TRIP - Tripadvisor Inc.

[Jurgis]

If you go to a new city say for leisure, how do you decide which hotel to stay then?

 

It's a combination of price, location (if I can make any reasonable evaluation about location in new city), amenities (parking, breakfast, internetz), OTA reviews (Expedia has had OKish reviews in the past, Priceline & Orbitz not so much), sometimes hotel brand (for some you can know what to expect, for some - not really).

 

I don't dis TRIP reviews. They might be helpful sometimes. Although usually more info just leads to analysis paralysis. There's always complaints. Some might be worth listening, some not. A lot of times you don't know which.

 

It's also tough to weigh. If you want below $100 (haha) in NYC, you have to live with crap neighborhood, crap rooms or both, etc. Reviews might not help to decide whether one hotel is less crap than the other if they both are rather crappy. I think this applies also at other places in goodness/crappiness range: if you compare "comparable" hotels, they will have somewhat comparable complaints. Sometimes there are exceptions where a "comparable" hotel is a piece of crap compared to other "comparable". But these are possibly not very common and also sometimes you learn this only after experiencing it (rather than from reviews).

 

Anyway, just my experience from the past. As I say, I don't dis TRIP. I just have not used it much. Might change in the future. Who knows. :)

[JBTC]

If you go to a new city say for leisure, how do you decide which hotel to stay then?

 

It's a combination of price, location (if I can make any reasonable evaluation about location in new city), amenities (parking, breakfast, internetz), OTA reviews (Expedia has had OKish reviews in the past, Priceline & Orbitz not so much), sometimes hotel brand (for some you can know what to expect, for some - not really).

 

I don't dis TRIP reviews. They might be helpful sometimes. Although usually more info just leads to analysis paralysis. There's always complaints. Some might be worth listening, some not. A lot of times you don't know which.

 

It's also tough to weigh. If you want below $100 (haha) in NYC, you have to live with crap neighborhood, crap rooms or both, etc. Reviews might not help to decide whether one hotel is less crap than the other if they both are rather crappy. I think this applies also at other places in goodness/crappiness range: if you compare "comparable" hotels, they will have somewhat comparable complaints. Sometimes there are exceptions where a "comparable" hotel is a piece of crap compared to other "comparable". But these are possibly not very common and also sometimes you learn this only after experiencing it (rather than from reviews).

 

Anyway, just my experience from the past. As I say, I don't dis TRIP. I just have not used it much. Might change in the future. Who knows. :)

 

I thought most people do it my way, but apparently not.  :)

 

I generally go to TRIP and go down the list of hotels based on ranking. I check out the top ones in my price range and browse the first few reviews to see if there is any major deficiency. Among those acceptable, I tend to value location.

 

That will be it. Often it takes me 10-15 minutes to decide on a hotel in a country I never visited before.

 

What has allowed me to decide quickly is the TRIP ranking which I assume to reflect the best popular wisdom, given TRIP has far more reviews than OTA sites. I am sure the TRIP ranking may not necessarily be scientific or fair, but it has generally worked out well for me.

 

[Jurgis]

Interesting. Might be a good way, though not sure I'll switch - habits die hard. Thanks for sharing. :)

[Sionnach]

Can anyone describe TRIP's competitive advantage?

 

I mean is it sort of like the Google moat? They have the most reviews, which drives more reviews, which gives people the greatest confidence in their reviews and mindshare. If you think search engine you go to Google because they have the best results because they have a data advantage. If you think hotel reviews you go to Trip Advisor because they have the best reviews.

 

Then this leads to a lower cost of customer acquisition than the OTA's because they have an asset (the best UGC) that the OTAs don't have.

 

Does anyone else have a better way to describe the competitive advantage here? How sustainable is it really?

[JBTC]

Can anyone describe TRIP's competitive advantage?

 

I mean is it sort of like the Google moat? They have the most reviews, which drives more reviews, which gives people the greatest confidence in their reviews and mindshare. If you think search engine you go to Google because they have the best results because they have a data advantage. If you think hotel reviews you go to Trip Advisor because they have the best reviews.

 

Then this leads to a lower cost of customer acquisition than the OTA's because they have an asset (the best UGC) that the OTAs don't have.

 

Does anyone else have a better way to describe the competitive advantage here? How sustainable is it really?

