It's been a mere four months since my Special Situations portfolio picked up shares of TripAdvisor (Nasdaq: TRIP ) following its spinoff from Expedia (Nasdaq: EXPE ) . But, with the recent run-ups on Expedia's first-quarter earnings and now its own earnings results, it's time to bid TripAdvisor bon voyage and take our nearly 50% gain on to another great special situation.
I originally purchased the stock to take advantage of the spinoff, in the classic Joel Greenblatt special situation. TripAdvisor is the fast-growing, high-margin component of the former Expedia, while Expedia itself is the slower-growing, less profitable division. Also attractive is TripAdvisor's low need for capital expenditures, meaning it's a cash machine. So I expected it to attract the interest of investors, who probably would assign it a high multiple.
TripAdvisor has a competitive advantage in its review system that attracts viewers who then provide more reviews, resulting in a virtuous circle and some nice network effects. I also like the fact that 62% of sales came from the U.S., giving the company plenty of room to expand internationally.
Shares came out of the spin around $28 a pop and have now run to more than $42 -- a 50% gain in a little over four months. That move up values the stock at what I estimate to be 20 times the EV/EBITDA multiple for 2012 earnings. And while the company has some formidable growth opportunities overseas as well as domestically, I think it's pretty richly priced here. So I'll be unloading the shares from my Special Situations portfolio.
So long, TripAdvisor. It was a fun journey!
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