Is TripAdvisor a Good Investment? This Hedge Fund Thinks So

TripAdvisor Inc (NASDAQ:TRIP) saw Luxor Capital Group increase its 2Q stake in the online travel company by over 100%, from 3 million shares at the end of June to 6.5 million shares, per a 13G filing at the end of September. Christian Leone founded Luxor Capital, a New York-based hedge fund, in 2002. Prior to purchase of the new shares, TripAdvisor already made up over 6% of Luxor’s 2Q 13F portfolio.

Christian Leone

TripAdvisor operates in a more niche market than some of its competitors. TripAdvisor is a site that focuses on reviews and helps facilitate travel booking, where key competitors, such as Expedia Inc (NASDAQ:EXPE), Orbitz Worldwide, Inc. (NYSE:OWW), Priceline.com Inc (NASDAQ:PCLN), and Kayak Software Corp (NASDAQ:KYAK) actually handle travel bookings. Orbitz has had a tough time so far this year, down 30% year to date and missing last quarter EPS by 20%. As well, the President of the Orbitz.com segment has made a number of insider sales around $2.80 over the past few months. Of the top online travel companies, Orbitz is definitely the most undersized at a market cap below $250 million. Orbitz, with its sub-$5 stock price and low market cap has attracted little fund interest; however, Par Capital, a fund with substantial interest in the travel industry owned 24.6 million shares.

Expedia is relatively flat since the TripAdvisor spin off. Expedia is still one of the largest online travel companies and includes other businesses, Hotels.com and Hotwire. The big worry for Expedia is its large exposure to Europe, in addition to the company’s European concerns over its lack of advertising without TripAdvisor. Expedia will likely see negative margin impacts from more advertising spending and technology innovation in 2012. As well as, they’ll probably see a less diverse revenue mix and more limited growth opportunities that puts this year’s EPS growth below 10%, versus the industry average of 24%.

Priceline is the behemoth of the industry, at a market cap of over $30 billion. The company expects to grow revenues by 19% in 2012 and 15% in 2013. However, much like Expedia, Priceline has significant exposure to Europe, where over half of Priceline’s gross bookings come from international business. Priceline’s exposure has only grown with recent acquisitions of Active Hotels and Bookings B.V., which are Internet hotel reservation service providers in Europe. Due to this European pressure, Priceline saw its price target lowered $50 to $700 by S&P; the company currently trades around $600 a share.

Kayak, the new comer to the travel industry with its summer-2012 IPO, is relatively flat since its NYSE debut. Although the company missed its first EPS estimate as a public company by 8%, the company is still expected to grow next year EPS by 35%. TSCHE Bank recently reiterated its buy rating on the company, with analyst Lloyd Walmsley citing that some of the weakness experienced by other online travel companies will be much different for Kayak given the company’s limited European exposure. In its most recent quarter, Kayak derived only 19% of revenues from Europe. However, our concern for Kayak’s current stock price is that the company trades at a high P/E ratio relative to the industry, at 50x trailing earnings.

Since TripAdvisor was spun off of Expedia in late 2011, the company is up 33%, but Luxor sees more upside, as do we—see our other thoughts on whether TripAdvisor is a good buy. We also believe that Expedia needed TripAdvisor more than TripAdvisor needed Expedia—see what hedge funds think of the travel industry. Other funds have also taken notice of TripAdvisor’s growth prospects. This includes Viking Global with 9 million shares and John Griffin with 5.6 million shares. Also, Philippe Laffont took an entirely new position in 2Q that was over 4 million shares. Although TripAdvisor trades above average on a P/E basis at 25, the company’s forward P/E is 18, as the company is expected to have a positive uptrend in EPS growth over the next five years, with an expected CAGR of 15%.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!