What Should Be Travelling Inside an Investor’s Portfolio
tarun is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There has been a stark change in the travelling business in the past decade. I remember how we used to plan everything about our annual family trip by consulting numerous travel agents for rates, discounts and other added facilities.
Now things have simplified a lot and the credit goes to the likes of Priceline (NASDAQ: PCLN), Trip Advisor (NASDAQ: TRIP) and other similar players in the market. These companies have made life simpler for tourists, but the question remains: Are they a boon for investors?
Review your holiday spot
TripAdvisor is the leading online platform for travel reviews. There has been incredible rise in traffic and content expansion on a global basis which has helped it perform well, despite increases in operating costs. The number of unique visitors on the company’s website, which indicates its future growth, is on an increase.
Total monthly unique visitors on the company’s branded sites increased about 45% in Q4 2012. There was a strong growth around the globe especially from Asia-Pacific, which contributed well over 75% of the total increase. Over 60% of TripAdvisor’s traffic comes from places other than the core U.S. and UK region.
The company offers its content in 21 different languages across the globe which has been the reason behind a plethora of new members every year. In the current year, TripAdvisor plans to further improve its brand image in the Asia-Pacific markets by accretion of more local language content.
Social media websites like Facebook have helped the company’s business greatly. Till the last quarter, TripAdvisor applications were the second most popular application on Facebook. Last year, the company doubled the number of members acquired through Facebook. This has helped it to grow its marketable members by nearly 100% from last year to 44 million.
The increase in the use of mobile phones and smartphones has also helped in the increase in traffic on the company’s website. The company has significantly enhanced its smartphone user interface which is evident from the facts that its smartphone and tablet app downloads have doubled to more than 31 million mobile unique users in Q4.
TripAdvisor’s expenses after it spun-off have risen noticeably, as most of the services such as accounting, legal or taxation was previously obtained through Expedia (NASDAQ: EXPE). Moreover, the company’s profit margins are on a decline in its per-click commission fee received from Expedia, which is its most significant source of revenue. Margins may shrink further as the company constantly invests in various marketing campaigns throughout the year.
TripAdvisor has always been ambitious when it comes to growth. It has shown remarkable growth in emerging markets and there is still ample scope in these markets. The company is using social media and mobile in its favor which will help the company grow its top and bottom line in the future. These reasons lead me to recommend TripAdvisor.
Is Priceline.com a buy?
Priceline.com is among the world's largest online travel agents and it operates with sites including priceline.com, booking.com, agoda.com and rentalcars.com. It offers hotel reservations in 99 countries in 41 different languages, and has performed very well throughout.
The company isn't afraid of acquiring companies to broaden its business base and its acquisition of Booking.com, which was done in 2005, is delivering in full force by generating more than four-fifth of its current revenue. As of 3Q 2012, the acquisition has appreciably increased its hotel properties to 245,000 which is almost 44% up compared to last year's.
Priceline.com has recently acquired Kayak Software, which well-known for enabling travelers to search and compare flights from a number of travel sites at once, for $1.8 billion. The acquisition should strengthen company’s lagging air travel business but the pricey acquisition leaves a modest margin of safety for the company.
The company has become a global name with over 82% of its revenue being generated outside U.S., mainly Europe. The company is now targeting the Asian market which is evident from its purchase of Agoda, an Asian hotel-booking site along with its alliance with CTrip, a Chinese travel service provider.
The company has been immensely successful with whatever it has done and I am equally optimistic about its success in Asia. The company has a robust balance sheet with a cash balance of over $5 billion and no debt. The company is currently trading a premium with a P/E ratio of 26.5 times. However, with a forward P/E of 19 times and a 5 yr expected PEG ratio of 1.2 the company has immense growth potential to support its valuation. In short, a good company to invest in.
Another site to get your bookings done
Expedia is the world's second largest online travel agency with leading travel websites such as expedia.com, hotels.com, venere.com and carrentals.com. It has relationships with over 145,000 hotels in 100 countries. The company is currently focused on mobile and trying to make it a platform to reach customers for making online travel bookings.
It will be acquiring a 62% stake in Trivago, the European online travel search site. Trivago is already established in Europe and has a horizon of more than 619,000 hotels with 143 booking sites for comparing rates online. This acquisition will give Expedia an entry in the hotel meta-search business. Moreover, Expedia’s revenue will soon increase as it is going to proportionately share around 20 million monthly visitors at Trivago.
Expedia’s growth in Asia, where margin per booking is a lot lower than U.S has affected its bottom line. Moreover, it faces a lot of competition from emerging local companies such as Makemytrip and Ctrip in the Asian market. The company has majorly grown its revenue over the period, which has helped its stock price to double in last year, leaving very low upside potential. Investors who are holding the stock for over a year, it’s a good time to cash in your shares and I would recommend not to buy any fresh investments.
tarunbachhawat has no position in any stocks mentioned. The Motley Fool recommends Priceline.com and TripAdvisor. The Motley Fool owns shares of 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!