TripAdvisor's Q4 2013 Earnings Review

Tripadvisor Q4 2013 earnings review

TripAdvisor (NASDAQ:TRIP), the online travel research company reported its Q4 2013 numbers post market hours at 5 P.M EST on the 11th of Feb 2014. Within minutes of the announcement, the stock price had plunged by close to 10%, eventually recovering and settling at $82.75, about 2% lower than the day’s closing price. We look at the key take-aways and TripAdvisor’s valuations post its Q4 2013 earnings release in which the company delivered many surprises, though not all of them were necessarily pleasant in nature.

Key Financials & Metrics

In addition to beating the market’s revenue expectations, the company met adjusted EPS estimates. However, in the same earnings release, the company also reported its lowest profit margins ever. Operating margins were down by 14.4% and net margins were down 10.4% at 13.4% and 9.5% respectively. The company reported an adjusted EPS of $ 0.21 per share.

TripAdvisor Revenue & Profit Trend

The surprise on the revenue front saw revenue at $212.7 million vs estimates of $205-206 million, implying a 25.6% growth over the same quarter a year ago (YoY) with the growth rate also showing improvement when compared to the YoY growth in Q4 2012. The revenue for FY 2013 totaled to $944 million, up 24% YoY.

In millions of USD Q4 2012 Q3 2013 Q4 2013 FY 2012 FY 2013
Total Revenue 169.4 255.1 212.7 763.0 944.7
Operating Income 47.0 83.7 28.5 296.3 294.6
GAAP Net Income 33.7 55.9 20.3 194.6 205.4

As we had discussed in our Q4 2013 earnings preview, the largest jump in costs came in the form of advertising expenses, accounted for under the line item ‘Sales & Marketing’. Going by the language in the con-call, one should expect to see these expenses on a recurring basis and probably more towards the back end of the financial year.

TripAdvisor Q4 2013 costs and profits percentage of revenue

% of Revenue FY 2012 FY 2013 % of Revenue Q4 2012 Q4 2013
Click-based advertising 77% 68% North America 53% 51%
Display based advertising 12% 15% EMEA 29% 30%
Subscription, transaction, and other 11% 17% APAC 14% 15%
LATAM 5% 4%

APAC continued to be the fastest growing revenue stream by region and accounted for 15% of the company’s revenue in FY 2013 as opposed to 12% in FY 2012. TripAdvisors clocked 2 billion unique visitors in FY 2013 with mobile traffic climbing to 40%. The apprehensions at large, surrounding the Meta search feature and its impact on revenues have been laid to rest for the time being.

TripAdvisor Valuation

There have been more positives than negatives that have come out from this quarter’s results for TripAdvisor. The company’s revenue growth in the recent past, though always decent, has not been stellar by any stretch of imagination. In this quarter, however, they did manage to pip Expedia (NASDAQ:EXPE) in terms of YoY growth for Q4 2013.

Given that TRIP has the smallest revenue base, the fact that its revenue growth rates haven’t matched those of say, a much larger Priceline (NASDAQ:PCLN) , is not very flattering. The one thing that has consistently looked good in the case of TripAdvisor is its ability to deliver healthy operating and net margins. However, with profit margins taking a casual walk in the park, suddenly it all looks a little lackluster. Things as they stand make it exceedingly difficult to justify the company’s valuations.

TripAdvisor Relative Valuation with Peers

Relative Valuation Priceline Expedia TripAdvisor
LTM Revenue/Sales (millions USD) 6.752.2 4,771.3 944.7
Market Cap* (millions USD) 62,430 9,870 13,120
P/S Ratio 9.2 2.1 13.9
Price/Share* ($) 1,213.93 74.79 84.2
Adjusted LTM EPS ($) 41.01 3.25 1.68
PE Ratio 29.6 23.0 50.1

* As on Feb 10, 2014
Note: Estimated values for PriceLine & actuals for Expedia and TripAdvisor for Q4 2013

Undoubtedly, Priceline is the most consistent among these companies with the best revenue growth rates and profitability. If one were to be lenient and value TripAdvisor using the P/S and P/E multiples that Priceline enjoys, the procedure would throw out two numbers: a price per share of $ 61.4 based on Priceline’s P/S ratio, and $ 49.7 based on its P/E ratio.

There’s no doubt that TripAdvisor is a brilliant company, and having silenced some of the fears that were surrounding this Q4 result, we won’t be surprised if the stock price finds a lofty accommodation. However, we can’t ignore the compelling case for price correction that a P/E of 400 makes. Whichever way you see it, at anything above $61 per share or so, it’s clearly not a very safe trip to embark on.

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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