Following Billionaire John Malone's Move into TripAdvisor

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Billionaire John Malone, who has made a lot of corporate actions and acquisitions for his companies, has just gained control of online travel research company, TripAdvisor (NASDAQ: TRIP) via Liberty Interactive (NASDAQ: LINTA). Malone bought nearly 4.8 million shares of TripAdvisor’s common stock at a price of $62.50 per share from Barry Diller and The Diller-von Furstenberg Family Foundation. The $300 million transaction would allow Liberty to own nearly 18.2 million shares of common stock and nearly 12.8 million shares of Class B stock of TripAdvisor. Thus, Malone is effectively controlling 22% of the equity and 57% of the total voting stocks in the company. 

Significant Growth and Cash Generating

TripAdvisor is the biggest online travel company, with the localized website versions in 30 countries, more than 60 million unique monthly visitors, and 75 million reviews and opinions. (comScore Media Metrix, July 2012). The business generated revenue via advertising sales, including click-based advertising, display-based advertising and subscriptions and transactions. Out of $637 million total revenue in 2011, $500 million was generated via click-based advertising, or nearly 78.5% of the total revenue. The click-based ad has grown fast over the years, with the year-over-year growth of 30% for 2011-2010 and 27% for 2010-2009.

In the last three years, its net earning has grown from $102 million in 2009 to $179 million, marking an annualized growth of more than 20.6%. In addition, it enjoys constant cash flow generation. Since 2009, TripAdvisor has kept generating positive free cash flow. Trailing twelve months, the free cash flow generated was $168 million. Interestingly, it is a high margin business; the net margin fluctuated in the range of 27.9% - 29.1%, with the ROIC in the range of 21.7% - 29.8%.

In order to achieve those returns, the company didn’t employ a lot of leverage. As of September, it had $689 million in total shareholders’ equity, $548 million in cash, and $350 million in long-term debt. However, it booked as much as $469 million in goodwill items, due to the acquisitions of different online travel media content companies.

Facebook Platform is Efficient for TripAdvisor

Dated back 2010, TripAdvisor has leveraged Facebook (NASDAQ: FB) with its Open Graph with Trip Friends features, which let travelers look for friends for travel advice. It was a quite personalized and helpful tool for travelers to get advice about hotels, flights, activities and much more. In April, TripAdvisor and Cities I’ve Visited have been merged into one app for TripAdvisor Facebook users. According to Appdata, the number of monthly active users has reached 49.3 million. The travel market research firm PhocusWright mentioned that users who were referred to travel booking sites from Facebook would be much likely to book travel than those via search engines like Google.

Liberty Tracking Stocks

Coming back to the story of Liberty Interactive, the company said the shares of TripAdvisor stock have been attributed to Liberty Ventures tracking stock. Liberty Interactive tracking stock is used to track the digital commerce cash cow businesses such as Backcountry.com, QVC, Bodybuilding.com, etc. Liberty Ventures is to track business investment segment, rather than operating business. It currently had the interests in AOL, Expedia (the ex parent of TripAdvisor), Time Warner, Tree.com and TripAdvisor.

Foolish Bottom Line

For sure, buying the controlling stake of TripAdvisor, the fast growing online travel website, will create a lot of value for John Malone's company. If interested, investors might follow Malone into TripAdvisor by just buying the shares outright, or buying Liberty Ventures tracking stock. However, investors need to dig deeper into the business fundamentals to see whether it is currently undervalued or overvalued, and to determine their own course of actions.  


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and TripAdvisor and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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