TripAdvisor Stock Still Expensive After Strong Guidance!

  • Revenue and Profitability were strong despite marginally missing estimates.
  • Future guidance is a positive but may be driven by acquisitions.
  • TripAdvisor has great potential but the stock is still expensive.
TripAdvisor logo

TripAdvisor (NASDAQ:TRIP) announced its Q1 2014 results on 6 May. The company marginally missed analyst estimates of revenue and EPS for Q1. However, it revised its FY 2014 revenue guidance upwards, a move that was welcomed by investors who drove the stock price nearly 4% higher by the end of the week.

TripAdvisor Q1 2014: Estimates vs Actuals

Estimates

Actuals

Difference %

Revenue ($ million)

283

281

-0.7%

non GAAP EPS ($)

0.55

0.54

-1.8%

TripAdvisor Q1 2014: Key Financials & Metrics

TripAdvisor missed Q1 2014 analyst estimates marginally. However, the company’s delivered a strong performance with improvements across the board, be it in terms of revenue, profitability or the launch and performance of new features.

TripAdvisor registered a revenue of $281 million, growing by 22.2% over Q1 2013 (Y/Y growth), slightly faster than its average Y/Y growth over the last 8 quarters.

Tripadvisor’s profitability came under pressure in Q4 2013 following the rollout of its meta search platform. However, pressures from spends on the platform and TripAdvisor’s TV advertising campaign subsided in Q1 to propel the company back to more familiar levels profitability.

TripAdvisor reported operating and net profit margins of 34.2% and 24.2% with operating and net income of $96 million and $68 million respectively.

TripAdvisor Revenue growth and profitability
Source: TripAdvisor Income Statement by Amigobulls

TripAdvisor generated $109 million of cash from operations to end the quarter with cash and cash equivalents of $745 million (including short and long term marketable securities) up 75 million from Q4 2013.

TripAdvisor saw growth across revenue streams.

  • Click based advertising grew 16% Y/Y to contribute 74% of revenue
  • Display based advertising grew 28% Y/Y to contribute 11% of revenue
  • Subscription, transaction and other revenues grew 62% Y/Y to contribute 15% of revenue

Compared with Q1 2013, subscription and other revenues grew at the fastest pace. However, the segment still accounts for a relatively small portion of revenue. Overall, growth was driven largely by the company’s click based advertising segment.

TripAdvisor’s meta-search feature has helped it to increase conversion rates of the leads it passes on to advertisers/customers, and allowed the company to price those leads better. TripAdvisor saw continued Cost-Per-Click (CPC) growth going into Q2 as well, which is a definite positive if the trend continues.

The websites average monthly unique visitors jumped 27% Y/Y to cross the 250 million mark as TripAdvisor came close to recording its highest monthly unique visitors count in March.

Further, mobile traffic increased to 44% of total traffic, up from 40% in FY 2013. Given that mobile bookings is the key focus area currently for the company, the sustained growth in mobile traffic is encouraging.

TripAdvisor Future Outlook

Probably the most exciting announcement was the addition of mobile bookings or ‘Instant Bookings’, as the company calls it, to TripAdvisor’s repertoire. The feature allows users to complete their booking while still on the site and has been rolled out to about 10% of TRIP’s US mobile web traffic.

The feature is expected to aid conversion rates and monetization rates, thus driving revenue. Instant Bookings is expected to be rolled out to 100% of mobile traffic in major markets by Q2.

TripAdvisor announced its foray into restaurant reservations with the acquisition of ‘La Fourchette’ or, ‘The Fork’ which operates largely in France and Spain. Going by TripAdvisor’s commentary, The Fork is a profitable business.

TripAdvisor also acquired ‘Vacation Home Rentals’ and ‘Tripbod’, a trip planning platform which connects travellers to local experts.

Spend on TV advertising will ramp up going into Q3, the company’s best quarter due to seasonality in the travel industry. So, it’ll be interesting to see how that impacts profit margins going forward. The company has rolled out website customization to 15% of its users and targets a 100% rollout in Q2.

TripAdvisor Q2 2014 Guidance & Valuation

TripAdvisor revised its revenue growth guidance upwards, from ‘mid 20’s’ to high 20’s to low 30’s. It’s not worthwhile trying to translate such a guidance into numbers, but it’s clear that the company is bullish about growth. What’s not clear though is whether the guidance has increased due to expected contributions from its recent acquisitions.

However, the company has not factored in pricing growth or CPC growth, impact of TV ads, mobile bookings or any other potential drivers of growth, implying that there’s room for upside if these plans do pan out.

To sum up, TripAdvisor closer a good quarter with strong revenue growth and profitability. Improvements were seen across the board with improved monetization, higher overall traffic, higher mobile traffic, success of the meta search platform.

There’s a lot to look forward to as well. Roll outs of new features like mobile bookings and website customization which could further aid business are lined up. Of course, there’s also TripAdvisor’s foray into restaurant bookings.

On the whole, TripAdvisor looks like a great business with equally good potential. However, TripAdvisor is overvalued trading at $84.5, trading at Price/Equity (P/E) and Price/Sales (P/S) multiples of 57 and 12 respectively. More so because there are companies like Priceline with similar growth and profitability, available at lower valuations. Priceline is priced at P/E and P/S multiples of about 8 and 29 respectively, making PCLN stock way more attractive.

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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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