TripAdvisor (
TRIP
), the newly spun-off entity of the leading online travel
agency Expedia (
EXPE
), is set to release its annual financial results for the first
time on February 8. The spin-off is widely perceived as an
intelligent move given the different nature of the two businesses
as well as it gives TripAdvisor an opportunity to unlock its value
fully. TripAdvisor-branded websites globally received more
than 50 million unique visitors in July 2011 and have built a
marketable base of more than 20 million members and over 50 million
reviews and opinions. Riding high on its vast repository of
user-generated content and a rapidly expanding audience,
TripAdvisor has managed to sustain a phenomenal top-line growth of
over 30% over the past several quarters and at least 50% operating
margin.
Below we discuss the key trends to watch out for in the upcoming
FY 2011 results of TripAdvisor.
We have a
Trefis price estimate of $24.83 for TripAdvisor
, which is about 30% below the market price.
See our complete analysis for TripAdvisor's
stock
Margins under pressure in the near-term
TripAdvisor's profit margins are likely to be under pressure in
the near term due to a fall in per-click commission fee paid by
Expedia, which is TripAdvisor's most significant advertising
customer in terms of revenue. Expedia expects to reduce the
percentage of gross profit (on bookings generated from
TripAdvisor-sourced visitors) that it pays to TripAdvisor in the
future for click-based advertising. This is likely to reduce
Expedia's marketing spend on TripAdvisor.
Additionally, as a result of the spin-off, TripAdvisor expects
general and administrative expenses to increase by approximately
$20 million to $25 million. These costs are related to services
previously obtained from Expedia, such as accounting, legal, tax,
corporate development, real estate, and additional costs associated
with being a publicly traded company. The costs will also include
Expedia's obligation to fund a charitable foundation that will be
assumed by TripAdvisor. All these costs will likely weigh on its
operating margin, going forward.
TripAdvisor poised to capture the vacation rental
opportunity through its large user base
In the past year, TripAdvisor forged partnerships with several
leading vacation rental websites around the globe, including
Interhome, Stayz, Toprural and AKENA Technologies and is set to
exceed 200,000 vacation rental property listings. These
partnerships expand TripAdvisor's inventory and add to the premier
FlipKey and Holiday Lettings listings presently available on the
website. TripAdvisor continues to expand into the holiday home
marketplace, following the launch of vacation rentals on
TripAdvisor in 2009, and the purchase of a majority stake in the
U.S. based vacation rental website, FlipKey.com, in 2008.
TripAdvisor announced the acquisition of the U.K.'s largest
independent holiday home website, holidaylettings.co.uk, in June
2010.
Though the online vacation rental market is relatively new and
unproven, it is rapidly evolving and represents a sizable
opportunity for TripAdvisor. According to the November 2011 market
sizing study by Radius Global Market Research, vacation rental
market grew to $85 billion in 2010 and continues to grow.
By leveraging its existing user base and user generated review
community, TripAdvisor can tap the niche opportunity represented by
the vacation rental market which typically boasts of big ticket
items. According to PhoCusWright, Europe's €20 billion vacation
rental marketplace is experiencing a rapid change with travelers
demanding online booking and user generated content.
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