TripAdvisor Q1 2014 Earnings Preview

  • Tripadvisor has displayed healthy revenue growth and thinning profit margins.
  • Mobile bookings could be the next driver after Meta search.
  • Tripadvisor is expensive even after a 30% correction in stock price.

TripAdvisor Q1 2014 Earnings Preview

Tripadvisor (NASDAQ:TRIP) is scheduled to report its Q1 2014 earnings on 6 May. The company ended 2013 on a positive note with a good last quarter, beating revenue estimates. After having transitioned to its Meta search platform in 2013, 2014 brings a new opportunity in the form of mobile bookings. We think TRIP has great potential, but even after the recent correction, its stock is risky at its current valuations.

TripAdvisor: Key Financials and Metrics

In Q4 2013, TRIP matched EPS estimates and beat revenue estimates to register a better than expected performance for the quarter. The company’s revenue grew at 26% Y/Y (over Q4 2012) driven by growth across segments, ‘click advertising’, ‘display advertising’ and ‘subscription, transaction and others’.

TripAdvisor Revenue and Profit Trend

In Q4 2013, TRIP’s operating profit and net profit margins nearly halved to reach their lowest levels at 13.4% and 9.5% respectively. This was largely a result of the company’s transition to the new meta-search platform and increased TV advertising spends towards the end of the year. The squeeze in profit margins is not a major cause of concern since it is largely a result of choice.

One should expect TV ad-spends to be a part of TRIP’s plans in FY 2014 as well, especially in the last quarter.

TRIP recorded a good year in terms of users and content. TRIP saw over 2 billion unique visitors in the year who contributed to a 36% increase in hotel shoppers. Subscription based listings grew by 38% in FY 2013 and total listings grew by more than 80%. TRIP’s mobile traffic doubled to 40% of total traffic, a huge positive, given the company’s next focus area, mobile bookings.

TripAdvisor's Meta Search Transition

2013 was focused on TripAdvisor's Meta search platform transition. Meta search is basically a platform which collates data from various advertisers’ websites, to let the user search for and compare options, all in one place, without leaving the TRIP site.

This feature helps TripAdvisor by extending the users stay on the site, increasing the monetization potential for TRIP. Since users are diverted to advertisers’ sites only for bookings, advertisers are benefited by higher conversion rates of diverted traffic. Eventually, higher conversion translates to higher ROI on ad spends. TRIP saw the platform break even and managed to ward off the risks arising from the transition.

TripAdvisor: Potential Drivers in 2014

In 2014, mobile bookings is on TRIP’s agenda. Taking things one step further, TRIP will allow users to complete booking without leaving their platform, to make the user experience more convenient. The move is also expected to boost conversion rates for advertisers and revenue for TRIP. Further, this attempt to leverage its growing tribe of mobile users will be aided by TRIP’s tie-up with Samsung to pre-install its app on Samsung smartphones.

Apart from entering 8 new geographies in 2014, TRIP will enhance its focus on China. China’s travel industry is growing at 22% annually and can translate to a big boost for TripAdvisor.

TripAdvisor Valuation

In our previous coverage of the company on April 3, 2014; we found TRIP stock to be too expensive at $95.2 a share. Since then the stock has fallen by close to 19%, and we still think it’s expensive at its current valuations.

TRIP EXPE PCLN
Price/Sales ratio 11.6 1.9 >8.8
Price/Earnings ratio 53.5 38.2 31.5

Though we do think the company has great potential, at its current price, Priceline is a better investment choice than TripAdvisor, as Priceline has higher revenue growth and profitability coupled with cheaper valuations. Valued leniently using Priceline’s P/E and P/S multiples, TripAdvisor stock should be priced at $45 - 58 a share, making it a risky bet at its current price of $77 a share.

To see TripAdvisor’s latest stock price movement, click here (NASDAQ:TRIP)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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