- TripAdvisor beat revenue estimates but missed EPS estimates for Q4.
- TripAdvisor revenue guidance for FY 2015 is higher than expected.
- TripAdvisor profit margins could continue to decline in FY 2015.
- TripAdvisor valuations are expensive at their current levels.
TripAdvisor (NASDAQ:TRIP) reported its Q4 2014 earnings on 11 Feb 2015 post market hours. The travel site delivered better than expected revenue, but missed estimates on the earnings/EPS front. TripAdvisor’s stock price rose by close to 14%, driven by the company’s better than expected revenue guidance for FY 2015. TripAdvisor profit margins could continue to shrink in 2015. Viewed in this light, we think TripAdvisor valuations continue to be expensive at their current levels.
TripAdvisor Earnings Q4 2014
TripAdvisor beat revenue estimates by 1%, but missed earnings estimates for the quarter by a huge margin.
|TripAdvisor Earnings Q4 2014||Analyst Estimates||Actuals||Beat / Miss|
|TripAdvisor Revenue ($ million)||285.11||288||1.00%|
|TripAdvisor Non GAAP EPS $||0.37||0.35||-5.40%|
TripAdvisor Revenue Growth
TripAdvisor registered a revenue growth of 35.4% YoY in Q4 2014. Driven by its ‘Subscription, Transaction and Other’ revenue segment, TripAdvisor continued along the higher growth trajectory it saw in 2014. TripAdvisor’s largest segment, ‘Click Based Advertising’, also grew at a healthy pace.
|TripAdvisor Segmental Revenue||% of Revenue in Q4 2013||% of Revenue in Q4 2014||YoY Growth|
|Click Based Advertising||68%||63%||25%|
|Subscription, Transaction & Other||17%||25%||97%|
TripAdvisor saw accelerated growth in hotel shoppers, clocking a 23% YoY growth, compared to an average growth of 16% in the first three quarters of 2014.
TripAdvisor started reporting a break up of its revenue under the heads ‘Hotel’ and ‘other’. The Hotel segment clubs click based, display based and transaction based revenue from hotels, flights and cruises. The ‘other’ revenue segment encompasses TripAdvisor’s newer businesses like attractions, restaurants and vacation rentals.
In Q4, the ‘Hotel’ segment brought in $251 million in revenue, growing at 24% YoY, while the ‘Other’ segment added $37 million to the top-line, growing at 236%. Part of this superlative growth is due to TripAdvisor’s acquisitions.
In Q4, TripAdvisor acquired three restaurant reservation services, mytable.it and restopolis in Italy, and lens in the Netherlands, to expand its presence in the segment in Europe. Earlier in May 2014, TripAdvisor acquired LaFourchette, a profitable restaurant reservation service which operates in France and Spain.
TripAdvisor Profit Margins
TripAdvisor reported operating and net profits of $60 million and $36 million translating to an operating profit margin of 20.8% and a net margin of 12.5%. We’ve discussed TripAdvisor’s profitability in greater detail in the valuations section of this post.
TripAdvisor Revenue Guidance For FY 2015
TripAdvisor expects to clock a revenue growth rate in the high 20’s, implying a worst case scenario of 25% YoY growth, a best case scenario of 30% growth and a midpoint of 27.5% growth in 2015.
Based on these numbers, TripAdvisor’s revenue guidance translates to a revenue of $1.56 to $1.62 billion.
|TripAdvisor 2015 Revenue Guidance||Lower End||Mid-Point||Top End|
|Growth Rate %||25.0%||27.5%||30.0%|
|TripAdvisor Revenue ($ billion)||1.56||1.59||1.62|
TripAdvisor’s FY 2015 revenue guidance indicates a slowdown in the YoY growth rate, from about 32% in FY 2014. However, the guidance exceeded analyst estimates of $1.55 billion, translating to a 24% YoY growth.
TripAdvisor Valuations And 2014 Roundup
At a stock price of $67.27 a share, TripAdvisor valuations translate to the following multiples.
- TripAdvisor PE ratio - 44.4
- TripAdvisor Price To Sales ratio - 8.1
Going by the near 14% jump in after-market trading, these valuations could spike to a PE of 50.5 and a Price to Sales multiple of 9.2. Given the declining profitability, TripAdvisor valuations come across as expensive and risky.
At an average growth rate of about 32%, TripAdvisor’s revenue growth rates have improved significantly in 2014, when compared to its average of 22% in the preceding two years. Though this improvement could be partly due to the acquisitions that the company has made during the year, it’s a healthy growth rate nonetheless.
TripAdvisor’s profit margins however, have declined consistently, with a significant drop over the years.
|TripAdvisor Profit Margins||2011||2012||2013||2014|
|TripAdvisor Net Profit Margins (average)||27.40%||25.30%||21.40%||18.30%|
Going by the management commentary on the TripAdvisor earnings call, profit margins are likely to reduce further in 2015, dragged by ad spends on TV advertising, the increase in cost of revenue driven by Viator, a recent acquisition, and international expansion.
