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On December 11, Liberty Interactive (NASDAQ: LINTA) increased its control over its media empire with the purchase of 4.8 million shares of TripAdvisor (NASDAQ: TRIP) for $62.50 per share, a premium of 62.8% over the prevailing price.  Chairman Barry Diller and his family foundation were the sellers of the shares, which also included Mr. Diller resigning his post as chairman of the company.  Liberty already held controlling stakes in both the company and its former parent Expedia, but had previously given proxy voting authority over its shares to Mr. Diller.

Busy Bees

It’s been a busy year for Liberty in 2012 in the area of strategic investments.  In addition to owning the Starz video programming business and the Atlanta Braves baseball club, the company also holds major stakes in Sirius XM Radio (NASDAQ: SIRI), Live Nation Entertainment, and Barnes & Noble.  Liberty has been trying to gain majority control of Sirius and is currently waiting on the federal government to approve its application.  After almost failing during the financial crisis, Sirius’ business has improved significantly lately, with increases in revenues and operating income of 10.1% and 42.1%, respectively, in FY2012.  Its 23 million subscribers and captive market through relationships with the major automakers give it a solid moat to dominate the industry.

New Media Leader

Founded in 2000, TripAdvisor has become the leading travel research company, aggregating user-generated reviews and content in 30 countries and 21 languages.  Its business is built on the belief that customers trust and often follow the recommendations of others.  TripAdvisor has grown rapidly, with a current database of 75 million reviews and 36 million marketable members.  In the company's latest fiscal year, it reported revenues and adjusted EBITDA of $637.1 million and $322.9 million, increases of 31.5% and 23.7%, respectively, versus the prior year.  While revenues posted strong growth, operating margins were negatively impacted by higher administrative costs that were incurred in the process of becoming an independent public company.  In addition, the rise of heightened competition in the aggregation space, including sites run by Google and Microsoft, led to higher promotional and selling costs.

In 2012, TripAdvisor has continued to grow quickly, reducing its reliance on business from Expedia and adding content licensing partners.  The mobile segment has become increasingly important, as 16 million users currently access the company’s mobile app each month versus only 4 million in the prior year.  Customers have also been personalizing their experiences through the company’s Facebook tool, further extending TripAdvisor’s brand.  For the first nine months of FY2012, it reported increases in revenues and adjusted EBITDA of 18.9% and 7.6%, respectively, compared to the prior year period.  While business with Expedia declined due to a change in ad pricing, TripAdvisor increased its relationships with other travel agencies and continued to branch out into the vacation rental and business listing segments.  These new business lines will become increasingly important, as the company becomes a more diversified travel services provider.

Looking Ahead

Should investors follow Liberty’s move into TripAdvisor?  While the company has a solid foundation with its millions of members, competing against the web’s search giants may lead to compression in profit margins.  In addition, TripAdvisor’s new ventures are participating directly against its online travel agency clients, including its new Tingo hotel booking brand.  A better choice for investors would be Expedia (NASDAQ: EXPE), a leader in online travel and also a major part of the Liberty empire.

Founded in 1996, Expedia participates in all segments of the travel booking industry through some of the internet’s most popular websites, including Expedia.com, Hotels.com, and Hotwire.  The company offers its 60 million monthly users access to a network of 145,000 hotels and 300 airlines in 200 countries.  Over the past four fiscal years, revenues grew 35.8% as the travel industry has rebounded from the financial crisis and customers have reduced their risk aversion despite ongoing global conflicts.  While Expedia provides a range of travel services, roughly 74% of its revenues come from the booking of hotel rooms through its network of websites.

Through the first nine months of FY2012, the company reported an increase in revenues and operating income of 14.8% and 10.9%, respectively, versus the prior year period.  Expedia benefited from higher volumes in its hotel and airline business, although transaction prices declined as high occupancy levels have given operators more negotiating power.  In response, the company has moved into the faster growing corporate market through its Egencia subsidiary, where bookings have risen 32% in FY2012 versus the prior year period.  As one of key cogs in the global travel business, Expedia is a key holding for investors.


rghanley owns share of TripAdvisor and Expedia. The Motley Fool owns shares of TripAdvisor. Motley Fool newsletter services recommend 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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