TripAdvisor recently started testing its Instant Booking button, and it’s sending ripples throughout the online travel booking industry. The company has great potential to pull ahead of competitors Expedia and Priceline, neither of which has moved to add an Instant Booking feature yet and probably won’t, at least not anytime soon.

TripAdvisor

As a result, UBS analysts have raised their price target for TripAdvisor, maintained their price target for Expedia and cut their target for Priceline.

“Another evolutionary year” for TripAdvisor

So far, TripAdvisor has signed up 43 small online travel agencies and chain hotels. The company has also made connections with many independent hotels through partnerships. In a report dated March 22, UBS analyst Eric Sheridan and his team said they expect more partnerships to continue being announced.

They see 2015 as being another year of transition for TripAdvisor with possible misses on consensus estimates for revenue, although they see plenty of potential for upside in 2016. The reason the UBS team thinks sales this year will be difficult is because the company has been replacing its cost per click ad inventory with a new product that’s lesser known.

Also TripAdvisor now has fewer booking partners that are of lower quality and is seeing rising abandonment rates for shopping carts.

TripAdvisor could miss sales estimates

For the first year, the UBS team expects TripAdvisor’s “effective” cost per click” from the Instant Booking model to be about 14% lower than last year’s levels. They say that in the long term though, the company should enjoy improvements in conversion rates, particularly as it attracts partners of higher quality and as consumers become more familiar with Instant Booking.

For next year, they see as much as an 8% upside to Wall Street estimates in cost per click revenue, with upside even stretching as high as 20% potentially. The UBS team also points out though that the Instant Booking model is heavily dependent on Expedia and Priceline, which means if either of those two companies change their marketing plans, TripAdvisor could see new headwinds. Expedia and Priceline made up about 60% of TripAdvisor’s click-based ad revenues in 2013

What about Expedia and Priceline?

They bumped up their price target for TripAdvisor from $80 to $90 per share. They estimate that TripAdvisor was help with about $3 billion in hotel bookings by next year. The UBS team expects Instant Booking to assist TripAdvisor in taking share from Expedia and Priceline.

As a result, they slightly lowered their hotel bookings growth estimates for both Expedia and Priceline, although Expedia remains their favorite among the three major online bookings companies. They’re waiting to see if TripAdvisor gains traction with partners and consumers in Instant Bookings before they become even more constructive on the company.

The UBS team thinks Expedia already has a lower share of independent hotel profits and thus will see synergy benefits from the Travelocity, Orbitz and Wotif acquisitions to offset any loss there. They expect a greater impact on Priceline if Instant Booking turns out to be a success for TripAdvisor. The UBS analysts maintained its $102 per share price target on Expedia and slashed their target for Priceline from $1,370 to $1,315 per share.

As of this writing, shares of TripAdvisor were down 0.36% to $86.20 per share. Priceline shares were down 0.4% to $1,175.89, while shares of Expedia were up 0.13% to $95.52 per share.