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TripAdvisor Leads The Way In Online Travel Content

By: Investor's Business Daily
Posted: 1/22/2013 4:05:00 PM
Referenced Stocks: EXPE;KYAK;PCLN;TRIP

Companies that provide online travel content should be feeling pretty good about themselves after a series of recent deals from suitors with deep pockets.

One of those companies,TripAdvisor ( TRIP ), has seen its shares spike higher in recent weeks thanks to a move by Liberty Interactive to take control of its shares.

TripAdvisor is a provider of online travel information and reviews. It bills itself as the largest travel site in the world with more than 60 million unique monthly visitors, 36 million marketable members and more than 75 million reviews and opinions. More than 60 new contributions are posted every minute.

Those kinds of numbers likely played a big part in Liberty's decision to pay a premium for control of TripAdvisor.

On Dec. 11, Liberty bought about 5 million shares of TripAdvisor's common stock from media mogul Barry Diller and the Diller-von Furstenberg Family Foundation. The price came to roughly $62.50 a share, or about $312 million.

The transaction gave Liberty control of about 22% of TripAdvisor's common stock and 57% of its voting stock.

TripAdvisor, which was spun off fromExpedia ( EXPE ) in December 2011, saw its shares spike as much as 22% on the day the deal was announced before closing up 6.5% to 40.91. Shares have since risen another 10% and currently trade near 44.

Equity Stake

Not long after that deal, Expedia said it would buy a 61.6% equity stake in trivago, a German search engine that focuses on hotels, for roughly $632 million in cash and common stock.

In November, ( PCLN ) said it would acquireKayak Software ( KYAK ) for about $1.8 billion. Kayak's website lets travelers compare prices and make reservations for hotels, flights, cars and vacations.

These kinds of deals serve to underscore the value of leading players in the online travel sector, analysts say.

"The deals caused a lot of excitement in the space and helped improve sentiment that was already very good," said Kevin Kopelman, an analyst at Cowen & Co. "They also highlighted TripAdvisor, which is much larger than either Kayak or trivago and stands out as the obvious non-Priceline, non-Expedia independent brand."

In a note, JPMorgan analyst Doug Anmuth said the Liberty deal "is not likely to have any direct impact" on TripAdvisor's business operations.

But, he adds, the premium Liberty paid for the shares "could be viewed as a positive indication of TripAdvisor's growth potential in 2013."

Financially, TripAdvisor has delivered solid sales growth during its first year as a publicly traded company, though its profit growth has been spottier.

The top line increased at least 16% during the first three quarters of 2012. Year-over-year earnings were flat during the first quarter and down 5% during the second, though they came in 12% higher during the third quarter.

TripAdvisor is slated to report fourth-quarter earnings Feb. 13. Analysts expect a gain of 17%.

The company offers its services free to users. It gets most of its revenue from click-based and display ads, mainly from hotels, airlines and cruise operators.

TripAdvisor also gets fees from subscriptions, content licensing and other businesses such as SniqueAway, a members-only website that features hotels with a minimum four-star rating classification and a minimum four out of five TripAdvisor review rating.

The company does not operate as an online travel agency. Instead, it provides information and links that let users book directly with hotels and other businesses.

Reviews are a big part of TripAdvisor's business model. Users can provide ratings for hotels, tourist sites, cities and restaurants.

Those reviews have come under fire amid concerns about their authenticity and fairness. Much of the complaining has been done by hotels and other businesses that received poor reviews.

In response, TripAdvisor launched a customer support line that lets hotels report reviews they deem unfair. The company has also cited its own surveys showing that 98% of its users trust the reviews on its website.

Most analysts downplay the issue.

"It's a total nonissue," Kopelman said. "In our survey work, TripAdvisor users were overwhelmingly satisfied with their experience."

The company hasn't had much problem attracting visitors. Kopelman points out that TripAdvisor is "the most searched-for online travel brand in the world and also has the most unique visitors worldwide."

U.S. Revenue

TripAdvisor gets about half its revenue from the U.S. Much of the rest comes from the U.K. and other European countries. That revenue stream bodes well for the company in coming quarters, analysts say.

"We expect upside from strengthening U.S. and European economies, growth in global travel, and a desire by more hotels to move away from online travel agencies to lower booking fees," noted Laura Martin, an analyst at Needham & Co.

TripAdvisor logged third-quarter revenue of $212.7 million, up 18% from the prior year and slightly ahead of Wall Street estimates. Traffic to TripAdvisor's websites increased by about a third in the quarter.

Earnings gained 12% to 46 cents a share, topping views by 4 cents.

Revenue from click-based advertising climbed 15% to $168 million. Revenue from display-based advertising rose 12% to $23.6 million, while revenue from subscriptions and other sources increased 53% to $21.1 million.

TripAdvisor has focused part of its recent growth strategy on its mobile platform.

The company launched its mobile website three years ago and has added apps for the iPhone, Android, Nokia, Palm smartphones as well as the iPad. It boasts about 35 million unique mobile device visitors.

"TripAdvisor is clearly being used a lot on smartphones, and particularly on tablets, and they have been moving toward a more user-friendly system," Kopelman said.