|Shares Out. (in M):||137||P/E||30.8x||26.6x|
|Market Cap (in $M):||5,883||P/FCF||30.0x||25.9x|
|Net Debt (in $M):||206||EBIT||323||324|
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TripAdvisor (TRIP) – SHORT THESIS
Note: While TRIP's quarter was good, this was a company who was growing at 30% in Q4 and reset expectations TWO MONTHS AFTER THEIR ROADSHOW to 'mid/high teens' revenues growth - then 'beat' with 23% growth TWO MONTHS LATER! Like FB, its a decelerating growth story that is trading at a premium multiple. Numbers are moving up slightly on the quarter and there's little change to the profit upside. Additionally, lower taxes are helping by ~$0.05 on the bottom line, as well as the lower share count. Management sounds pretty JV, and was not very confident on pricing. To me, the 17% move seems nuts...but I think will serve as a good entry point.
Travel was one of the first industries to be disrupted by the Internet with big average purchases on goods/services with low marginal costs – similar to hotel rooms. Given these economics, online travel is not only very lucrative but also very competitive. As individual spend is quite high, websites tend to spend a lot of money to attract users – translating in high advertising rates and big windfalls should you be one of few winners.
TRIP was among the first websites to aggregate travel reviews and experienced significant growth while leveraging its relation with Expedia’s website and platform. TRIP's main source of revenue (80%) is a cost-per-click (CPC) model, while the balance comes from display ads and small amount of subscription-based services.
The online travel market is a relatively mature market and has a broad array of offerings (airlines bookings, hotel bookings, hotel reviews, discounted deals, etc.). This is evidence by its price/growth multiple of sub-1x PEG. However, TRIP at ~$43/sh trades at >30x P/E, ~19x EBITDA and ~1.5x PEG – making it fully-valued and ‘priced for perfection’ in my opinion; both PCLN and EXPE trade below 1.0x PEG.
Longer-term, I believe TRIP will benefit from the secular shift of travel booking and advertising online – which could serve to reaccelerate growth/earnings above 25-30% once again. However, to capture that growth – TRIP will need to re-invest in its business and other initiatives (international, mobile, subscription listings) which likely cause continued margin pressure and another reset in growth expectations.
GOOG/ITA: Canary In The Coalmine?
Takeout Risk: Biggest risk here is takeout risk...I could see GOOG making a knock-out bid for the company, but I doubt they would pay the valuation - though I have no edge here.
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