Shares of travel website operator TripAdvisor (TRIP -1.56%) rose just shy of 10% in early trading. Although it pulled back a little bit, by roughly 1 p.m. EST it was still holding on to most of the gains. The likely reason was an analyst update on the stock.
Citigroup analyst Jason Bazinet made a material revision in his opinion of TripAdvisor, taking it from neutral to buy. The analyst also increased the stock's price target, more than doubling it from $29 per share to $62. The stock closed at roughly $49.35 on March 1, so some of the increase was simply catching up to the current valuation. But the $62 target still represents a roughly 25% upside in the stock versus yesterday. Today's gains ate some of that potential, but didn't fully close the gap.
Investors tend to like it when Wall Street analysts upgrade stocks, so it's not surprising that TripAdvisor's shares rallied on the Citi upgrade. Behind the upgrade was the Citi analyst's reexamining of TripAdvisor's Plus business. Plus is basically a subscription service that provides better rates to customers who pay TripAdvisor an annual fee. Citi believes it could eventually amass 10 million subscribers and an additional $1 billion in revenue for TripAdvisor.
The prospects the Citi analyst laid out for TripAdvisor Plus are merely educated guesses at this point. However, long-term investors should probably reconsider the potential of the business, as well. The gains today have clearly priced in some good news, but a successful subscription service could materially alter the TripAdvisor story, especially if the analyst's updated expectations pan out.