TRIP - Tripadvisor Inc.

[muscleman]

I had a small position in TRIP and a more decent one after the 20% plunge.

 

Whether TRIP will turn out to be a good investment depends solely on if the company can ultimately manage to make money off a hugely impressive asset.

 

What I like about the business is its moat is unlikely to be eroded, hence giving them time to tinker.

 

What's quite amazing is despite the decade-long effort by Google to try to make TRIP less irrelevant, TRIP users continue to grow.

 

Google's unwavering effort reflects the fact that hotels are its largest vertical. If there's so much money in the hotel sector, and TRIP occupies a unique spot, I hope things work out over time for the company.

 

But clearly this is different from buying say WFC where the earnings are in plain sight. Investing in TRIP requires a leap of faith.

 

TRIP is late to the booking business, so it has been difficult to change people's booking habits, although if you believe management is not lying, there are green shoots in the recent result which the market has refused to trust. For example, revenue per shopper is now positive in the US.

 

I am purely speculating but perhaps one thing they could do to improve their position in booking is to implement some sort of TRIP Prime, where shoppers can enroll into by paying say 10 dollars a year to receive unlimited 10% off on all the non-chain hotels.

 

PCLN and EXPE can't do this because their revenue would collapse. But TRIP could have a shot.

 

If this is not the way, I can only hope the smart people at TRIP and Liberty will figure it out over time.

 

This sounds more like a venture capitalist's thesis than a value investor's thesis. No FCF analysis. Only dreams of future.  :)

I am not saying this won't work. Early investors in FB and GOOG used the same approach.

 

Yep, I wonder why are you value investors wasting time on this thread? :-)

 

There is no guarantee here. It was $110 and now $50. News are not good. Stock is heavily shorted. Often shorts are smarter and do more work than the longs. In the near-term the shorts are probably right.

 

I am no venture capitalist, and this is the only tech thing I own. The reason is the same as what others have articulated. I travel a lot and was overwhelmed by how useful the site is to the travelers and how much respect hotels have for TRIP.

 

So it's got traction with both the travelers and hotels. It's a relatively small business operating globally in a huge space. Its competitive advantages are not easy to take away. It makes 95% gross margin and has net cash. So it has upside if things work out.

 

If things don't work out and the company's destiny is selling ads/leads to the bigger boys, it can probably cut down on spending and firing all the useless programmers and become instantly more profitable.

 

If it remains just a website where people flock to write and read reviews, it shouldn't be that expensive to run.

 

Well...... As a value investor I am aware of my circle of competence but I constantly study to try to expand my circle. :)

Just curious, how would you compare this with Amazon's bullish article?

https://oraclefromomaha.wordpress.com/2015/12/07/amazon-and-world-domination/

 

 

 

 

 

[JBTC]

I had a small position in TRIP and a more decent one after the 20% plunge.

 

Whether TRIP will turn out to be a good investment depends solely on if the company can ultimately manage to make money off a hugely impressive asset.

 

What I like about the business is its moat is unlikely to be eroded, hence giving them time to tinker.

 

What's quite amazing is despite the decade-long effort by Google to try to make TRIP less irrelevant, TRIP users continue to grow.

 

Google's unwavering effort reflects the fact that hotels are its largest vertical. If there's so much money in the hotel sector, and TRIP occupies a unique spot, I hope things work out over time for the company.

 

But clearly this is different from buying say WFC where the earnings are in plain sight. Investing in TRIP requires a leap of faith.

 

TRIP is late to the booking business, so it has been difficult to change people's booking habits, although if you believe management is not lying, there are green shoots in the recent result which the market has refused to trust. For example, revenue per shopper is now positive in the US.

 

I am purely speculating but perhaps one thing they could do to improve their position in booking is to implement some sort of TRIP Prime, where shoppers can enroll into by paying say 10 dollars a year to receive unlimited 10% off on all the non-chain hotels.

 

PCLN and EXPE can't do this because their revenue would collapse. But TRIP could have a shot.

 

If this is not the way, I can only hope the smart people at TRIP and Liberty will figure it out over time.

 

This sounds more like a venture capitalist's thesis than a value investor's thesis. No FCF analysis. Only dreams of future.  :)

I am not saying this won't work. Early investors in FB and GOOG used the same approach.

 

Yep, I wonder why are you value investors wasting time on this thread? :-)

 

There is no guarantee here. It was $110 and now $50. News are not good. Stock is heavily shorted. Often shorts are smarter and do more work than the longs. In the near-term the shorts are probably right.

 

I am no venture capitalist, and this is the only tech thing I own. The reason is the same as what others have articulated. I travel a lot and was overwhelmed by how useful the site is to the travelers and how much respect hotels have for TRIP.

