Talk about a “go figure” stock market. Time and time again, companies that post lousy results are rewarded with big gains, and valuations that make no sense. Case in point: TripAdvisor Inc (NASDAQ:TRIP). The short version is that the market seems thrilled that TRIP stock is breaking even.
Look at these numbers and see what you think.
Hotel revenue actually fell 3% to $244 million, due to a $17 million drop in click-based and transactional activity. But this came even as user reviews and opinions grew 29% to 600 million across almost 2 million types of lodging, 4.5 million restaurants, and just under a million attractions.
Not only that, it came on 17% growth on average monthly users.
Non-hotel revenue grew 20% to $77 million. Were I a TRIP stock investor, I would be pleased at this growth in minority revenue on a percentage basis. But $7 million?
And operating income for the fourth quarter? $9 million. For the year, it comes to $124 million. And what is TRIP stock worth, as far as the market is concerned?
$5.888 BILLION. That’s right. Almost 50x operating income. That is simply nuts.
TRIP Earnings Don’t Make Sense
It makes no sense, but let’s be fair. Is there anything in the conference call that might give TRIP stock investors some reason to be so optimistic?
TRIP stock management lowered hotel revenue estimates, so that’s not a good sign.
As for non-hotel business, it’s up but it’s not blockbuster. The conference call answer is just, well, it’s just kind of vague:
“Our non-Hotel business, particularly Attractions, is doing really well. It’s all a function of having a wonderful supply footprint that continues to grow, matching it – getting better and better at matching it with the demand footprint that TripAdvisor prides plus all the indirect channels that the Viator business unit also chases.”
See, this makes me think the problem with TRIP is its business model. It’s really just an advertising platform plastered over a review site. TRIP has its largest source of Hotel revenue from CPC ads. Display-based ads and subscription ads are its other main Hotel segment revenue source.
Now, if we look at the 10-K for TRIP stock, the language is really pretty lousy as far as getting me excited about the business model.
Under “Our Growth Strategy” it says up top, “Delivering a Great User Experience.”
Uh. Yeah. No kidding. Next.
Increasing Traffic to Our Platform. We seek to amplify our global brand and products through various online and offline performance-based marketing channels in order to increase the number of users who navigate to our site either directly…or from other marketing channels. We have leveraged… a number of offline advertising channels, including permanent branding campaigns such as TripAdvisor-branded travel awards, certificates, stickers and badges and television advertising…we rely on search engine optimization, or SEO… as well as referrals from partners whose sites contain links to TripAdvisor content, badges or widgets.”
This tells me that it is a constant scramble for TripAdvisor, and that’s one reason TripAdvisor stock is insanely overvalued.
Bottom Line on TRIP
I could go on and on, but you get the idea. TripAdvisor stock is in the advertising business. Call it whatever you want, but TripAdvisor stock depends on getting traffic to its site to build up the eyeballs.
Sure, it makes some nice revenue, but this is not a business that is going to explode and grow at light speed because it’s been in existence for years and years. Mobile is not going to be its savior and neither will non-hotel revenue.
That doesn’t mean that some nutty third party won’t buy it out for ridiculous amounts of money. The Priceline Group (NASDAQ:PCLN) made one of the dumbest moves ever when it paid $2.6 BILLION for OpenTable, which had $33 million in earnings at the time. It eventually had to write down almost the whole thing.
TRIP stock is ridiculously overpriced. Stay away.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.