 

You have said it well, but let me try to add a little.

 

First of all - sustainability.

 

I travel a lot, but never do reviews. So I don't understand why people do that, but many millions do, and mostly on TRIP. Maybe it's just the first-mover advantage and the winner-take-all type of situation at work.

 

For a while, Google tried to build an inventory of hotels and have people leave reviews. It was just pathetic, and I don't know if it's still up and running.

 

I use all the main OTAs. They always ask me for reviews after the trip. I generally ignore them. Hotels.com sometimes sends me a 10% coupons for a writing a 10-word review, and I would oblige.

 

Bottomline, people willingly do reviews on TRIP and TRIP just dominates. All OTAs want to have reviews and some are paying for them. Google has tried and failed. All this time TRIP's reviews continue to grow.

 

Second, let's see what reviews can do. Because TRIP can claim to have the most reviews on any hotel (generally the case), it gives TRIP the authority to rank all the hotels in each city (or even each neighborhood). That's some power.

 

As a traveler goes down the ranking to select the hotel that fits his budget and requirement, it gives him the sense that he is getting the best bang of his buck in a systematic way. Maybe this is just my own illusion, but it has really made the site sticky for me.

 

Equally important, every single hotel in the world has recognized TRIP's awesome impact to their business. I was in Africa not so long ago. From lobby counter to elevator, you can see signs that say "Please review us on Tripadvisor!".

 

This made me think that even though TRIP had limited direct relationships with the hotels in the past (until the recent Instant Booking effort), its brand is so up there that perhaps turning itself into a quasi-OTA is possible.

 

Third, let's think about what makes OTAs such a great business. PCLN is likely one of the greatest stocks of all time. It does two things. One is to sign contracts with hotels to help sell rooms and build a direct link to them. Two is to try find customers online - using TRIP, other meta search engines, google search, its email list, etc. 

 

As you point out, TRIP effortless finds numerous customers. So far it sells them to OTAs. Can it turn these customers directly to the hotels? The road may be long, but it feels possible. It already signed many top large chains with its Instant Book. PCLN is on board with IB also. If over time people are used to booking on TRIP, it seems conceivable that it will become a hotel central marketplace for many, if not everyone, to go to.

 

This will not be easy. Likely OTAs and TRIP will co-exist. Maybe there are fundamental reasons for booking to be separate from planning. But it seems TRIP has more room to move than OTAs.

 

In the end, I feel TRIP's moat may be more like Facebook's than Google's. Its moat lies in the fact that it's where most travelers already gather today for information on hotels, and it seems the most natural place to connect millions of travelers with direct links to hundreds of thousands of hotels in the future, if it ever happens. It will then become a marketplace, and you don't need another.

 

[Sionnach]

 

In the end, I feel TRIP's moat may be more like Facebook's than Google's. Its moat lies in the fact that it's where most travelers already gather today for information on hotels, and it seems the most natural place to connect millions of travelers with direct links to hundreds of thousands of hotels in the future, if it ever happens. It will then become a marketplace, and you don't need another.

 

 

Thanks for the great response JBTC. Very helpful.

 

Just to add some very odd anecdotal evidence of your point that hotels realize how important reviews are to their business. I was watching the TV show New Girl (yeah yeah... I watched football after...) and they were starting a hotel and they said "its all about the reviews!". The point being that its so obvious that reviews are important to hotels that it permeates through pop culture. It really is a huge part of how travelers make their decisions

[rishig]

Can anyone describe TRIP's competitive advantage?

 

I mean is it sort of like the Google moat? They have the most reviews, which drives more reviews, which gives people the greatest confidence in their reviews and mindshare. If you think search engine you go to Google because they have the best results because they have a data advantage. If you think hotel reviews you go to Trip Advisor because they have the best reviews.

 

Then this leads to a lower cost of customer acquisition than the OTA's because they have an asset (the best UGC) that the OTAs don't have.

 

Does anyone else have a better way to describe the competitive advantage here? How sustainable is it really?

 

You have said it well, but let me try to add a little.

 

First of all - sustainability.

 

I travel a lot, but never do reviews. So I don't understand why people do that, but many millions do, and mostly on TRIP. Maybe it's just the first-mover advantage and the winner-take-all type of situation at work.

