Acquisitions boost TripAdvisor
Already the largest travel site in the world, this company is poised to grow a lot bigger.
By Timothy Lutts, Cabot Stock of the Month
Back in 2000, TripAdvisor (TRIP) was a small, independent company featuring user-generated travel tips; it is now the largest travel site in world measured by both content and visitors.
In 2004, TripAdvisor was purchased by conglomerate Interactive Corp., which spun off its travel businesses under the name of Expedia in 2005. In December 2011, TripAdvisor was spun off from Expedia in an IPO. But all the while, TripAdvisor was growing, by acquiring smaller competitors and amassing more and more user-generated content.
TripAdvisor offers localized versions of its site in 30 countries. More than a billion travelers visited TripAdvisor's website during the first half of the year.
In addition to its namesake website, the company also runs Airfarewatchdog, BookingBuddy, Cruise Critic, Family Vacation Critic, SeatGuru,Travel Library, TravelPod, VirtualTourist, and others.
Revenue from click-based advertising accounts for 74% of TripAdvisor's revenue, while revenue from display-based advertising accounts for 13%. The remaining 13% comes from subscriptions, transactions and other sources.
North America accounts for 54% of revenues, Europe, Middle East and Africa region for 30%, Asia-Pacific for 12% and Latin America for the rest.
In the second quarter, TripAdvisor stopped offering pop-up ads and rolled out a new hotel metasearch display that's less intrusive and more effective.
In addition, the company repurchased 675,000 common shares of its stock for $42.4 million -- an excellent sign that management believes the stock is a good value.
Plus, the company is in the midst of more acquisitions: Jetsetter, CruiseWise and GateGuru. In sum, the company is growing, thriving, well-managed and set to get a lot bigger for two simple reasons.
One, the world is its marketplace and there's enormous potential for growth as people adopt middle-class lifestyles that include travel, particularly in China.
Second, the network effect will continue. More than a decade ago, when I looked at TripAdvisor, there wasn't much there. Today, it's an easily navigated, comprehensive resource. And no competitors are close.
The company's revenues and earnings are both growing rapidly, while after-tax profit margins are plump. The fact that the majority of the company's content is free is not to be underestimated.
Looking forward, analysts estimate that 2014 earnings will grow 30%. My guess is the company will do better, in part because there will almost certainly be more acquisitions.
Technically, the stock hit a high of $82, and then fall heavily after the CEO told analysts that business this summer had been "bumpier" than expected, and that traffic was below the company's target.
That selling brought the stock down from the stratosphere, and led to the building of a two-week base in the $70 area. Meanwhile, the stock's 50-day moving average is nearing $68, and thus is very likely to provide support in this area. I recommend buying now.
More from TheStockAdvisors.com
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The next half-decade could bring dozens of new potential blockbuster treatments to the market.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.