TripAdvisor A Uniquely Profitable Online Play

By Ryan C. Fuhrmann | March 27, 2012 AAA

Just prior to the end of 2011, online travel company Expedia (Nasdaq:EXPE) spun off TripAdvisor (Nasdaq:TRIP) into its own publicly traded company. The company recently issued its 10-K filing with the SEC, lending solid insight into its impressive recent trends. For more information, see Save On Planes, Trains And Automobiles.

Company Overview
TripAdvisor bills itself as the largest online travel company. According to its statistics, it leads the travel website landscape with close to 45 million unique monthly visitors. It lists booking.com as the next largest with 31 million visitors, and is followed by Expedia's various websites, Yahoo! (Nasdaq:YHOO) Travel, Orbitz Worldwide (NYSE:OWW) and Travelocity. It also considers Google (Nasdaq:GOOG) a competitor, as well as search providers where consumers are able to research travel destinations, book rooms, airfare, hotels and just about anything related to vacationing.

TripAdvisor sees its offerings as differentiated from rivals due to its combination of high traffic and travel content. Users set up travel profiles and offer feedback on all of the travel-related activities listed above. The more users and quality content, the more likely it is that TripAdvisor maintains an active user base and grows across the world. To learn more, see 16 Tips For Scoring Cheap Tickets.

Financial Results and Trends
TripAdvisor makes nearly all of its money from advertising, but is diversifying into subscription-based revenue, as well as other advertising avenues, such as social media and through mobile devices. Revenue is growing rapidly and has averaged around 30% annually. Revenues from 2011 came in at $426 million. Net income was $177.7 million for a very impressive net margin of nearly 42%, and worked out to $1.32 per diluted share. Free cash flow was also impressively high at $196.6 million, or approximately $1.46 per diluted share.

For all of 2012, analysts currently project sales growth above 17% and total sales near $748 million. They expect earnings of $1.37 for modest annual growth of 3.8%. The likely anemic profit trends are probably due to spending for TripAdvisor to build out its own corporate overhead and operate as an independent firm. For more information, see Best Credit Cards For Holiday Shopping.

The Bottom Line
On an earnings basis, TripAdvisor looks pricey at a forward multiple of roughly 25.2. The price to sales multiple is also rich at 6.2. However, in stark contrast to the wave of social media and other Internet-based firms rushing to issue shares to the public, TripAdvisor has a solid track record of profitable growth. In this context, the stock looks quite appealing, and even could be worth the lofty valuation with several more years of 20%, or greater growth under its belt. For more information, see 7 Ways To Save On Summer Getaways.

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