I have heard arguments that this is not how I should be valuing this stock given it is a “growth/tech” stock but I lean the other way. I think it is pertinent because there is a facility there that could eat into the available financial cushion at the picking up of a phone. Also, Trip Advisor (NASDAQ: TRIP) is nearly 20 years old, growth has slowed and its tech is easily matched at this point so I don’t agree with the evaluation that this is not a pertinent valuation approach and I disagree that it should be considered ala Facebook Inc (NASDAQ: FB), Netflix, Inc. (NASDAQ: NFLX) etc.
The stock price. One of the reasons I didn’t get one of the hedge fund jobs was that I shouldn’t have bet against a stock that was at its lowest level in years. I kind of went “huh?” “wha?” I said okay, thanks for your time and all the best with your search. And then the stock dropped a further 40%. It’s now risen back up to where it was in December 2016 so it’s worth noting that it moves around. In mid-May this year, over one day, it jumped 25% due to an earnings beat, in non-hotel revenues.
To me this clearly highlights that there still exists a place in the market for dreamers and the irrational and Trip Advisor (NASDAQ: TRIP) has what they are after. To me you’ve got a stock whose assets could be sold tomorrow for $440m assuming no discounts or wind up costs. They make somewhere in the region of $200m a year which isn’t really growing. So, at a market capitalisation of $6.5bn either you’re going to have to wait roughly 30 years, ignore inflation, to get your money back or, if you said, the last few years were negative anomalies and Trip Advisor’s profits will grow at 30% into perpetuity then it would still take you 9 years to get your money back. The former is unappealing to me and the latter seems unrealistic given there is no obvious source for growth and margin of that level with current information. The fair price to me for Trip Advisor seems closer to $2bn based on recent performance history but given the shifting landscape of the industry I don’t think that figure will hold well either.
Key Influencers
Primary Ownership – In 2012 Liberty Interactive Corp (‘Liberty’) purchased a voting majority of shares. Liberty is famous for balance sheet management, tax engineering and deal making and has subsequently spun its TripAdvisor Inc (NASDAQ:TRIP) shares into a separate holding entity and indicated the aim to line up a purchaser. They are unlikely to allow the costs to runaway such as through marketing spend. Liberty are lining Trip Advisor up for a sale but it is hard to see how attractive this would be to potential purchasers at current valuation levels with the industry tightening. To Expedia or Booking it would not necessarily add much to their current flows. They are both also large parts of Trip Advisor’s revenues so they already benefit greatly from Trip Advisor but without the hassle and cost of an acquisition.
It could potentially be a strategy to hoover up market share in the face of increasing competition in the industry but it would only add an additional 15% to 20% to their top lines. Potentially a smaller competitor with delusions of grandeur, too much money (or access to money) and an inability to see the issues ahead, would be a buyer also, it can’t be ruled out but an investment in the hope of an acquisition is not a sound risk aware strategy. Also the non-Liberty shares are unlikely to enjoy much upside given it would be Liberty selling the company via the voting power. Any premium paid or upshot in the share price would not be enough to compensate for the risk here.