 

For a while, Google tried to build an inventory of hotels and have people leave reviews. It was just pathetic, and I don't know if it's still up and running.

 

I use all the main OTAs. They always ask me for reviews after the trip. I generally ignore them. Hotels.com sometimes sends me a 10% coupons for a writing a 10-word review, and I would oblige.

 

Bottomline, people willingly do reviews on TRIP and TRIP just dominates. All OTAs want to have reviews and some are paying for them. Google has tried and failed. All this time TRIP's reviews continue to grow.

 

Second, let's see what reviews can do. Because TRIP can claim to have the most reviews on any hotel (generally the case), it gives TRIP the authority to rank all the hotels in each city (or even each neighborhood). That's some power.

 

As a traveler goes down the ranking to select the hotel that fits his budget and requirement, it gives him the sense that he is getting the best bang of his buck in a systematic way. Maybe this is just my own illusion, but it has really made the site sticky for me.

 

Equally important, every single hotel in the world has recognized TRIP's awesome impact to their business. I was in Africa not so long ago. From lobby counter to elevator, you can see signs that say "Please review us on Tripadvisor!".

 

This made me think that even though TRIP had limited direct relationships with the hotels in the past (until the recent Instant Booking effort), its brand is so up there that perhaps turning itself into a quasi-OTA is possible.

 

Third, let's think about what makes OTAs such a great business. PCLN is likely one of the greatest stocks of all time. It does two things. One is to sign contracts with hotels to help sell rooms and build a direct link to them. Two is to try find customers online - using TRIP, other meta search engines, google search, its email list, etc. 

 

As you point out, TRIP effortless finds numerous customers. So far it sells them to OTAs. Can it turn these customers directly to the hotels? The road may be long, but it feels possible. It already signed many top large chains with its Instant Book. PCLN is on board with IB also. If over time people are used to booking on TRIP, it seems conceivable that it will become a hotel central marketplace for many, if not everyone, to go to.

 

This will not be easy. Likely OTAs and TRIP will co-exist. Maybe there are fundamental reasons for booking to be separate from planning. But it seems TRIP has more room to move than OTAs.

 

In the end, I feel TRIP's moat may be more like Facebook's than Google's. Its moat lies in the fact that it's where most travelers already gather today for information on hotels, and it seems the most natural place to connect millions of travelers with direct links to hundreds of thousands of hotels in the future, if it ever happens. It will then become a marketplace, and you don't need another.

 

I agree overall. Question is what does one pay for TRIP given that conversion to OTA is much further down the road? And its not a given yet, since the CEO has clearly stated that revenues from OTAs are very important (at least for the next 3-5 years). One could be right on the story but wrong on the valuation and leave no margin of safety (not saying that is the case, but I am not convinced otherwise).

[Sionnach]

I think EPV could be a good way to look at trip.

 

Take 1492 in revenue with 20% growth = 1790 in rev next year

 

EBITDA margin of say 42% (its depressed today because of new business lines in attractions/restaurants)

1% Maintenance capex, 20% Tax rate (lower taxes abroad)

 

NOPAT = 587

8% Earnings yield + 500 net cash = $55/sh

So I think that's a pretty good price and you wouldn't be paying much for growth

 

And as you mentioned the CEO says OTAs are still a big part of the business for the next 3-5 years, but I think almost undoubtedly TRIP is going to try to cut them out once IB can run on its own

 

 

[JBTC]

I think EPV could be a good way to look at trip.

 

Take 1492 in revenue with 20% growth = 1790 in rev next year

 

EBITDA margin of say 42% (its depressed today because of new business lines in attractions/restaurants)

1% Maintenance capex, 20% Tax rate (lower taxes abroad)

 

NOPAT = 587

8% Earnings yield + 500 net cash = $55/sh

So I think that's a pretty good price and you wouldn't be paying much for growth

 

And as you mentioned the CEO says OTAs are still a big part of the business for the next 3-5 years, but I think almost undoubtedly TRIP is going to try to cut them out once IB can run on its own

 

Yes, this seems a pretty good way to think about it, without having to figure out precisely what happens down the road.

 

Re margin of safety, the question may have two aspects.

