You travel, you dine out, you take pictures… you spend money. This is my list of Internet services related to leisure activities: Tripadvisor Inc (NASDAQ:TRIP) is used for voyages, OpenTable Inc (NASDAQ:OPEN) is used to eat out and Shutterfly, Inc. (NASDAQ:SFLY) is used to keep the memories alive. These three companies beneficiate from increasing disposable incomes around the world and an ever-growing use of the Internet as a research, reservation and retail option. The companies therefore offer plenty of upside for investors, for the years to come. Below you will find a succinct analysis of why I believe that these firms offer good long-term investment opportunities beyond their valuations.
TripAdvisor: Online travel agency
Tripadvisor Inc (NASDAQ:TRIP) is an online travel agency and research company that operates worldwide under different web domains. The website’s main differentiator and attractive is its review database that comprises over 60 million user opinions on travel related issues. By centralizing a wide array of services, the firm has put together a hard-to-match offering that results in over 50 million users visiting the company’s websites each month. With so many users willing to spend money traveling, revenue sources are varied and range from advertising to travel vendors and agents like Experia.
Although the company is expected to perform weakly over the next couple quarters while it finishes itstransition to the meta-display feature, several other elements should drive growth in the longer term. Namely, a strong brand name and client base; a constantly growing review base and product offering; and a renewed user experience. The mobile segment should also contribute to revenue growth in the years to come, although hefty investments will impact on short-term profitability.
Additionally, the increasing travel-related Internet traffic, corporate spending on advertising and use of the Internet in emerging countries -especially in Asia-Pacific and Latin America- should provide further growth opportunities.
Although overvalued in relation to its industry, I'd recommend BUYING and holding on to this stock, since analysts expect Tripadvisor Inc (NASDAQ:TRIP) outperform its peers’ earnings-per-share growth rates comfortably. Offering great returns, margins and cash generation capabilities (about 30% of revenue is converted into free cash flow each year), this company should deliver plenty of upside for those willing to wait.
Shutterfly: Social & personal services
Shutterfly, Inc. (NASDAQ:SFLY) is an “Internet-based social expression and personal publishing service that enables consumers to share, print and preserve their memories” (Morningstar). With a market capitalization of $2 billion, this company has been catching the eye of investors for a few quarters now. Two factors have dissuaded many from buying this stock lately, however. First off, its valuation: trading at 98 times its earnings, these shares look quite expensive. In the second place, its weak guidance for the 2013 fiscal year discourages most short term-investors.
Nevertheless, long-term prospects look pretty promising: analysts expect earnings per share to grow in the 16% to 20% range each year over the next five. There are several other reasons to feel optimistic about this company and to BUY AND HOLD its shares as well.
Over the next few years, its revenue and earnings should continue to grow on the back of its market leading position and constantly expanding client base. Several acquisitions will also help diversify Shutterfly, Inc. (NASDAQ:SFLY)'s product offering, helping attract a wider array of customers. Some of the most recent purchases include Kodak Gallery´s online photo services, Fuji Film´s SeeHere.com photo-sharing website, Penguin Digital and WMSG. Strategic partnerships will play an important role in future growth as well, as proven by those with Groupon Inc (NASDAQ:GRPN), Best Buy Co., Inc. (NYSE:BBY), Target Corporation (NYSE:TGT) and Walgreen Company (NYSE:WAG), among others.
Diversification will also come from within; several initiatives, like Treat, its one-to-one greeting card service, and mobile-related services, are also expected to deliver plenty of additional revenue.