What makes this Review Site a Good Opportunity?
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Operating in a niche market, TripAdvisor has its forte in user reviews and its system of facilitating travel bookings with its new types of travel planning tools. TripAdvisor is not only the traveler’s choice, but also a preferred option among hedge funds. The major funds holding a substantial stake in Tripadvisor are Viking Global, with 9 million shares, and John Griffin, with 5.6 million shares. Also coming into the reckoning is Philippe Laffont, which has purchased over 4 million shares of the company in 2Q 2012.
On the other side, a shift from pop up windows to meta display shows how TripAdvisor has maintained a harmonious balance between user experience and monetization. This alteration in the monetization strategy will reflect in sustainable revenue growth in the long term. Over the last 12 years, TripAdvisor has seen consistent growth, and it has had a continuous developmental track record in terms of economic value creation and consumer usage. Rich user generated content gives it valuable growth opportunities.
The hotel review site has reported 3Q 2012 revenue of ~212.7 million (+17.7% year over year versus 16.5% in 2Q 2012). With these results TripAdvisor’s performance spiked higher, and the company will definitely continue to capture a big chunk of the market share with its strong fundamentals. These fundamentals include:
Integration with Facebook
Online media sites such as Facebook (NASDAQ: FB) are used heavily by the users to communicate and share information, including travel-related info. TripAdvisor took the opportunity and entered into a partnership with Facebook in 2010. With this partnership, it is looking forward to leverage new ways to hold traffic at its site, e.g. it launched a set up that allows the consumers visiting a site with their Facebook account to receive instant personalization, and, moreover the users can check which hotels and restaurants have been reviewed by their friends and where they are going for their vacations.
Recommendations from friends have been very effective, as this creates a better user experience and differentiates TripAdvisor from other travel companies. As per Appdata, as many as ~32 million consumers logged in to Facebook using the TripAdvisor application and made it the second most popular application on Facebook. This integration has lowered TripAdvisor's cost of acquiring the next consumer, as it creates free traffic for the company.
The company remains focused on its mobile initiatives and it intends to further drive up user registration, adoption and increased number of unique visitors to its site. For the growth in the mobile generated business, Tripadvisor is making investments in its mobile and tablet application (SeatGuru). It has the largest share of unique visitors of mobile and app audience combined. At present, the company has around ~35 million unique mobile device visitors. The company has shown its ability to expand its presence on the mobile device. Increased demand over the mobile device will generate revenue for Tripadvisor as its tablet monetization is ~50% of its desktop and smartphones are at ~10%. This will further widen its lead over its competitors.
TripAdvisor's key focus remains on international expansion as today it is present in ~30 countries including the UK, the US, Spain, Denmark, India, and more. China remains its main focus, as it is expected to reach ~650 million internet users by the end of 2015, with ~30% growth y/y in the online travel market. TripAdvisor’s entry in the new market will not cost it much, as all it has to do is to create a new website. It has almost 95% of margins from these very countries.
Summing up, I can see TripAdvisor as a leader in terms of social integration, its extended presence in mobile devices, and the international market. The company has a competitive advantage over Priceline (NASDAQ: PCLN) and Google. TripAdvisor’s 6.5K hotels and 980,000 restaurants on its website are almost 3x more than its close competitor Priceline. With the Kayak Acquisition, Priceline will be better equipped to compete with Tripadvisor, as this acquisition will provide Priceline with more users from the well established US market.
TripAdvisor’s strength lies in providing the maximum number of choices and ease to its consumers. Also, it’s social integration and scale is a challenge to Google, which has been lack-luster in its travel and review offerings. The company has the highest quarterly revenue growth and operating margin in the travel industry, as shown below.
Source: Yahoo Finance
Although with a higher forward P/E of 20.11x the company has a good potential and it produced good returns and upside in its stock price in the last one year. The stock price of Tripadvisor has appreciated around 33% since it spun off with Expedia in December 2011. I would recommend TripAdvsor as a buy.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Priceline.com, and TripAdvisor and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!