The Perfect Stocks for a Day Trip

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Travelling is something of a luxury for a lot of people. Yet it is something most people engage in. It’s fun to discover new cultures, but it can also be a bit of a daunting experience; if for example, you can’t speak the language of the place that you’re going to. A lot of people saw an opportunity in this and set up travel websites that’ll help the potential traveler. One of the biggest of these is TripAdvisor (NASDAQ: TRIP); I use it quite frequently before traveling, and so do most people I know.

The difference between TripAdvisor and other sites, such as Priceline (NASDAQ: PCLN) and Expedia (NASDAQ: EXPE), is the fact that TripAdvisor doesn’t handle any bookings. The site is essentially run as a user-generated content site. It contains user reviews of accommodation, special places of interest, restaurants, things to do and the like, while Priceline and Expedia handles discount bookings for travel, accommodation, cruise bookings, and so forth. It is worth noting that TripAdvisor is a spin-off of Expedia.

On Friday, Nov. 1, shares of Priceline and TripAdvisor soared thanks to better than expected performance from the two companies. Priceline jumped 10.7% in early trading, thanks to the Q3 results that was declared after the market closed on Thursday. Priceline said that Q3 revenue grew 17.4% to $1.7 billion. The company said global bookings in Q3 increased by 41%, a number well above what was expected. The growth in international bookings was driven by strong hotel supply growth and solid results at rentalcars.com. The company expects international bookings to grow 32% in Q4, which is less than the growth experienced in Q3.

“The key take-away for Q3 may, in fact, be that the rising tide of transition from offline to online travel booking is strong enough to support material growth for multiple players,” said Michael Olson, analyst at Piper Jaffray. “Priceline continues to be a share taker in international online travel, something that was in question following Expedia’s strong Q3 results.”

One of the key concerns for investors was the fact that Expedia was rapidly gaining market share in Europe. However, the company is growing faster than its competition in major markets. Brian Nowak of Nomura Securities estimates that Priceline grew faster than Expedia internationally. Analysts also applauded the way the company is attempting to consolidate its position as the leader in the field.

TripAdvisor also beat analyst expectations. The company said profits jumped 9% to $59.4 million in the third quarter, compared to $54.3 million in the same quarter the previous year. The results mean earnings of $0.41 per share. Additionally, the company said that revenue increased 18% to $212.7 million. Analysts were expecting earnings per share of $0.42 on revenues of $210.9 million. The increase in revenue is attributed to gains from advertising and subscription. One of the things to note about this stock is that if you bought it in 2010, it only made you about 20% before the increase on Friday; not a particularly impressive growth rate over a 2 year horizon.

Expedia also had announced better than expected Q3 results towards the end of October. The company has a pretty strong platform, which includes recognizable names such as expedia.com, hotels.com, and hotwire.com. While the company didn’t exactly perform as well as Priceline, according to analysts it shows a penchant for innovation. The company’s Hotwire iPhone app is getting a lot of traction.

Expedia’s business model too has altered a bit. The company allows users to either pay beforehand or at the hotel during their stay, a move that is likely to help conversions. The company has a good presence in China too, thanks to a good relationship with eLong, which is a Chinese online travel service provider. There is good scope for growth for the company in this country, where annual travel revenues are about $100 billion and only about 13% of bookings are online.

I feel like a bit of a drone when I mention this, but the macro-economic climate will have a big impact on the performance of these companies. Travel is one of the first few expenses that get cut during adverse times. The operating margins for these companies aren’t great ,with Expedia at .14% and Priceline at .35%. The companies have a pretty high valuation as well – Expedia’s P/E is 23.85, Priceline’s is 24, and TripAdvisor is the highest at 27.04.

The high valuation is one of the reasons why I’d suggest you stay away from these companies and perhaps from the industry as a whole. Another reason that these companies have to fear is the entry of Google into the market with its purchase of ITA Software, the largest provider of search travel data. The question investors should ask themselves is – if you want 20% growth over two years, why not invest in a company like Apple?


ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Priceline.com and TripAdvisor. Motley Fool newsletter services recommend 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.

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