The old days of travel agents are long gone. Rarely must you sit on hold with an airlines for hours, hunting through available flights for the right price. The Internet changed everything … and created a host of very profitable businesses as a result.
The big news coming out of this travel sector last week was that IAC/InterActiveCorp (NASDAQ:IACI) chair and senior executive Barry Diller stepped down as chairman of travel review site TripAdvisor (NASDAQ:TRIP) and sold off his stake.
The deal was a bit complicated. Diller only owned 3% of the company but had super-voting power for the stock that was held by John Malone’s Liberty Interactive (NASDAQ:LINTA). Consequently, Malone paid $62.50 per share for Diller’s holdings when the stock was trading around $40.
That’s what super-voting shares do to buyouts.
So now, Malone’s actual ownership hovers around 22% of TripAdvisor, but he has majority voting control at about 57%.
I think it’s a wise purchase. The TripAdvisor site is a valuable tool for consumers, but also acts as a great advertising website for the travel industry, and as an indirect method of advertising for well-reviewed entities.
TRIP is expecting 20% revenue growth this year and next, with 20% EPS growth next year and 15% long-term. On next year’s expected EPS of $1.82, and Monday’s closing price of $43.45, that gives it a P/E ratio of 24. That’s is a bit pricey, even factoring in the $200 million in net cash they have, and the fact that this is a cash flow-intensive business. There is very little capex involved, so TripAdvisor’s trailing 12-month free cash flow has been a delicious $166 million.
I’d say you could probably do all right getting into TRIP shares at this price, but I’d rather see a P/E closer to 18.
However, even though TripAdvisor isn’t a booking site so much as an affiliate, we should compare the three big kahunas in that area to see if there’s relative value anywhere.
- Expedia (NASDAQ:EXPE) is growing at a brisk 15% clip. The balance sheet is even more impressive, with almost $1.2 billion in net cash, or $9 per share. Backing out that cash, the company trades at 15 times estimates, so it’s worth a solid look at these levels — particularly with the trailing 12-month free cash flow sitting at more than a billion dollars.
- Priceline (NASDAQ:PCLN) is also a free cash flow monster — $1.5 billion in the TTM with some $3.8 billion in net cash. Again, there’s no capex to speak of here. It’s all transactional stuff over the Internet. Its $76 in net cash gives it an effective stock price of $540, and on FY13 earnings of $37.44, it’s trading at 14.4 times earnings on 20% long-term growth. That screams “long-term value play” to me.
- Alas, poor Orbitz Worldwide (NYSE:OWW) does not have the same love. The company doesn’t really have a P/E ratio because all it does is lose money — well, it made $19 million in the past two quarters, but has lost tens or hundreds of millions every year for the past three years. It does generate some modest free cash flow, but has more debt than cash. I don’t even see this as a possible turnaround play due to the competition.
Travel could get slapped around in 2013, depending on how the economy plays out. Of all the selections, Priceline seems best-priced to buy.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.