Trip Advisor: Taking Off
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When planning a trip to an unknown location, finding relevant and unbiased information is not an easy task. Travel agencies, hotels or other interested parties are obviously not the most transparent sources of independent advice. Also, there are many aspects in which the experience of other travelers may serve as invaluable advice: When's the best time to visit a certain place? What preparations should I keep in mind?
Available in 30 countries and 20 languages, and with more than 50 million unique visitors per month, Trip Advisor (NASDAQ: TRIP) is one of the leading sites providing a complete network of solutions to handle tips and advice on destinations, hotels, restaurants and excursions among other things. Travelers looking for advice on these issues find a lot of useful information on Trip Advisor without the need to jump from one site to another.
There is also a sense of community among users of the site, and viewers build their reputation through knowledgeable advice and a helpful attitude. Trip Advisor helps travelers by relying on the wisdom on crowds -- the site provides aggregated rankings that make the relevant information easy to access and well organized. You can look for the best-ranked hotel in a certain area of New York, for example, and that saves considerable time and energy by avoiding the need to read reviews on each and every option available.
Trip Advisor monetizes the business by selling ads to companies like Expedia (NASDAQ: EXPE), Priceline (NASDAQ: PCLN) and other vendors, which obtain high-quality traffic from Trip Advisor. Trip Advisor used to be part of Expedia until December 2011, when it was spun off from its parent company. Being an independent corporation, Trip Advisor is now better positioned to target different clients, especially Priceline.
Expedia and Priceline are competitors in the online bookings business, but Priceline is growing much faster with a more than 30% annual increase in revenue over the last five years compared to a less than 10% for Expedia over the same period. Priceline and other travel agencies had good reasons to be reluctant about spending money on Trip Advisor when it was part of Expedia, so Trip Advisor´s recently gained independence opens the door to better growth prospects in the future.
Revenues and profits have been expanding at more than 40% annually over recent years, and there are many strong tailwinds benefitting the company in the middle term. Travelers are using online channels for planning and reservations each day more due to price transparency and convenience, and that should provide more traffic to Trip Advisor while at the same time increasing the amount of money other companies spend on advertising to attract customers.
International markets account for more than 75% of traffic, but their share of the company's revenues is in a much lower 30% zone. As the company keeps expanding and customers in emerging markets become more used to online travel services, the opportunities for growth are clearly very attractive.
There are important risks to watch, mostly regarding competition. Google (NASDAQ: GOOG) is probably the biggest menace to Trip Advisor. The online search giant has expanded into travel and hotel bookings, it has very deep pockets and an outstanding reach. If Google intensifies the competitive pressure against Trip Advisor, the flight may become shakier.
Although Trip Advisor has invested heavily in its mobile platforms, and has seen a positive response in terms of traffic and application downloads, management is prioritizing user experience and is not monetizing mobile now. The company will need to pay close attention to the challenges and opportunities that the trend toward mobile implies in order to adapt quickly and efficiently to a changing environment.
With a Price Earnings (P/E) ratio above 34 Trip Advisor is not precisely a bargain, but this kind of high growth company usually carries above average valuations. If the company continues growing like in the past, current price levels will look like buying opportunity a few years from now.
This is a small company in a very dynamic industry, so an investment in Trip Advisor should certainly be considered risky, especially in case bigger companies like Google increase their presence in the industry. On the other hand, Trip Advisor offers some very exciting growth opportunities, and it looks like this plane may be just taking off.
acardenal owns shares of Googlw. The Motley Fool owns shares of Google, Priceline.com, and TripAdvisor. Motley Fool newsletter services recommend Google, Priceline.com, and TripAdvisor . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.