Is Tripadvisor a Good Stock to Buy?

Since its spinout from Expedia Inc (NASDAQ:EXPE) and becoming a public company in December 2011, Tripadvisor Inc (NASDAQ:TRIP) is up 22%, about even with the NASDAQ. The company allows its users to access a database of reviews of primarily hospitality providers- hotels, inns, and bed and breakfasts-as well as restaurants and other service providers. Needham recently initiated coverage on the stock, naming it a buy.

In the second quarter of 2012, Tripadvisor’s revenue was up nicely from the same period a year earlier, showing a 16% gain. However, costs were considerably higher, notably administrative costs and in particular a large increase in stock-based compensation. Net income declined as a result. To some degree this is to be expected as the independent company now has to pay costs that were previously covered by the larger Expedia organization, and so cost growth over the next year should not be as high. However, even after stripping out increases in stock-based compensation selling and marketing costs grew faster than revenue. In addition, cash flow from operations was down.

Andreas Halvorsen

Tripadvisor Inc now trades at 26 times trailing earnings. Wall Street analysts think that the company is going to grow to the point where the current market cap of $4.8 billion represents a multiple of only 19 on earnings estimates for 2013. Our point of view is that its cost growth should slow, and that revenue is likely to continue growing, and so that margins could be on the way up.

There is a good deal of interest in Tripadvisor Inc from hedge funds, according to our database of 13F filings. Hedge funds like to invest in spinouts because management of the new company can concentrate on improving their core business rather than serving the interests of the larger organization. Learn more about spinouts and why they often make for good investments. Tiger Cubs in particular seem to like Tripadvisor, with three of the four largest positions in the stock being held by funds managed by former Tiger Management employees. Andreas Halvorsen’s Viking Global had the largest position, at the end of June, with 9 million shares (see more stocks owned by Viking Global).

The online travel industry as a whole is expected to achieve strong growth in the coming years, and so compared to many of its peers Tripadvisor is not particularly high priced. HomeAway, Inc. (NASDAQ:AWAY) is barely profitable on a trailing basis, and even looking forward to 2013 the vacation rental property website owner trades at 40 times expected earnings for that year. It grew its earnings substantially in its most recent quarter compared to a year earlier, but revenue growth of 22% was not much higher than Tripadvisor’s. We don’t think it is as good a value. Expedia and Priceline.com Inc (NASDAQ:PCLN) depend on bookings as opposed to reviews, but still make for good comps as they are also driven by travel trends. They are also larger businesses than Tripadvisor. Expedia and Priceline both trade at 17 times forward earnings estimates, however, which implies an actual discount relative to Tripadvisor’s forward P/E. With Priceline in particular showing very strong earnings growth recently- up 37% last quarter over a year ago- we think it may be the best buy in the industry, and like Tripadvisor Priceline counts many hedge funds among owners of its stock. Read about hedge fund investments in other travel companies.

Investors could also consider Yelp Inc (NYSE:YELP) as a peer as it too operates as a collection of reviews of local businesses. Yelp is looking at unprofitability this year, but analysts expect it to break into the black in 2013. It still trades at a very high forward P/E, but the theory is that earnings growth will continue and lead it to justify its $1.8 billion valuation- about 40% of Tripadvisor’s market cap, even though the latter company is clearly profitable already.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

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!