- Buy for value below $29.50 + value of user base
- No foreseeable reasons for upside momentum
TripAdvisor is a flattening growth stock that’s very volatile around quarterly earnings. It has a market cap of $5b and turnover of $80m per day. Under normal trading conditions its hard to imagine much alpha up for grabs. Assigning a value to its rapidly growing review database is ambiguous when revenue growth is flattening, and momentum alpha only exists after very large real money whales decide to make a move.
- American travel website company providing hotel bookings as well as user reviews of travel related content
- 500m user reviews on the site, up 43% yoy
- Q1 revenue of 372m (6% yoy increase) of which 55% is hotel click-based advertising
- Average unique monthly visitors of 150m
- Average click-based revenue per hotel shopper of $0.47
- Current strategy is to launch a hotel price comparison page that leverages from the user review database to reaffirm revenue growth
We’ve switched to a valuation based on operating cash flow. Note that TRIP’s cash flows have been volatile.
As a base case we see intrinsic value to be around $29.49 per share. TripAdvisor’s future strategy however is to launch a lowest-price hotel search engine to increase revenues. So just how much is this business strategy worth?
Trivago is a lowest price hotel search engine that generates the majority of its revenue from per-click hotel advertising. In its most recent quarter Trivago had 177m qualified referrals where a qualified referral is a unique visitor per day that generates at least one click referral (clicks to visit the hotel’s website and potentially make a booking). If each of TripAdvisors’ 150m unique monthly visitors clicks on one hotel ad per week, that’s 600m per month or 20m qualified referrals. Using Trivago’s revenue per qualified referral:
Based on this approximation TripAdvisor could increase total revenue by around 9%. Trivago makes negligible profit so its uncertain if this business strategy will increase the bottom line for TripAdvisor.
Our value strategy is to buy below $29.50. The task of valuing the user base still remains uncertain.
Despite two very smooth price rallies preceding recent earnings, unless TripAdvisor announces major success in the hotel price search engine strategy there isn’t a lot of foreseeable upside to get excited about. For this reason its hard to justify why any momentum strategy should be profitable.