 

On the plus side, a lot of good things could happen in the future - IB, OTA, other travel categories, etc. If they pan out, how much are they worth? PCLN/EXPE are worth almost $80bn. If the potential positives for TRIP are worth 10% of PCLN/EXPE's value today, that's $8bn, or a double from TRIP's current level. You need to put a possibility on it. 30%? 50%? To the extent that these things are not fully priced in, you get some margin of safety.

 

On the minus side, what could go wrong for TRIP? A lot of the LT positives haven't changed much in the past couple of years, but stock went from $110 to $60. Due mostly to investments, earnings failed to grow. Could earnings stay flat a few more years? In hindsight the stock was overvalued before.

 

Let me ask instead - what's the bear case for TRIP? Someone mentioned before the short interest was high, why?

 

[muscleman]

In TRIP's website, I can book anything. Flight, hotel, vacation homes etc. Why are you saying TRIP is not competing directly against OTAs?  ???

 

Another question, this stock looks really expensive to me. Why did John Malone bought it? It has never been cheap. Did he talk about it anywhere? I only saw one video that John said TRIP and FB are different content makers than the classic DISCA.

[muscleman]

I think EPV could be a good way to look at trip.

 

Take 1492 in revenue with 20% growth = 1790 in rev next year

 

EBITDA margin of say 42% (its depressed today because of new business lines in attractions/restaurants)

1% Maintenance capex, 20% Tax rate (lower taxes abroad)

 

NOPAT = 587

8% Earnings yield + 500 net cash = $55/sh

So I think that's a pretty good price and you wouldn't be paying much for growth

 

And as you mentioned the CEO says OTAs are still a big part of the business for the next 3-5 years, but I think almost undoubtedly TRIP is going to try to cut them out once IB can run on its own

 

I don't know if 1% maintenance capex is too optimistic. With the 692 million of marketing expense spent last year, I'd expect the revenue to grow far more than the reported number. Also the technology expense is impossible to be cut. Companies usually don't lay off engineers.

If I say, half of the 692 million is actually growth capex, and I add it back to the earnings, I get 20 P/E, which is a fair price for a good business.

 

 

How much do they make for instant booking on priceline? For direct hotel chains, they get 15% as the commission, but what about the OTAs?

[muscleman]

Liberty TripAdvisor holdings has 21% equity interest, which is worth 1.9 bn. It also has $400 million margin loan debt, and also some capital gain tax liabilities.

Therefore the value is 1.5bn or less. The current market cap is 1.6 bn.

What's the discount here? Am I making any mistakes in the calculation?

[yitech]

Liberty TripAdvisor holdings has 21% equity interest, which is worth 1.9 bn. It also has $400 million margin loan debt, and also some capital gain tax liabilities.

Therefore the value is 1.5bn or less. The current market cap is 1.6 bn.

What's the discount here? Am I making any mistakes in the calculation?

 

It seems cash + investment roughly are slightly more than the long term debt (681M vs 640M).

Assume they are the same and the end-game is LTPRA/B merging with TRIP, the capital gain tax liabilities disappear.

I think Liberty Trip A shares are trading at 21% discount.

[ccplz]

If I say, half of the 692 million is actually growth capex, and I add it back to the earnings, I get 20 P/E, which is a fair price for a good business.

 

 

How much do they make for instant booking on priceline? For direct hotel chains, they get 15% as the commission, but what about the OTAs?

 

Why are you capitalizing marketing expense? Do you do this for every company or just TRIP?

 

Also where are you getting the 15% figure from?

[ccplz]

Is TripAdvisor an OTA?

 

Why it is an OTA

Because almost the complete booking process takes place within the TripAdvisor page.

It is quite clear that the final client is its target; it wants to build loyalty with them so that they come back for future bookings. Whether the hotel likes it or not, it seems a correct strategy from the point of view of TripAdvisor.

Because, in the eyes of clients, the important thing is that they make the booking on TripAdvisor as they would in any other OTA.

Whatever happens “behind the scenes” is of no interest to the client. The mark of quality and security that the client sees is provided by the TripAdvisor brand.

Because it earns sales commissions just like other OTAs.

In fact, the hotel or OTA that is offering their stock must communicate all booking modifications and cancellations to TripAdvisor at the end of every month.

Why it is not an OTA

Because the confirmation is provided by the supplier, not by TripAdvisor.

