TripAdvisor – Bf Gf Portfolio

TRIP logo

trip advisor

 

That’s right.  That googly-eyed owl is a familiar sticker seen at places of interest, bars and restaurants.  I bought into TripAdvisor (TRIP) at $81.54 on 15 May 2015.  It’s market cap is currently 13.23B.  A recent strategic partnership between TRIP and Marriot International has boosted the stock price to $92.18 at the time of writing, giving paper gains of about 13%.  This deal is important for TRIP as it makes its foray to become a hotel booking site.

 

 

TRIP presentation

 

Business Model

The business model of TRIP is pretty straightforward.  Create a platform that has content contributed by the community.  Audience comes to take a look at the content.  Audience becomes leads and uses TRIP to plan for their trip and spend $$$.  After they come back from their holiday, they may feel compelled to post their review on TRIP, which helps to build a community which further drives more audience.  What a beautiful lead generation platform!

 

TRIP revenue streams

 

The above graphic pretty much sums up where TRIP gets their money from.  Cost per click advertising, display ads and subscription/transaction.  It’s an easy business to understand.

 

TRIP revenue by product

 

Another great thing about investing in TRIP is the way they present their quarterly financials.  These graphics makes data so easy to analyse.  From the graphs above, we can see that click-based advertising is the biggest revenue contributor.  It’s transactions and subscription portion have also been steadily growing throughout the years.

 

Financials

Income Statement for TripAdvisor Inc  TRIP  from Morningstar.com

 

The revenue has been growing respectably at about 26.6%. Net Income at 13% CAGR.

 

 

Balance Sheet for TripAdvisor Inc  TRIP  from Morningstar.com

 

Nothing scary looking about their balance sheet.  Their tiny cash pile is growing while their debt is reduced.  Current Ratio is at a healthy 1.96 and the total debt to equity is only at 23%.  TRIP is financially sound.

 

 

Cash Flow for TripAdvisor Inc  TRIP  from Morningstar.com

I like how their Free cash flow (FCF) has been steadily growing at 18% for the past for years.

 

 

Risks

 

High valuation might be a risk, at PE 60 and P/FCF 35 (ranging between 24.8 – 35.7 in the past 3 years). But then again, I can’t seem to find anything ‘cheap’ in US right now.  TRIP also has to work with other online travel companies like Priceline and Expedia.  This is tricky as TRIP moves to become a hotel-booking site, they may end up stealing revenue from 2 of their largest clients.  I wonder how these relationships will work out in the future.  That being said, I don’t see how Priceline and Expedia can do much since TRIP has already build a substantial network effect and has so much content that it is hard to re-create another website like TRIP or redirect traffic away from TRIP.

 

Only a small bet has been placed on TRIP.  I would like to see either a correction or a substantial increase in earnings before I add on more positions.  For now, it just serves as a diversification from another stock I own, Priceline.  (See below for elaboration!)

 

Why I invest in TRIP

 

I am a big bull on the online travel industry owning several Priceline shares myself.  I would find that the biggest threat to Priceline may be Trip Advisor.  However, speaking from personal experience, TRIP is the go-to-website for every holiday planner.  It has a huge volume of content (90 contributions every minute, 2800 new topics posted every day).  The key here is that TRIP is moving to become an online travel agent, allowing people to book hotels directly from its site.  They are small enough to grow and has a network effect that is hard to replicate.  Its network effect also serves for interesting collaboration or takeover with other social media companies like … Facebook.  A diversification play with this counter will suffice for now.  We will see where it ends up in 10 years.

 

After all, you’ll never know when a small guy might take down the big guy…

 

Growth companies like TRIP don’t pay dividends, sadly.  But other companies do.  Learn how to pick them by going through the Dividend Machines course.  I have written a review about the course here.  If you have already made up your mind,  click the image below to go to the Dividend Machines Course page

dividend machines

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