2023-07-10 18:58:11 ET
Summary
- Despite facing competition from Google reviews and other travel sites, Tripadvisor remains relevant with its three revenue-bringing segments: Tripadvisor Core, Viator, and TheFork.
- Tripadvisor's financials for Q1-2023 show flat revenue and increased SG&A when compared to Q1-2019, resulting in affected operating margins, but an increase in cash on hand suggests better liquidity.
- I am not currently recommending the purchase of Tripadvisor stock, because of concerns about margins, profitability and valuation.
Recently, I was planning one of my first big trips in three years, and I was surprised to learn that Tripadvisor ( TRIP ) was still useful to me after all these years. I was in the skeptical camp for a long time, having seen Google reviews pick up steam and other travel sites encroaching upon the same space as Tripadvisor. Naturally, I wanted to further explore how the company has evolved and how they are differentiating themselves from the competition to stay relevant. There were a few eye-openers but looking at the full picture, I was still divided on whether it would make a good investment or addition to a portfolio. I rate this stock as a Hold for now, and below I will try to take the reader through my analysis.
Segments and Competition
Outside of having more than a billion reviews and ratings and primarily starting as a site for reviews and ratings, what does the company do now, and who is competing with them? Currently, the company has three revenue-bringing segments - Tripadvisor Core, Viator, and TheFork.
Tripadvisor Core: Offers more than 1 billion user-generated ratings and reviews on nearly 8 million experiences, accommodations, restaurants, airlines, and cruises.
Viator: Focuses solely on experiences achieved by connecting travelers with a wide range of activities through their online marketplace, Viator is a user-friendly platform that allows travelers to discover and book over 300,000 experiences from more than 50,000 operators.
TheFork: Online marketplace that focuses on dining experiences where diners can discover and make reservations at over 55,000 restaurants across 12 countries (The platform also offers more than 20 million reviews connected to restaurants).
There are agencies such as Expedia (EXPE), Booking Holdings (BKNG), Airbnb (ABNB), and Traveloka that provide similar offerings across one or more of these segments. Companies such as Google (GOOG) (GOOGL), Facebook (META), Twitter, Pinterest (PINS), and Snap (SNAP) compete in terms of online search, social media, and advertising spend. GetYourGuide, Klook, and TUI Musement compete mainly on experiences whereas OpenTable, Resy, and Tock compete on dining experiences. In certain instances, Tripadvisor also partners with some of these firms to complete the travel experience. All in all, it seems that there is little moat in these segments, with companies rapidly expanding into other areas of travel. For example, Airbnb started off as a site for booking stays but expanded into experiences. Snap started off as a social media company but has since expanded into many areas and now provides restaurant recommendations after partnering with restaurant review website The Infatuation.
So how relevant is Tripadvisor in 2023?
For the month of June, according to similarweb , Tripadvisor ranks second in terms of popularity and visits. Not bad when facing cut-throat competition from small and big players. In terms of user engagement, it has an average visit duration of 3 minutes, an average page per visit of 4.2, and a bounce rate of 57%. The low visit duration and the high bounce rate (percentage of users that leave the website after viewing just one page) make sense for a travel site whose primary business is still reviews and ratings.
Reviewing financials for Q1-2023
When looking at financials for the most recent quarter, it is hard to perform any comparison for the last two years, as it would not be fair. Most travel companies have shown great growth as this is the first year coming off the pandemic and this year has the least amount of restrictions worldwide over the last 2 - 3 years. So I believe a fair comparison would be to look at Q1-2019 and see how well the company has fared since.
Revenue has remained flat, but what is more concerning is that the company has increased its SG&A to generate the same amount of revenues (Selling and marketing costs as a percent of revenue were 59% in the first quarter). This resulted in severely affecting the operating margins.
Cash on hand has shown a marked increase, which suggests that the company is on a much firmer footing in terms of liquidity. But equity has significantly come down due to the re-appearance of long-term debt in 2020 (This was the case with many companies that were disproportionately affected by the pandemic).
Wrapping up, it is easy to conclude that the company is no better off or even slightly worse now when compared to its pre-pandemic quarter. I for one, will be eagerly awaiting their Q2 release on the third of August. I will again be comparing the Q2 of 2019 with Q2 of 2023 and see how the company has been able to transfer its relevance to actual dollars. The company and also many analysts overlook this detail. It is easy for companies in this industry to show growth by comparing 2023 with 2021 and 2022 and in my opinion it does not provide the full accurate picture.
Valuation in comparison with its peers
As discussed earlier, Tripadvisor faces competition in its core segments, but it is hard to find one single company that has the exact overlap. For our analysis, the below list of companies have varying degrees of overlap, and hence we are putting it in the same bucket.
Company | P/S |
Booking | 5.3 |
Airbnb | 9.4 |
Expedia Group | 1.3 |
Travel + Leisure ( TNL ) | 0.8 |
Tripadvisor | 1.4 |
Sabre Corporation ( SABR ) | 0.4 |
Mondee Holdings ( MOND ) | 4.3 |
Lindblad Expeditions ( LIND ) | 1 |
Inspirato ( ISPO ) | 0.3 |
Tripadvisor ranks sixth in terms of Price-to-Sales ratio, not exactly cheap among its peers. As we also saw earlier, it's hard to see this changing due to Sales, and Q1 2023 was nothing remarkable compared to the last normal quarter (Q1 2019). Before 2019 as well, sales were stagnant for almost five years at around $1.5B annually. Most of the compression came from declining stock prices, and the stock declined by more than 50% during this time frame!
Final call
I am not a buyer of this stock at this point in time. Although it's encouraging to see that the company has not only managed to diversify its business but also managed to stay relevant, I am not convinced how much more they can bring in without sacrificing profitability or raising additional capital. Its valuation is nothing to brag about, either. However, if it manages to protect its traffic and revenues and trades at a much lower valuation, I can see this becoming an acquisition target. Outside of this, it's hard to be enthusiastic about this stock.
For further details see:
How Relevant Is Tripadvisor In 2023?