 

So it's got traction with both the travelers and hotels. It's a relatively small business operating globally in a huge space. Its competitive advantages are not easy to take away. It makes 95% gross margin and has net cash. So it has upside if things work out.

 

If things don't work out and the company's destiny is selling ads/leads to the bigger boys, it can probably cut down on spending and firing all the useless programmers and become instantly more profitable.

 

If it remains just a website where people flock to write and read reviews, it shouldn't be that expensive to run.

 

Well...... As a value investor I am aware of my circle of competence but I constantly study to try to expand my circle. :)

Just curious, how would you compare this with Amazon's bullish article?

https://oraclefromomaha.wordpress.com/2015/12/07/amazon-and-world-domination/

 

I know nothing about AMZN/AWS.

 

That's much harder for me. AMZN doesn't report much profit yet, whereas TRIP made roughly $2/share in the past two years. I assume TRIP can make more than that if they desperately need to.

 

I don't understand well products that are sold to businesses, and tend to like products with consumer appeal. Because consumers are a creature of habit, whereas businesses are not and less predictable.

 

[Agrippa07]

Article in the WSJ on Google Trips: http://www.wsj.com/articles/google-trips-the-travel-guide-that-sort-of-reads-your-mind-1479415107

[Spekulatius]

I had a small position in TRIP and a more decent one after the 20% plunge.

 

Whether TRIP will turn out to be a good investment depends solely on if the company can ultimately manage to make money off a hugely impressive asset.

 

What I like about the business is its moat is unlikely to be eroded, hence giving them time to tinker.

 

What's quite amazing is despite the decade-long effort by Google to try to make TRIP less irrelevant, TRIP users continue to grow.

 

Google's unwavering effort reflects the fact that hotels are its largest vertical. If there's so much money in the hotel sector, and TRIP occupies a unique spot, I hope things work out over time for the company.

 

But clearly this is different from buying say WFC where the earnings are in plain sight. Investing in TRIP requires a leap of faith.

 

TRIP is late to the booking business, so it has been difficult to change people's booking habits, although if you believe management is not lying, there are green shoots in the recent result which the market has refused to trust. For example, revenue per shopper is now positive in the US.

 

I am purely speculating but perhaps one thing they could do to improve their position in booking is to implement some sort of TRIP Prime, where shoppers can enroll into by paying say 10 dollars a year to receive unlimited 10% off on all the non-chain hotels.

 

PCLN and EXPE can't do this because their revenue would collapse. But TRIP could have a shot.

 

If this is not the way, I can only hope the smart people at TRIP and Liberty will figure it out over time.

 

This sounds more like a venture capitalist's thesis than a value investor's thesis. No FCF analysis. Only dreams of future.  :)

I am not saying this won't work. Early investors in FB and GOOG used the same approach.

 

Yep, I wonder why are you value investors wasting time on this thread? :-)

 

There is no guarantee here. It was $110 and now $50. News are not good. Stock is heavily shorted. Often shorts are smarter and do more work than the longs. In the near-term the shorts are probably right.

 

I am no venture capitalist, and this is the only tech thing I own. The reason is the same as what others have articulated. I travel a lot and was overwhelmed by how useful the site is to the travelers and how much respect hotels have for TRIP.

 

So it's got traction with both the travelers and hotels. It's a relatively small business operating globally in a huge space. Its competitive advantages are not easy to take away. It makes 95% gross margin and has net cash. So it has upside if things work out.

 

If things don't work out and the company's destiny is selling ads/leads to the bigger boys, it can probably cut down on spending and firing all the useless programmers and become instantly more profitable.

 

If it remains just a website where people flock to write and read reviews, it shouldn't be that expensive to run.

 

Well...... As a value investor I am aware of my circle of competence but I constantly study to try to expand my circle. :)

Just curious, how would you compare this with Amazon's bullish article?

https://oraclefromomaha.wordpress.com/2015/12/07/amazon-and-world-domination/

 

I know nothing about AMZN/AWS.

 

That's much harder for me. AMZN doesn't report much profit yet, whereas TRIP made roughly $2/share in the past two years. I assume TRIP can make more than that if they desperately need to.

 

I don't understand well products that are sold to businesses, and tend to like products with consumer appeal. Because consumers are a creature of habit, whereas businesses are not and less predictable.

 

I would argue the opposite. Companies, especially big ones are creatures of habit, much more so than individuals. They will tend to go to the same suppplier for goods and services, especially if they use ERP Systems (pretty much all large companies do so). ERP systems breed habits, because it tends to be difficult to change something.

[JBTC]

 

I would argue the opposite. Companies, especially big ones are creatures of habit, much more so than individuals. They will tend to go to the same suppplier for goods and services, especially if they use ERP Systems (pretty much all large companies do so). ERP systems breed habits, because it tends to be difficult to change something.

