TripAdvisor, the user reviews and hotel metasearch website, released first quarter results on Wednesday.
In a report released prior to the earnings, veteran tech analyst Mark Mahaney of RBC Capital Markets said:
"In 2014, Expedia Inc. and Priceline Group are likely to constitute over 50% of TripAdvisor's total revenue and over 70% of its click-based advertising revenue by the end of 2016."
TripAdvisor hopes to become less reliant on the major hotel groups by diversifying its income stream, such as by building direct connections with hotels via its TripConnect Instant Booking tool -- which is now rolled out fully on desktop sites.
Kaufer said in a conference call today that hotel chains understand what Instant Booking is. The sticking point has been negotiating the business terms for participation.
He says there's been "good and material progress in most of the discussions with the big chains." He adds that he remains "optimistic that one to several will sign up."
Kaufer says, that, in early results, Instant Booking is "working well." When TripAdvisor puts an Instant Booking button in front of a consumer, consumers click at about the same rate as if it was any other brand offering an option via metasearch instead.
Kaufer said his company has enough staff through his business listings sales force to handle the growth of Instant Booking. It doesn't need a significant build up of its sales force.
Industry consolidation isn't a worry
Kaufer said that, if Expedia's acquisition of Orbitz is approved, and if Expedia does the same thing as it did with Travelocity and adds its high-margin inventory onto the Orbitz platform, Orbitz may continue to bid for that inventory under its brand name on TripAdvisor.
Expedia's margins are a bit better than Orbitz's, Kaufer believes, and so they could bid higher. If so, it would be a "neutral to net positive" for TripAdvisor's auction dynamics and finances.
"At best it would be a modest change."
TripAdvisor has been continuing its breakneck expansion. The company said it has added about 800 employees in the past year, to bring its total to nearly 2,900 employees. It spend $10 million on TV advertising in the most recent quarter and plans to accelerate that spending through the year.
The company reported that, in the first three months of 2015, it booked revenue of $363 million -- up 29% from the same period a year earlier.
But that was slightly below the $364.98 million that a consensus of analysts forecast. Profits were also shy of expectations.
Diversifying revenue streams
Revenue trends were positive for the company. TripAdvisor's biggest earnings source -- fees from online hotel bookings -- grew 20%, to $249 million.
The reason? TripAdvisor's hotel metasearch product, which is only a couple of years old, continues to gain users.
The percentage of unique hotel shoppers grew 23% year-over-year, the fastest for any quarter in a year but off of a lower base a year earlier -- so in a disguised way was, represetning a softening in the pace. Yet Kaufer says it's not a metric he frets about.
The company's business listings program continues to grow, with 81,000 paid hotel subscribers at last count, at the end of 2014. So, too, did its vacation rental listings program. Together, subscription revenue grew 88% to $79 -- and now accounts for a quarter of TripAdvisor's total revenue.
About 53% of TripAdvisor's revenue now comes from outside of the US.
Kaufer wants more growth in China, and has asked his team to try to do things differently to get better results than the status quo. Getting user-generated reviews in Mandarin is "a build" for the company. A bigger shift toward targeting marketing on outbound travelers is also planned.
Latin America has been a target area. Revenue from the region nearly doubled to $17 million for the quarter, year-over-year -- contributing 6% of the company's overall revenue.
In comparison, the pace of gains was 78% in the fourth quarter of last year, and 30% in the third quarter of last year -- so the growth has accelerated.
Kaufer said his company is "acquisitive" and that it has tended to purchase "transactional" businesses, especially in restaurants lately. But he wouldn't rule out other types of acquisitions.
Kaufer says he sees no reason why cost-per-click (CPC) prices would meaningfully rise or go down in metasearch. Last-touch attribution, as measured by tracking, shows clients are getting results from their auction bids. The auctions are sufficiently competitive that current rates should reflect a kind of equilibrium.
The top two slots in search results get the most visibility with customers.
After the fourth quarter 2014 call, TripAdvisor's market capitalization rose to surpass that of Expedia's, where it stayed for more than a month. Since then, TripAdvisor's has declined to $10.98 billion, while Expedia's has stayed about the same, at $12.56 billion.
MORE: What TripAdvisor’s instant booking means for hotels