2023-10-17 09:59:36 ET
Summary
- Tripadvisor, Inc. revenue growth rates continue to compress and should stabilize in 2024.
- Despite witnessing fluctuations in revenue growth rates, Tripadvisor boasts a strong balance sheet and healthy cash flows, positioning the company favorably in terms of valuation.
- With its stock seemingly undervalued, Tripadvisor confronts investor apprehension due to the uncertainty surrounding its growth trajectory, emphasizing the need for consistent performance and stable financials to restore market confidence.
Investment Thesis
Tripadvisor, Inc. (TRIP) is an online travel company, offering a comprehensive platform that enables users to plan and book various travel-related services. The well-known site provides travelers with access to a vast repository of user-generated reviews, recommendations, and information on destinations, attractions, and hospitality establishments worldwide.
The business has fallen out of favor with investors as there's significant uncertainty about exactly when its revenue growth rates will stabilize and equally importantly, what should investors expect its stable revenue growth rates to deliver.
Furthermore, the business Tripadvisor has to operate in the highly competitive online travel industry, with competition Expedia ( EXPE ), Booking ( BKNG ), and Airbnb ( ABNB ), all of which offer similar services, including booking accommodations, experiences, and travel packages. On top of that, review platforms like Google Reviews ( GOOG , GOOGL ), also pose a challenge to Tripadvisor's dominance in the travel review space.
On a positive note, Tripadvisor has a mighty strong balance sheet and is reporting solid cash flows.
Altogether, I'm neutral on this stock.
Tripadvisor's Near-Term Prospects
Tripadvisor is a leading global travel platform known for providing travel guidance. With its segments Tripadvisor Core, Viator, and TheFork, it offers user-generated content for various travel categories, along with a wide array of bookable tours and dining reservations.
By prioritizing user-generated content, Tripadvisor aims to enhance the travel experience and maintain its market leadership. Its revenue generation involves advertising, commissions, and subscription-based services. Positioned within the rapidly growing global travel and dining market, Tripadvisor continues to serve as a reliable platform for users seeking comprehensive travel guidance.
Looking forward, Tripadvisor believes it is now on a more promising trajectory, primarily due to its concerted efforts to augment user engagement through the implementation of innovative product enhancements and dedication to optimizing the overall customer journey.
Notably, the company's recent strategic initiatives, including the upgrade to the Trips feature and the progressive expansion of its customer data platform, thus underscoring its drive to deliver comprehensive and tailored recommendations to travelers.
Despite these positive indicators, Tripadvisor confronts certain challenges inherent in a fiercely competitive travel landscape, necessitating a proactive response to the constantly evolving dynamics of consumer preferences and the discernible influence of broader travel trends.
Moreover, the company must contend with the intensifying competition within the digital travel ecosystem, characterized by the proliferation of online travel agencies and the rising prominence of alternative accommodation services, namely Airbnb.
Ensuring sustainable differentiation and continued relevance amidst the proliferation of competing offerings requires a comprehensive reassessment of Tripadvisor's value proposition and the formulation of resilient strategies aimed at fostering enduring customer loyalty and retention.
Given some of these challenges discussed, now let's turn to its financials.
Revenue Growth Rates Moderate
On the one hand, there's no doubt that Tripadvisor's extremely tough comparables with 2022 make this year's growth rates look meager in comparison.
However, since we are practically in 2024, we should form a view on the likely progress next year. I believe that after Q4 2023, Tripadvisor's comparables will become a lot easier.
This means that even without gaining a lot of traction, its revenue growth rates will look significantly better than those delivered in H2 2023.
What investors don't like to see is decelerating growth rates. Even if there's a suspicion that its growth rates will improve next year, after 8 consecutive quarters of slowing decelerating revenue growth rates, plus a further 2 quarters of decelerating growth rates expected, investors have put Tripadvisor in the ''show-me'' box.
Companies in the ''show-me'' box are more closely scrutinized. And until they can show investors that they have stabilized, investors will be very apprehensive to invest in these companies.
The Crown Jewel: The Balance Sheet
The one significant positive aspect of Tripadvisor is that its balance sheet holds a net cash position. This is not particularly large at around $300 million of net cash, but when Tripadvisor is valued at a $2.2 billion market cap, this cash balance equals approximately 13% of its market cap.
That being said, Tripadvisor's Q2 quarter saw Tripadvisor state that it has for now stopped its share repurchase program, as the company believes reinvesting back into its business should be its priority for now.
On the one hand, Tripadvisor has already passed the high season for 2023. On the other hand, Tripadvisor's approximately $300 million of free cash flow for H1 2023 is not a small sum. If we assume that Tripadvisor's free cash flow estimates of around $200 million for 2023 are even vaguely right, this would leave the stock already priced at 10x this year's free cash flow. Or perhaps even cheaper, at around 8x or 9x free cash flow.
Again, everything boils down to what sort of growth rates Tripadvisor can stably deliver in 2024 and how confident investors can get that Q4 2023 is truly the trough quarter for Tripadvisor.
The Bottom Line
My perspective on Tripadvisor's near-term prospects remains uncertain. While the company boasts a strong balance sheet and robust cash flows, the volatility in its revenue growth rates has raised concerns.
Despite its resilient position, the company needs to navigate through dynamic consumer preferences and the evolving travel landscape to sustain its competitive edge. Additionally, the stock's seemingly affordable valuation suggests a potential investment opportunity, but the persisting uncertainty surrounding its growth rates calls for a cautious approach. Therefore, I'm neutral on Tripadvisor, Inc. stock.
For further details see:
Tripadvisor: Decelerating Revenue Growth To Improve In 2024