 

Sure, ERP is sticky. Still, if BRK is using Oracle, you can expect SAP to knock on the door from time to time and argue its case. And businesses are generally under pressure to review things and cut costs. Businesses are supposed to be rational.

 

Which is different from consumers. WEB can sip can after can of Cherry Coke all day long, and no one can do a thing about it.

 

[Andrew6892]

http://seekingalpha.com/article/4028357-tripadvisor-deeply-mispriced-due-temporary-headwinds-tax-loss-selling

[WneverLOSE]

Does anybody have a subscription to Morningstar and can upload the analyst report of TRIP ?

it should be located here : http://analysis.morningstar.com/analystreport/ar.aspx?t=TRIP

I would really appreciate it.

[Guest roark33]

We are not surprised that Expedia and TripAdvisor have announced an Instant Booking trial partnership but do view the news as validation of the platform’s importance as a distribution channel. We are not changing our $70 fair value estimate on narrow-moat TripAdvisor but reiterate our call from earlier this month that the market has become too pessimistic on Instant Booking and that investors have an opportunity to own shares of a company well positioned in the longer term to benefit from industry online travel bookings, which we expect to average high-single-digits annually over the next several years.

 

Over the past several months, Expedia had been locked out from participating on Instant Book, as Priceline had a temporary exclusivity on the platform. Expedia commented that its exclusion had created a low-single-digit growth headwind to its room growth, which should now begin to be alleviated. Therefore, we see this announcement as a slight positive for Expedia but do not plan to adjust our $150 fair value estimate on the narrow-moat company, as we had already accounted for this in our model. Meanwhile, we don’t believe Expedia’s inclusion will have much of any impact on narrow-moat Priceline, as the company only gets low-single-digit of its traffic from TripAdvisor. As a result, we do not plan to adjust our $1825 fair value estimate on Priceline.

 

We think today’s news is most positive for TripAdvisor, as it is another strong indication that Instant Book will be an important distribution channel. Instant Book now has the top hotel operators and both Priceline and Expedia (which control around 75% of the total online travel market). This increased content should strengthen the incentive for travelers to use the platform, and the increased traffic should help TripAdivsor continue to improve conversion and economics on Instant Book.

 

 

Investment Thesis 11/10/2016

We expect TripAdvisor’s global metasearch leadership position to remain in place over the next decade, driven by a solid global position and low penetration of travel advertising spending allocated online. Only around 25% of total travel advertising is spent online versus 40% of total travel bookings done online. We believe that this penetration gap will close over time, as advertising dollars become more aligned with industry bookings. We forecast that TripAdvisor's share of global travel advertising spending will grow to above 3% in the next few years from 2.8% in 2015.

 

The company has built a leading network of user-generated reviews, which continues to drive an increasing user base. We see this network effect expanding driven by both organic and inorganic actions, offset by increasing competition within the metasearch marketplace where barriers to entry are lower versus the online travel agency bookings space. Organically, TripAdvisor launched its Instant Booking initiative, which strives to collect a piece of the bookings transactions that previously had not been collected by the firm. This initiative expands the firm’s business model and revenue opportunity. Inorganically, we are encouraged that the company has been allocating capital toward acquisitions within the restaurant and tours market, as we see these markets having strong growth opportunities within the online travel space. However, competition is increasing, and Kayak and Trivago have seen user-generated review count reach meaningful scale, which should strengthen their position in the marketplace. Additionally, in China both Qunar and CTrip are leading in terms of review, revenue, and advertising growth, which presents some challenges for TripAdvisor in this very important market.

 

Nonetheless, the company’s network advantage stands to remain solid and positions TripAdvisor well for the increasing global shift to booking via mobile applications. TripAdvisor is a top-five travel iOS mobile application in 50 markets around the world, while key competitors Kayak and Trivago have around a handful of markets where they are ranked as top-five travel applications.

 

Economic Moat 11/10/2016

We see TripAdvisor as having a narrow moat driven by its sustainable network effect within the online travel industry. Over the last decade and a half, TripAdvisor has built a leading position in travel reviews and content (the supply side of the equation), which in turn has driven strong unique visitor traffic to the site (the demand side of the equation).

 

At the end of 2015, TripAdvisor had over 320 million reviews and 995,000 lodgings on its website. This leading supply of reviews and information has led to strong user traffic and revenue that is well above key competitors Kayak and Trivago. For instance, Google Play reports app downloads as of year-end 2015 at 100 million-500 million for TripAdvisor versus 10 million-50 million and 5 million-10 million for Kayak and Trivago, respectively.

 

TripAdvisor’s leading position in the travel metasearch market results in strong returns on invested capital and market share. We project adjusted ROIC to average over 90% during the next five years, well above the company's 8.9% cost of capital. Additionally, we forecast TripAdvisor’s share of global travel advertising spending to approach midsingle digits in 2020 from 2.8% in 2015.

