Shares of TripAdvisor
How it got here
Online travel research platform TripAdvisor, which was spun off from Expedia
The main driver of sales growth has been cost-per-click advertising, which accounted for 79% of TripAdvisor's revenue last quarter. Total CPC jumped 20%, which is impressive considering the king of CPC, aka Google
How it stacks up
Let's see how TripAdvisor stacks up next to its peers.
TripAdvisor and priceline.com
Sources: Morningstar, Yahoo! Finance.
It's very clear from the above metrics that investors are willing to pay a premium for growth in the travel services sector. Priceline has been capitalizing on international growth to drive its figures higher while the former Expedia brand, TripAdvisor, is capitalizing on the fact that vacation advertising is still in its infancy. Orbitz, on the other hand, hasn't been able to capitalize on growth within the U.S. despite an aggressive advertising campaign and has lost money each year since going public.
Now for the real question: What's next for TripAdvisor? That answer is really going to depend on whether the company can continue to grow its CPC while also making its business far less reliant on just CPC growth for bottom-line profits.
Our very own CAPS community gives the company a two-star rating (out of five), with 49 of 60 members expecting it to outperform. Although I have yet to make a CAPScall on TripAdvisor, I am more inclined to feel that the company is overvalued than undervalued at this point.
As I mentioned moments ago, one of my biggest concerns with TripAdvisor is its reliance on CPC advertising. CPC ads were the death knell of far too many Internet companies in the early 2000s for me not to be concerned when 79% of revenue comes from that segment. I'm also not a huge fan of paying 22 times cash flow for a company that only managed to boost net income 2% year over year. Sure, net income more than doubled sequentially, but that doesn't make up for the near-flat net income compared to last year. If TripAdvisor continues its ascent, I may counter with an underperform rating, but only time will tell if that happens.
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