Because the post-sales customer service (such as modifications, cancellations, questions) is carried out by the hotel itself or the OTA which signed up for Instant Booking.

In other words, TripAdvisor provides the booking and then moves on.

Because the client’s details are fully transferred to the hotel.

Hotels can use these details and try to build a relationship directly. This is allowed under the contract with TripAdvisor, unlike OTAs who actively discourage this type of behaviour.

Because despite you paying commission to TripAdvisor, it will not appear as a channel in your channel mix.

It is just a sales source, but the channel will in fact be another (your website or an OTA). To this effect, it is equivalent to Adwords, the Business Listings or any other traffic source.

Because TripAdvisor does not get involved with the payment process.

Transferring this responsibility directly to the hotel or OTA is a big difference between TripAdvisor and the OTAs. Processing advance payment on behalf of the hotel is a regular feature of many OTAs.

 

http://www.tnooz.com/article/is-tripadvisor-an-OTA/

[ccplz]

On the plus side, a lot of good things could happen in the future - IB, OTA, other travel categories, etc. If they pan out, how much are they worth? PCLN/EXPE are worth almost $80bn. If the potential positives for TRIP are worth 10% of PCLN/EXPE's value today, that's $8bn, or a double from TRIP's current level. You need to put a possibility on it. 30%? 50%? To the extent that these things are not fully priced in, you get some margin of safety.

 

Isn't Trip's market cap around 10 bn right now?

[muscleman]

If I say, half of the 692 million is actually growth capex, and I add it back to the earnings, I get 20 P/E, which is a fair price for a good business.

 

 

How much do they make for instant booking on priceline? For direct hotel chains, they get 15% as the commission, but what about the OTAs?

 

Why are you capitalizing marketing expense? Do you do this for every company or just TRIP?

 

Also where are you getting the 15% figure from?

 

15% or 12% as you choose. This is stated in their instant booking FAQ page.

I think marketing expenses should not be capitalized. I am just saying some previous posts said it should but I didn't feel that way.

A previous post assumes 50% EBITDA, minus 1% maintenance capex minus interest and tax and derived a fair value of $55. That clearly treats market expenses as growth capex.

[JBTC]

On the plus side, a lot of good things could happen in the future - IB, OTA, other travel categories, etc. If they pan out, how much are they worth? PCLN/EXPE are worth almost $80bn. If the potential positives for TRIP are worth 10% of PCLN/EXPE's value today, that's $8bn, or a double from TRIP's current level. You need to put a possibility on it. 30%? 50%? To the extent that these things are not fully priced in, you get some margin of safety.

 

Isn't Trip's market cap around 10 bn right now?

 

I was trying to think through how much the new initiatives could potentially be worth, which should be mostly additional to the current market cap.

 

[JBTC]

If I say, half of the 692 million is actually growth capex, and I add it back to the earnings, I get 20 P/E, which is a fair price for a good business.

 

 

How much do they make for instant booking on priceline? For direct hotel chains, they get 15% as the commission, but what about the OTAs?

 

Why are you capitalizing marketing expense? Do you do this for every company or just TRIP?

 

Also where are you getting the 15% figure from?

 

15% or 12% as you choose. This is stated in their instant booking FAQ page.

I think marketing expenses should not be capitalized. I am just saying some previous posts said it should but I didn't feel that way.

A previous post assumes 50% EBITDA, minus 1% maintenance capex minus interest and tax and derived a fair value of $55. That clearly treats market expenses as growth capex.

 

Whether capex is growth or maintenance is in the eye of the beholder. If you believe its investments will lead to growth, it's growth capex.

 

For amazon stockholders, for example, most of its expenses are growth capex.

 

If you don't think TRIP's current investments will lead to outsized growth, then you should definitely treat them more conservatively.

 

[ccplz]

I don't believe marketing expenses should be capitalized.

[JBTC]

I don't believe marketing expenses should be capitalized.

 

You are certainly entitled to your opinion. I agree for most investors, it's probably better off to be conservative.

 

But there is no black and white in investing - in general, and in the treatment of specific issues such as if costs can be capitalized.

 

I gave the amazon example before. The investors who saw that its margins were artificially depressed made the right call and lots of money.