 

Despite TripAdvisor’s high ROICs, we don’t believe the company has carved a wide moat due to lower barriers of entry and potentially meaningful competition beyond the next 10 years from new entrants that already have the customer traffic and budgets to build network scale. We see Online Travel Agencies' barriers as higher than user-generated review barriers such as TripAdvisor, which are in turn higher than metasearch platform barriers. Metasearch platforms don’t control the inventory they show on their websites, as hoteliers and OTAs provide this content. To be fair, TripAdvisor can use both its customer base to provide photos and other descriptive information on hotels. Still, obtaining the quantity and quality of hotel information and relationships that the OTAs have would require both time and substantial expense. The main barrier to new entrants replicating a metasearch platform is having the customer traffic to attract hoteliers and OTAs to share their content. Companies such as Google, Amazon, Qunar (Baidu partner), Facebook, and Alibaba have sizable user bases and budgets, and can present an increasing competitive environment in the future.

 

We believe user-generated reviews provide a larger moat than metasearch platforms, but this barrier is not insurmountable. For instance, we estimate that Kayak generated over 70 million reviews in 2015 versus around 120 million we believe TripAdvisor generated last year. Again, as with metasearch, one of the main barriers to replicating user-generated reviews is having a sizable user base. The barrier is higher relative to metasearch in that it takes time to gather reviews after you have constructed the metasearch platform. Facebook, Google, Qunar, Priceline, Alibaba, and Amazon are some companies that have the current user base to more quickly replicate this review moat. Focused entry from these competitors would double the current handful of players that have dominant scale, leading to commodification of the industry and a meaningful impact to margins.

 

That said, we expect the market to support some level of increased competition over the next several years, and we currently see TripAdvisor as maintaining a leading position. The travel advertising market remains large at $40 billion, and online advertising penetration of the total travel advertising market remains low at around 25%.

 

Valuation 11/10/2016

We have lowered our fair value estimate to $70 per share from $81 per share, as we account for a slower Instant Book ramp and higher marketing costs and lower nonhotel revenue in the near term. Our fair value estimate implies 2017 adjusted EV/EBITDA multiples of 29 times. We forecast annual hotel revenue to average 6.9% (7.7% previously) annual growth the next 10 years, as ongoing monetization headwinds and educating the market about the Instant Book platform are leading to a slow revenue ramp in the near-term. Additionally, we have adjusted our nonhotel revenue to 31% annual average growth over the next 10 years (40% previously), as competition and a model transition to transaction-based from subscription-based creates a sales recognition delay in the near term. This results in an annual revenue growth forecasts of 11.6% (14% previously) of the next decade. Finally, we have increased our advertising expense as a percent of revenue higher in 2016 and 2017 to 49.7% (48.5% prior) and 51% (47% prior), respectively, to account for ongoing investment into the IB launch and nonhotel segments. We continue to project advertising as a percentage of total revenue to reach 42% in 2025 from 46% in 2015. Our view that advertising will remain elevated as a percentage of total revenue over the next several years hasn't shifted, as online travel companies continue spending in order to capitalize on the strong and large vacation rental, in-destination, and emerging and mobile market growth opportunities the next few years. As a result of our revenue and expense forecasts, we still see operating margins expanding to 29.3% in 10 years (unchanged) from 15.5% in 2015, but now see higher investment in 2016 and 2017 driving margins in those years to 11% (versus our prior forecast of 13% and 17%, respectively). EPS CAGR over the next five years is estimated to be in the midteen range (high-teens range prior). We continue to assume a 9% cost of equity. This is in line with the 9% rate of return we expect investors will demand of a diversified equity portfolio supported by TripAdvisor's average sensitivity to the economic cycle, low financial leverage, and high operating leverage.

 

Risk 11/10/2016

Growth of the online advertising travel market remains attractive, and there is an ongoing threat that large companies with sizable user traffic could enter the industry. Focused entry from companies such as Google, Amazon, and Facebook would have a meaningful impact to TripAdvisor’s growth, as the barriers to replicating its business model are not insurmountable and could be duplicated within a few years, in our opinion. Additionally, Kayak and Trivago metasearch competition could intensify driven by the deep marketing pockets of Priceline (owns Kayak) and Expedia (owns Trivago).

 

The travel industry is cyclical and affected by changes in economic growth. In a downturn, consumers have less income and therefore look to cut back on discretionary expenses like leisure travel. Additionally, companies generate less profit and look to cut back on advertising. If an economic downturn were to occur now, the still nascent penetration of online travel advertising spending would probably offer some cushion, but we would still expect TripAdvisor’s growth to slow. Additionally, terrorism and other acts of war can lead to disruptions in travel. Finally, pandemics can halt or delay travel purchases.

