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(Reuters) - Shares of TripAdvisor (TRIP.O) fell as much as 19 percent on concerns that the travel recommendation site's shift away from search engine marketing to social media is hurting growth.

On Tuesday, the company reported second-quarter sales that missed analysts' estimates and said costs had jumped 33 percent.

TripAdvisor also cited Europe as a drag on revenue growth, and posted lower revenue from its former parent Expedia Inc (EXPE.O), pulling down the broader Dow Jones Internet Commerce Index .DJECOM by 4 percent.

Shares of rival Priceline.com (PCLN.O), scheduled to report quarterly results in August, fell 5 percent while those of Expedia Inc (EXPE.O), which will report results on Thursday, fell more than 4 percent.

"If an investor is invested in online travel related stocks, the performance of TripAdvisor may prompt them to really think about their position in Expedia and Priceline and some major sites," Morningstar analyst Dan Su said.

For the quarter, TripAdvisor's revenue from Expedia fell 6 percent to $55.7 million. TripAdvisor reported total revenue of $197.1 million for the quarter.

Revenue growth in the UK slowed to 10 percent from 12 percent in the first quarter, while growth in the rest of world dropped to 38 percent from 55 percent, the company said.

TripAdvisor's reported international weakness could prove to be an early warning for the hotel and airline companies that are due to report quarterly results in the coming weeks.

Analysts had expected strong U.S. demand to drive revenue for U.S. hotels and airlines in the quarter, but Europe's economic woes and possible slowing growth in China and India could make for a murkier travel outlook.

Marriott International Inc MAR.N, one of the first hotel operators to report this quarter, cut its 2012 fee revenue forecast range on weakness in some international markets such as India, China and the Middle East.

MARKETING SHIFT

A shift in TripAdvisor's marketing to drive the site's user-generated content through integration with social media sites like Facebook (FB.O) is aimed at attracting traffic with higher conversion rates and getting advertisers to pay more.

However, analysts are concerned the strategy would slow growth in the near term.

"Revenue growth rates will face a headwind in the near term due to lower traffic volumes, until bid rates from advertisers improve," RBC Capital Markets analyst Sun-Il Kim wrote in a note to clients.

TripAdvisor, which aggregates reviews and opinions about destinations and accommodations throughout the world, depends on advertising and subscription for its revenue.

RBC, which cut its price target on the stock by $7 to $42 and kept its "outperform" rating, said the company's shares could be challenged until meaningful growth returns.

"The stock has been seen as a revenue growth story," Kim said.

TripAdvisor shares, which have risen 30 percent over the last three months, were trading at $36.46 on Wednesday afternoon on the Nasdaq. They touched a three-month of low of $35.05 earlier in the day.

(Reporting by Bijoy Koyitty in Bangalore; Editing by Sreejiraj Eluvangal, Anthony Kurian)

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