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Why TripAdvisor Investors Have Reservations

TripAdvisor (NASDAQ: TRIP) reported on its latest quarter Wednesday, and the highlights included better-than-expected revenue and higher monthly visitor counts. However, the less-impressive results from the report sent its shares downward by 8% in morning trading, and they closed the session almost 6% lower.

In this segment of the MarketFoolery podcast, MFAM Funds' Bill Barker and host Chris Hill get to the heart of this market response, discussing the company's two business segments -- hotel and nonhotel -- and why they are creating two very different stories. Is it a good investment from here? Depends on which story dominates, and how they cope with intense competition on many fronts.

A full transcript follows the video.

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This video was recorded on Feb. 13, 2019.

Chris Hill: We're going to start with TripAdvisor. On paper, it looks like the fourth quarter was mixed for TripAdvisor. But investors are not treating it that way. Revenue was higher than expected. Monthly visitors were up. Shares of TripAdvisor down about 8% this morning. It comes on the heels of a really good year, though. 2018, very good year if you were a TripAdvisor shareholder.

Bill Barker: Yeah, and I think that's most of the explanation for the stock price movement so far today, which, as you pointed out, is negative. Met expectations, which -- at this point, the market was looking for a little bit more, a little bit of guidance that the hotel operations were picking up. That was not the part of the business that improved, and that's the biggest part.

Hill: So you take the drop today combined with a good 2018. When you look at this stock, does it look look cheap? Does it look like, even with the drop, it's still a little expensive?

Barker: As I indicated before, you've got two different parts of the business right now, hotel and nonhotel. And for the year, hotel started the year off about 4X as big as the non-hotel, $244 million of revenue for the fourth quarter of 2017, only $240 for 2018, so off 2%. The non-hotel increased 38% and is now about half the size. You have to be able to read through which of those stories is going to be the dominant one going forward. You can have that kind of growth for a while. The nonhotels is the restaurant and experiences category. But hotel was a big bet of the company, and at the moment, it doesn't look to be a great long-term one, given the competition, which is pretty ferocious there.

Hill: I was just going to say, it would seem like if not the No. 1 reason for buying shares of TripAdvisor today, certainly in the top three is you think that nonhotel part of the business is going to grow pretty significantly. As you said, it's not just the Pricelines and Expedias of the world, it's also the hotels themselves which walk this fine line between "Yes, we want to be available on platforms like TripAdvisor, Expedia, Priceline, etc. We would also really like it if people just came straight to our website and booked that way."

Barker: Yes. So the competition is on a lot of different fronts, and a lot of very well-funded fronts, from Booking Holdings and everybody else, and is lesser on the experiences and restaurants. People might benefit more from the review options that TripAdvisor has there than hotel, where the reviews are plentiful on other sites.

Bill Barker has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Booking Holdings and TripAdvisor. The Motley Fool has a disclosure policy.

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