 

Customer concentration is a risk for the company, with Priceline.com and Expedia generating 47% of total 2013 revenue.

 

Management 11/29/2016

We think TripAdvisor's stewardship of shareholder capital is Standard. TripAdvisor has been using capital toward acquisitions in attractive areas, while also investing behind its Instant Booking platform that we believe will provide incremental traffic and profits over time. In 2014 the company acquired both Viator (leading tours site) and LaFourchettes (leading European restaurant site). We believe the opportunities in these emerging areas are attractive and a good use of capital. Thus far the growth from these brands has been encouraging. Meanwhile, the company continues to invest heavily in sales and marketing as it launches its Instant Booking platform globally, which we think will provide dividends as more customers get educated on the user convenience of booking travel on TripAdvisor over time.

 

President and CEO Stephen Kaufer co-founded the company in 2000 and has been instrumental in building TripAdvisor into the world's largest travel media company over the past 12 years. We believe TripAdvisor is in capable hands and expect the management team to continue steering the firm in the right direction.

 

We see executive ownership as healthy. Combined, the 13 executives of TripAdvisor owned just over 1.4 million shares, representing just under 1% of total shares outstanding as of April 25, 2016. Kaufer owned around 1 million of the 1.4 million shares owned by executives, which at $70 per share would represent around $70 million.

 

Common stockholders can nominate only 25% of the board (which currently has seven members that are up for election annually); the rest is made up of board members and senior executives from IAC/Interactive IACI, Expedia, and Liberty Interactive. Internet veteran and Expedia board chairman Barry Diller resigned as TripAdvisor chairman following the sale of his stake to Liberty Interactive in December 2012, which has since been transferred to Liberty TripAdvisor. As a result, Liberty owns 56% of the voting power through a combination of common stock and Class B stocks and now has the ultimate say on all major decisions made at TripAdvisor. We are somewhat concerned that the concentration of voting power may result in conflicts of interest and prevent the board from protecting minority shareholders.

 

Overview

 

Profile:

 

TripAdvisor is the world’s leading travel metasearch company. The website offers over 435 million reviews, and information on more than 4.2 million restaurants, 1,050,000 hotels and accommodations, 830,000 vacation rentals, and 730,000 attractions. In 2015, 85% of revenue came from the company's hotel segment, which includes hotel revenue generated through advertising, and on both its metasearch and Instant Book platform. The other 15% from its nonhotel segment includes vacation rental, attractions, and restaurant revenue.

[JBTC]

With another selloff post 4Q, it seems to warrant an update.

 

There were a few good things in the quarter. The sequential improvement in click-based and transaction revenue trend seems happening – in the past 4 qtrs, it was -13% (y/y), -15%, -10%, and 0%. In Jan, this was high single digit growth. In the US, the click-based and transaction revenue grew double-digits in 4Q. Shopper growth accelerated to 8%, and to 22% on the phone. Revenue per shopper growth also improved to -7% y/y. Mgmt said that monetization on the phone improved relative to desktop.

 

But profits decline due to continued investments in not just hotels but also attractions, restaurants, etc. Company headcount rose 10% in 2016.

 

So TRIP is stuck in a no man's land. It's not growing, whereas Trivago grew revenue 70% in 4Q as it's able to spend essentially all revenue on marketing and not obligated to report profits. It's also not cheap based on profits, where PCLN/EXPE have a much more robust business model and are reasonably valued. Given mgmt has guided for falling profit in 2017, it looks like the stock will remain weak for some time.

 

On SeekingAlpha, there's one comment that TRIP could be a good fit for AMZN. That seems an interesting speculation. By acquiring TRIP, AMZN would be able to enter a huge market with a great asset. At the same time, TRIP probably desperately needs a bigger player to bankroll its ambitions in travel, considering it's up against the OTAs with own meta engines and Google.

 

One obvious problem with TRIP being an acquisition target is Greg Maffei's voting control.

 

Anyway, more tough slog ahead.

 

[JBTC]

Below are the comments on SA -

 

---------------------------------------

I would like to see what others think but I think tripadvisor would be a great asset for Amazon.com to buy. Here are reasons why

 

1) We need slew of services that are available to members of Amazon prime and i need a reason to keep that. If amazon can buy tripadvisor and can negotiate special rates with the hotels and have special travel deals for prime members, the cost of my membership would be truly worthwhile ( it costs only 100$ and if a prime deal gets me a cheaper hotel or car rental, I am all for it) - Its a huge incentive to keep my prime membership

2) When i want to research any product i buy, i go to amazon. Similarly when i try to research on a trip, I go to tripadvisor. Combining the strengths of the two with massive user base would be an easy target for tripadvisor growth - and a good profitable business for amazon.

