Added TripAdvisor spotlight

Investment Opportunity?

Brand value? TripAdvisor is the world’s largest travel site with 400m+ unique monthly visitors. Also own 23 other relatively less known websites.

Use of new technology to disrupt? Aggregated platform of user reviews generates increasing ongoing traffic.

Sympathy/spillover effect on valuation? Nothing obvious at the current time.

Trading Opportunity?

Potential sector or index selling? Nothing obvious.

Under/over-reaction to news?


Revenue

trip revenue.PNG

trip revenue detail.PNG

Strategy

  • 15% of user reviews are hotel-related but hotels are 75% of revenue
  • Monetize remaining content by diversify into attraction revenue
  • Continue to enhance user experience while using the product

trip content breakdown.PNG

trip strategy.PNG

Approximate Valuation

  • Fair value approx $45 – 50
  • For hotel business which generates cash, look at cash flows
    • Approx worth $40 (see below)
  • For non-hotel which is in growth phase look at P/S multiple or PEG ratio
    • 17% EBITDA margin so its prob worth 1.5 – 3x sales
    • $3 of non-hotel revenue per share
    • Approx worth $4.50 – $9 per share

Hotel business valuation (attribute current operating cash flows to hotel business)

trip hotel valuation.PNG

Watching

  • Growth in non-hotel business, without this TripAdvisor could lose brand value
  • Maintenance of hotel business, because current valuation heavily depends on this

 

 

TripAdvisor Strategy Spotlight – Updated Valuation (TRIP)

Summary

  • Buy for value below $29.50 + value of user base
  • No foreseeable reasons for upside momentum

Potential alpha

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.

Qualitative notes

  • 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

Valuation

We’ve switched to a valuation based on operating cash flow. Note that TRIP’s cash flows have been volatile.

trip valuation.PNG

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:

TRIP revenue inc

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.

Strategy

Trip chart.PNG

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.

 

 

TripAdvisor Strategy Spotlight (TRIP)

Summary

  • Buy for value below $13.50
  • No foreseeable reasons for upside momentum

Potential alpha

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.

Qualitative notes

  • 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

Valuation

Using numbers from the most recent financial statements:

trip valuation

As a base case we see intrinsic value to be around $13.50 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:

TRIP revenue inc

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.

Strategy

Trip chart.PNG

Our value strategy is to buy below $13.50. TripAdvisor has never traded at a price this low yet. We don’t know how to value the user-review database (or how the street values it) so our value strategy is unlikely to be meaningful.

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.