To sum up, TripAdvisor delivered strong revenue growth in 2014, and is likely to carry that trend forward in 2015. Profitability continued to decline and could continue to do so in the coming quarters. Viewed in this light, TripAdvisor valuations are expensive and could make the stock a risky bet.
TripAdvisor Earnings Q4 2014 Preview
(Published on 4 Feb 2015)
- TripAdvisor earnings for Q4 2014 are due on 11 Feb 2015.
- TripAdvisor's cyclically weak Q4 and USD strength are headwinds.
- TripAdvisor valuations make it a risky bet ahead of Q4 earnings.
TripAdvisor earnings for Q4 2014 are due to be reported on 11 Feb 2015. After missing earnings estimates for 3 quarters in a row, TripAdvisor’s Q4 earnings will be watched closely. TripAdvisor’s stock price is down by a little over 8% in the last 12 months. Though TripAdvisor valuations have improved significantly compared to their year ago levels, the stock is still expensive given the company’s declining profit margins. TripAdvisor is a risky bet going into Q4 earnings.
TripAdvisor Earnings Schedule Q4 2014
TripAdvisor’s Q4 2014 earnings schedule is as follows:
- TripAdvisor Earnings Date - 11 Feb 2015
- TripAdvisor Earnings Release - 4 PM EST
- TripAdvisor Earnings Call - 4.30 PM EST
TripAdvisor Earnings Analyst Estimates
|TripAdvisor Revenue ($ million)||285.11||34.0%|
|TripAdvisor Earnings Per Share (Non GAAP $)||0.37||76.2%|
Source: TripAdvisor Q4 Analyst Estimates
In the last two years, TripAdvisor has beaten analyst estimates for revenue in 6 out 8 quarters. In Q4, analysts have pegged their expectations higher than the midpoint of TripAdvisor’s revenue guidance. Estimates also reflect high expectations in terms of the implied YoY growth rate. The projected YoY growth rate is way higher than TripAdvisor’s average of 26.3% over the last 2 years; due in part, to the full quarter contribution from TripAdvisor acquisition Viator.
TripAdvisor Guidance Q4 2014
We have derived TripAdvisor’s Q4 guidance based on its latest guidance for FY 2014.
As per TripAdvisor’s revenue guidance, its revenue growth rate should range between the high 20’s to the low 30’s, implying a worst case growth of 25%, a best case scenario of 35% and a midpoint of 30%.
Based on these numbers, TripAdvisor revenue projections are as detailed below:
|TripAdvisor Revenue Guidance||Lower End||Mid-Point||Higher-End|
|YoY Growth Rate (%)||25%||30%||35%|
|FY 2014 Revenue ($ million)||1180.8||1228.1||1275.3|
|Q4 2014 Revenue ($ million)||222.8||270.1||317.3|
TripAdvisor Q3 2014 Earnings Recap
TripAdvisor revenue grew by close to 39% YoY in Q3, to reach $354 million. The vast improvement in growth rates was attributable in part to a relatively weak comparable number in Q3 2013, resulting from the launch of TripAdvisor’s meta-search feature. The feature which was aimed at potentially lower clicks but higher conversions, is believed to have aided TripAdvisor’s CPC rates in 2014, compensating for the lower clicks.
TripAdvisor profit margins declined sharply, both sequentially, and over the same quarter a year ago. TripAdvisor’s operating and net profit margins came in at 23.7% and 15.3% respectively. The drop was partly due to TripAdvisor’s spends on TV advertising.
TripAdvisor’s focus on mobile devices bore fruit as the site’s average monthly unique visitors on mobile and tablet jumped by 48% to 161 million. You can read our detailed coverage of TripAdvisor’s Q3 2014 earnings or watch our TripAdvisor stock analysis video to get a quick roundup of TripAdvisor’s fundamentals post Q3 earnings.
TripAdvisor Q4 Earnings Outlook
TripAdvisor earns about 50% of its revenue from regions outside North America. The strengthening of the USD against other currencies could serve as a headwind for TripAdvisor, reducing the value of its international revenue, and thereby its net income as well.
TripAdvisor’s Instant Bookings or mobile bookings platform has been its most anticipated development in the last 12 months. A lot is expected from the feature in terms of its revenue generation ability. The platform, which allows users to complete bookings within the TripAdvisor mobile app is also being rolled out to desktop users in the US. Investors will be eager to know how the roll-out has progressed.
In Q4, Priceline and Expedia boycotted TripAdvisor’s mobile bookings platform, a potential risk to the success of Instant Bookings. Without mass adoption by entities that have listings on TripAdvisor, the company won’t be able to leverage the feature completely.
TripAdvisor profit margins could reduce further in Q4, traditionally the company’s worst quarter in terms of revenue growth and therefore profitability.
TripAdvisor valuations have improved significantly when compared to their levels a year ago.
|TripAdvisor Valuations||1 Year Average||Current|
|TripAdvisor PE Ratio||61.0||46.1|
|TripAdvisor Price To Sales Ratio||12.8||8.3|
That said, TripAdvisor valuations aren’t cheap at their current levels. Given TripAdvisor’s reducing profit margins and the currency related headwinds in Q4, high valuations make the stock a risky bet going into Q4 earnings.