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.
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|
|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.
|% 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%|
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.
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
|LTM Revenue/Sales (millions USD)||6.752.2||4,771.3||944.7|
|Market Cap* (millions USD)||62,430||9,870||13,120|
|Adjusted LTM EPS ($)||41.01||3.25||1.68|
* 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)