3) When i buy a trip, amazon has the relevance engine to upsell massive amount of goods and products that would pertain my trip ( imagine i book for a trip to Paris) and moment amazon knows that they can start selling me things based on what i would need for a trip. huge upsell for relevance engine

etc etc

 

To add few more details

 

1) TripAdvisor would benefit from Amazon tech stack

2) Tripadvisor would benefit from amazon customer base and immediately turnaround on IB

3) Amazon will have a travel platform versus google hotel finder

4) Hotels need a strong support from non OTA to reduce reliance on Google, Priceline and expedia ( Its a win for hotels to reduce their fee structure)

5) Amazon will have a profitable cross selling platform with good margin travel business

6) PCLN rules europe and expedia rules US , Amazon has an opportunity to take it to an absolute global scale than no-one else

7) They can just start with taking the TRIP/Maffei share alone to start making money on this.

8) Amzn can use their high stock price to buy a depressed asset

9) Amzn can bring to scale the tripadvisor advertising/referral revenue stream as well.

10) Finally - It would be a huge win for Amazon Payments business to scale ( and all those credit cards on amazon to make those travel purchases )if trip if bought.

 

[Sunrider]

I don't understand one of the points. Why would Amazon be able to negotiate better rates with the hotels than anyone else? It seems to me that hotels likely want people to come via their own sites, tied to their loyalty programmes, etc. OTA inventory is a necessary evil for them. In many parts of the world small hotels dominate - no advantages for AMZN there either - Trip, Hotel.com, etc. already offer them the ability to put inventory up online and I'm sure they don't want their margins to come down further?

 

C.

 

Below are the comments on SA -

 

---------------------------------------

I would like to see what others think but I think tripadvisor would be a great asset for Amazon.com to buy. Here are reasons why

 

1) We need slew of services that are available to members of Amazon prime and i need a reason to keep that. If amazon can buy tripadvisor and can negotiate special rates with the hotels and have special travel deals for prime members, the cost of my membership would be truly worthwhile ( it costs only 100$ and if a prime deal gets me a cheaper hotel or car rental, I am all for it) - Its a huge incentive to keep my prime membership

2) When i want to research any product i buy, i go to amazon. Similarly when i try to research on a trip, I go to tripadvisor. Combining the strengths of the two with massive user base would be an easy target for tripadvisor growth - and a good profitable business for amazon.

3) When i buy a trip, amazon has the relevance engine to upsell massive amount of goods and products that would pertain my trip ( imagine i book for a trip to Paris) and moment amazon knows that they can start selling me things based on what i would need for a trip. huge upsell for relevance engine

etc etc

 

To add few more details

 

1) TripAdvisor would benefit from Amazon tech stack

2) Tripadvisor would benefit from amazon customer base and immediately turnaround on IB

3) Amazon will have a travel platform versus google hotel finder

4) Hotels need a strong support from non OTA to reduce reliance on Google, Priceline and expedia ( Its a win for hotels to reduce their fee structure)

5) Amazon will have a profitable cross selling platform with good margin travel business

6) PCLN rules europe and expedia rules US , Amazon has an opportunity to take it to an absolute global scale than no-one else

7) They can just start with taking the TRIP/Maffei share alone to start making money on this.

8) Amzn can use their high stock price to buy a depressed asset

9) Amzn can bring to scale the tripadvisor advertising/referral revenue stream as well.

10) Finally - It would be a huge win for Amazon Payments business to scale ( and all those credit cards on amazon to make those travel purchases )if trip if bought.

[JBTC]

I don't understand one of the points. Why would Amazon be able to negotiate better rates with the hotels than anyone else? It seems to me that hotels likely want people to come via their own sites, tied to their loyalty programmes, etc. OTA inventory is a necessary evil for them. In many parts of the world small hotels dominate - no advantages for AMZN there either - Trip, Hotel.com, etc. already offer them the ability to put inventory up online and I'm sure they don't want their margins to come down further?

 

C.

 

I don't see that specific point either. Amazon doesn't need to replicate what TRIP is already doing, only help make it bigger. Amazon/TRIP can probably pass a large portion of the commissions they get as OTA back to Prime members and make it super sticky, among other things...

 

[scorpioncapital]

I saw TRIP owns Niumba, a regional vacation booking service a-la Airbnb/Homeaway in Spain. Perhaps they are slowly building up this potentially lucrative arm of the business? When I look for a place to stay I prefer it to hotels for even as short as 1 week. There is always need for more supply. Airbnb seems to be great for shared spaces and somewhat less availability for full apartments. Margins here would seem to be on an up escalator while with hotels they are the other way. Metasearch is interesting but I notice they always seem to return similar results. If you are looking for something different, they are all pretty fundamentally the same. I remember Peter Thiel's book Zero to One which showed that square credit card reader for phones for small merchants. Then someone else came out with 'triangle' and 'oval'. He was trying to say that these companies don't get they are stuck in the competition game and are not completely bypassing the concept. Their efforts are strategically in a direction that is destined for eventual nickel and diming. Trip as well really but perhaps there is some network effect and niche effect here. Same with the rating feature you see on restaurant windows. Reminds me a bit of Moody's rating bonds. Trip and Yelp are rating travel experiences.

