The travel industry is yet to witness a meaningful recovery from the pandemic-driven slump even as the business world limps back to normalcy following the relaxation of shelter-in-place orders. Though things don’t look very encouraging for the sector right now, it is poised to benefit from a potential increase in business travel in the post-COVID era.
Naturally, airline and accommodation businesses were among the first to be affected by the coronavirus, and its ripple effect on travel agencies has been equally severe. Travel booking portal Tripadvisor (NASDAQ: TRIP) lost significant market value in the last few months and the stock is currently trading close to its IPO price.
The low valuation does not make it a good investment, due to the bleak outlook for the second half. One of the reasons behind the company’s inability to create sufficient shareholder value is the lack of vision and an operating model that is inconsistent.
According to experts, it is time to wait and watch but it also makes sense to aim at long-term returns as a steady recovery is inevitable for the travel and tourism sector, which plays a key role in supporting economic growth. Meanwhile, certain areas of Tripadvisor’s business have remained relatively unaffected by the crisis — like Experiences & Dining and media assets — and they are expected to offset a part of the downturn.
In Recovery Mode
In general, things have improved since the crisis started, with the user base growing sequentially last month and revenues picking up in line with the resumption of economic activity. Also, the Tripadvisor site is seeing an increase in traffic, partly due to the redesigned homepage. As per initial estimates, there has been an increase in domestic travel ever since the lockdown was relaxed, mainly because people can’t travel to other countries. If that trend is sustained after normalcy returns to the market, it might generate additional revenue.
During his interaction with analysts on the Q2 earnings call, Tripadvisor’s chief executive officer Stephen Kaufer said. “I remain confident that while it may take time and be uneven along the way, it will eventually fully return. In the meantime, we are executing well on what we can control, streamlining our operations to preserve cash, leveraging our platform’s differentiated strengths to help customers, and redoubling our strategic efforts to address future opportunities and emerge in a strong position on the other side of this pandemic.”
The top-line is likely to remain under pressure in the foreseeable future as COVID-affected travel operators would cut their advertising spend and focus on saving cash. The situation does not bode well for Tripadvisor, which is already facing increased competition that poses a threat to its market share.
As expected, the company slipped to a loss in the June quarter when revenues suffered due to widespread flight cancellations and temporary closure of accommodation facilities. Considering the unpredictability of the situation, the management is on a mission to preserve cash. Those efforts, with a focus on cost-reduction, are already showing results and the company looks well prepared for the recovery process. An estimated annual cost-savings of $200 million and a recent bond offering are expected to strengthen liquidity.
Also, plans are afoot to lunch travel insurance service and make it available on the Tripadvisor platform — after introducing a feature that helps travel service providers and customers interact directly.
Tripadvisor’s stock has lost 26% since the beginning of the year, with the long-drawn losing streak accelerating after the virus outbreak. After falling to a record low of less than $15 in the early days of the pandemic, the shares recently picked up momentum but are still trading below their long-term average.
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