Tripadvisor Inc was spun out from Expedia Inc (NASDAQ:EXPE) about a year ago to focus on providing reviews and other information about hotels, restaurants, and other locations (as opposed to Expedia’s focus on reservations). According to the company’s most recent 10-Q, revenue was up 18% in the third quarter compared to the same period in 2011. Net income was up 9%, though earnings per share were about flat as the result of an increase in share count. The market is pricing in high growth, with a trailing P/E of 32, and we would generally want to see better historical earnings growth for a stock at that multiple.
Two other Tiger Cubs with large holdings of Tripadvisor Inc at the beginning of October were Andreas Halvorsen of Viking Global (check out Halvorsen’s stock picks) and Philippe Laffont of Coatue Management, who actually had the $6 billion market cap company as one of his ten largest holdings (find more of Laffont’s favorite stocks). Luxor Capital, managed by Christian Leone, more than doubled its own stake in Tripadvisor last quarter and closed September with 6.4 million shares in its portfolio- just below the 5% threshold. See more stocks Leone likes. However, the most recent data shows that 16% of the outstanding shares are held short, so we know that a number of market players consider the stock overvalued.
The closest peers for Tripadvisor are Priceline and Expedia. These stocks both carry trailing P/Es of 23. Priceline reported double-digit revenue and earnings growth last quarter versus a year earlier, including a 27% growth rate on the bottom line, and it might be considered for “growth at a reasonable price.” Expedia’s earnings are down from a year ago but that would be expected as Tripadvisor’s business had been included in its Q3 2011 results. Kayak would be a good comp if it wasn’t currently a Priceline acquisition target, but we can instead compare Tripadvisor to Chinese tour company Ctrip.com International, Ltd. (NASDAQ:CTRP). Ctrip trades at 27 times earnings, whether we look at trailing results or at consensus for 2013, and considering that its earnings were down 40% in its most recent quarter compared to the same period in the previous year we would avoid it.
It’s also interesting to compare Tripadvisor to another reviews company- local business reviewer Yelp Inc (NYSE:YELP). Yelp is struggling with profitability, and only 2 cents of EPS are expected next year. The market cap is $1.2 billion, and it is a very popular short, but revenue at least has been up strongly. We don’t think it’s a good value, but the risk of Yelp being acquired is too high for us to recommend a short here.
Tripadvisor seems a bit expensive to us- perhaps not as expensive as some similar companies, but earnings would need to come up quite a bit to justify the current valuation and recent growth rates haven’t been particularly high. Priceline, and possibly Expedia, seem like better places to look for travel stocks.