[DooDiligence]

"...they are stuck in the competition game and are not completely bypassing the concept."

 

What a concept!

[WneverLOSE]

TRIP 1st Q results are in two days and I speculate they won't be pretty.

As a shareholder i'm very confused with the company, going for a business model pivot with Instant Booking and now apparently scaling it back. Opening a retail store in an airport in North Carolina and redesigning the website with minimal improvements.

 

I kind of feel cheated by the management selling a dream while I now see it as a nightmare.

While Instant booking was a nice try, if they really scale it back and fail to achieve a better business model off it TRIP is in a bad position of being just a metasearch company in an an industry that it is very easy to enter and non rational competitors enter all the time. Some players like trivago or HotelsCombined spend absurd amounts of money on my local market and I can't see how they become profitable since 99.999% of the people here will search for the absolute lowest bid out there including the hotel own website (which gives you perks like free wifi access(which is a major thing for most travelers), 10% discount or other perks).

 

[scorpioncapital]

I thought this article was interesting - https://skift.com/2014/08/07/the-biggest-cliche-in-travel-companies-business-models/

 

I don't see TRIP as any worse than EXPE as a business. Maybe slightly more advantages if they can monetize their traffic. How long will OTA profit growth work for? Is acquisitions the only reason for the supposed "growth"? Is there any reason this should be a duopoly? I mean is nobody else interested in making money from online travel? Is advertising spend a source of competitive advantage? I think when investment teachers talks about durable competitive advantage they may be a little too loose with the term. It is not very easy to tell what is a competitive advantage. It's not black and white. Does coca-cola have such a moat because of it's product, time in the game, or massive advertising? Maybe durable advantage is a combination of several actions taken together over time that come together. I also think there is no infinite durable advantage, they all have a cycle and wax and wane with time. Even Coke has had some erosion due to dietary habits and they got into things like selling water.

Yes TRIP is risky. But maybe there are some rewards at the end of the rainbow.

[glorysk87]

I kind of feel cheated by the management selling a dream while I now see it as a nightmare.

 

Don't know why you'd feel cheated. It was obvious the instant booking wasn't working. TRIP management gave it their best shot, it's not like they were lying to you.  It's up to you to look at the number every quarter to determine whether the strategy was working.

 

It very very obviously wasn't.

[Guest roark33]

https://skift.com/2017/05/08/tripadvisor-scales-back-instant-booking-in-strategy-reversal/#respond

 

Instant booking on the ropes.

[WneverLOSE]

I kind of feel cheated by the management selling a dream while I now see it as a nightmare.

 

Don't know why you'd feel cheated. It was obvious the instant booking wasn't working. TRIP management gave it their best shot, it's not like they were lying to you.  It's up to you to look at the number every quarter to determine whether the strategy was working.

 

It very very obviously wasn't.

 

Don't know where do you get your information (insider information ?) but for the rest of us, the public shareholders that listen to the conference calls, listening to interviews with the the CEO and CFO and getting the information publicly available it was far from obvious. It was expected that pushing IB will hurt ARPU so seeing lower numbers doesn't really give investors any insight into the rollout of the product. All the commentary from the management was positive towards the new model so if they do change course because it didn't go well and they kept telling investors all is going great I do think I have enough reasons to feel cheated.

What made it "obvious" to you that IB is not working ? I guess 1 out of the following :

1) 20/20 hindsight - only calling now it was obvious.

2) Mr. Market dictating to you if you are right or wrong.

 

EDIT: I will even make it harder for you, assuming it was obvious the IB will fail and i'm the idiot here, why did Mr. Market (which is extremely extremely extremely efficient at obvious things) didn't see how obvious was it ?

[scorpioncapital]

I presume this scale back is only for hotel bookings ? Trip owns several vacation rental websites similar to HomeAway and since it owns them I imagine they're still linking to those ?

[glorysk87]

Don't know where do you get your information (insider information ?) but for the rest of us, the public shareholders that listen to the conference calls, listening to interviews with the the CEO and CFO and getting the information publicly available it was far from obvious. It was expected that pushing IB will hurt ARPU so seeing lower numbers doesn't really give investors any insight into the rollout of the product. All the commentary from the management was positive towards the new model so if they do change course because it didn't go well and they kept telling investors all is going great I do think I have enough reasons to feel cheated.