 

Another example is branded consumer products such as Coke. One can argue that its ad spending, while expensed right away, generates long-term customer loyalty and earnings power. Hence the spending on ads can have a similar impact as money spent on a bottling plant.

 

In the case of TRIP, we need to make our own call and that's what makes a market.

 

[muscleman]

I don't believe marketing expenses should be capitalized.

 

You are certainly entitled to your opinion. I agree for most investors, it's probably better off to be conservative.

 

But there is no black and white in investing - in general, and in the treatment of specific issues such as if costs can be capitalized.

 

I gave the amazon example before. The investors who saw that its margins were artificially depressed made the right call and lots of money.

 

Another example is branded consumer products such as Coke. One can argue that its ad spending, while expensed right away, generates long-term customer loyalty and earnings power. Hence the spending on ads can have a similar impact as money spent on a bottling plant.

 

In the case of TRIP, we need to make our own call and that's what makes a market.

 

Whether the ad spending can be capitalized depdends on this: If TRIP cuts the ad spending after a few years, will it maintain the growth?

For a "social" network like FB, I think the answer is yes. TRIP is kind of like a social network, so the answer maybe yes. I am not too sure about it though.

 

[Sionnach]

Whether the ad spending can be capitalized depdends on this: If TRIP cuts the ad spending after a few years, will it maintain the growth?

For a "social" network like FB, I think the answer is yes. TRIP is kind of like a social network, so the answer maybe yes. I am not too sure about it though.

 

I think of maintenance capex a bit differently. I don't think it should sustain the same growth rate if they cut growth capex. Rather, the question is what capex/marketing expense is required for TRIP to maintain its competitive position (and hence its earnings power value).

 

Rather than say we should make our own call, I think we should look at the facts. From 2008-2012 EBITDA margins averaged 50% and capex was about 3%. They were able to maintain (and even grow) their competitive position at these levels because of the UGC flywheel.

 

With a much higher revenue base today and economies of scale I don't think its crazy to believe that maintenance capex would be 1% and EBITDA margins would be 42% in a normalized, non-growth scenario.

 

In other words, the advertising expense is not required to maintain their competitive position, but is used to grow their business

[muscleman]

Whether the ad spending can be capitalized depdends on this: If TRIP cuts the ad spending after a few years, will it maintain the growth?

For a "social" network like FB, I think the answer is yes. TRIP is kind of like a social network, so the answer maybe yes. I am not too sure about it though.

 

I think of maintenance capex a bit differently. I don't think it should sustain the same growth rate if they cut growth capex. Rather, the question is what capex/marketing expense is required for TRIP to maintain its competitive position (and hence its earnings power value).

 

Rather than say we should make our own call, I think we should look at the facts. From 2008-2012 EBITDA margins averaged 50% and capex was about 3%. They were able to maintain (and even grow) their competitive position at these levels because of the UGC flywheel.

 

With a much higher revenue base today and economies of scale I don't think its crazy to believe that maintenance capex would be 1% and EBITDA margins would be 42% in a normalized, non-growth scenario.

 

In other words, the advertising expense is not required to maintain their competitive position, but is used to grow their business

 

Got it! I think data illustrates it better than subjective arguments.  :)

[JBTC]

Whether the ad spending can be capitalized depdends on this: If TRIP cuts the ad spending after a few years, will it maintain the growth?

For a "social" network like FB, I think the answer is yes. TRIP is kind of like a social network, so the answer maybe yes. I am not too sure about it though.

 

I think of maintenance capex a bit differently. I don't think it should sustain the same growth rate if they cut growth capex. Rather, the question is what capex/marketing expense is required for TRIP to maintain its competitive position (and hence its earnings power value).

 

Rather than say we should make our own call, I think we should look at the facts. From 2008-2012 EBITDA margins averaged 50% and capex was about 3%. They were able to maintain (and even grow) their competitive position at these levels because of the UGC flywheel.

 

With a much higher revenue base today and economies of scale I don't think its crazy to believe that maintenance capex would be 1% and EBITDA margins would be 42% in a normalized, non-growth scenario.

 

In other words, the advertising expense is not required to maintain their competitive position, but is used to grow their business

 

+1

 

Just on the social network comparison - I have had a bit of the feeling also but can't articulate it.

 

Can any of you draw a proper comparison with a social network type of business? Or does TRIP resemble any other existing business that you know?