What made it "obvious" to you that IB is not working ? I guess 1 out of the following :

1) 20/20 hindsight - only calling now it was obvious.

2) Mr. Market dictating to you if you are right or wrong.

 

EDIT: I will even make it harder for you, assuming it was obvious the IB will fail and i'm the idiot here, why did Mr. Market (which is extremely extremely extremely efficient at obvious things) didn't see how obvious was it ?

 

Insider information? No. Why would I need that? Apparently unlike you, I'm able to look at the reported data and derive accurate insights...sorry you're unable to do the same. For example, revenue per unique visitor had positive growth right up until IB was introduced, where it ticked negative and continued to accelerate downwards from there. Revenue per hotel shopper also saw a similar impact. Operating margins a similar case - it would be one thing if these metrics began to climb back as IB began to work. But the fact that none of them did implies that IB never actually started to work, it was just a failed model. Again. Sorry you're unable to put together cohesive conclusions from the disparate information available to you. Honestly, all you really have to do is talk to management from the other OTAs to get a pretty good picture of why IB was a bad idea. Surveying users of TRIP also would have led you to the conclusion that IB was not a good model.

 

20/20 Hindsight? No. I've been negative on TRIP for months:

 

Agree with the sentiment, but none of that actually helps close the gap in terms of influencing the customers to actually complete their purchase on the Tripadvisor site.

 

TRIP reviews are exceptionally valuable at influencing purchase decisions by customers - the treasure trove of reviews has been and remains TRIP's greatest asset.

 

But the monetization gap is still very real, and the company seems unable to close it quickly if at all. Even anecdotally, whenever my wife and I take a vacation we look at reviews on TRIP, and then we scour the rest of the internet for pricing and inevitably end up booking on a different site.

 

I would love to own TRIP, but until they can solve that issue, it's a non-starter for me.

 

"Mr. Market" isn't always correct. In fact, the Market is very often incorrect. That's the only way for an active investor to succeed. Like here, where I made money on TRIP, apparently at your expense.

 

In the years I've spent in this business I've seen hundreds of times that the market got it 10000% wrong. I mean jeez, just look at the ETF crash in late 2015. There was a massive amount of money to be made that day, because the market was so "extremely extremely extremely" inefficient. Or, if according to you the market is so efficient, why was AAPL trading 60% lower a mere year ago? There are a million examples. Blind belief of an efficient market is not conducive to successful investing.

 

[KCLarkin]

Apparently unlike you, I'm able to look at the reported data and derive accurate insights...sorry you're unable to do the same. For example, revenue per unique visitor had positive growth right up until IB was introduced, where it ticked negative and continued to accelerate downwards from there. Revenue per hotel shopper also saw a similar impact. Operating margins a similar case - it would be one thing if these metrics began to climb back as IB began to work. But the fact that none of them did implies that IB never actually started to work, it was just a failed model. Again. Sorry you're unable to put together cohesive conclusions from the disparate information available to you. Honestly, all you really have to do is talk to management from the other OTAs to get a pretty good picture of why IB was a bad idea. Surveying users of TRIP also would have led you to the conclusion that IB was not a good model.

 

This is largely irrelevant. At the peak, TRIP traded at 60x earnings (according to Cap IQ). For that valuation to make sense, everything needed to go right. Not just IB, but everything. There was always a chance that IB wouldn't close the revenue gap. Glorysk87 might say the odds are 99% against IB. Management might say 50/50. But regardless, it was overpriced.

 

Even now, it seems to be trading at 22x peak earnings.

 

--

For this stock to work as a long, you needed Mr. Market to price this stock like IB was certain to fail. Then you could get a trough multiple on trough earnings, setting up a potential double double.

 

Instead, Mr. Market seemed certain that not only would IB succeed but it would be a spectacular success.

 

--

I think IB is a bit of a side-show anyway. I'd say bigger issue right now is a seemingly-irrational competitor (Trivago) buying market share. And Google eviscerating organic search (especially on mobile).

[WneverLOSE]

Ok i'm not going to reply anymore after this one since I see it is a case of anchoring on ones opinion without willing to listen.

Please reread my reply and try to understand what I mean by saying that everyone expected that IB will bring lower revenues since the consumers are not fully educated yet / optimization of the algorithms are not done yet and the costs of signing the first partners which are much higher than signing 1 marginal supplier to the network once you have a developed marketplace.

 

My comment on insider information was a joke, didn't expect anyone would actually take it seriously but I will make it clear.

 

Talking about talking with other CEO's (something not accessible to the common investor) or surveying customers(again, not accessible) is also not a great idea since there are countless examples of consumer surveys or test groups that companies relied upon and the products failed horrible while getting excellent reviews by the test group.

 

Having an opinion on something and having it come out in the end doesn't mean you were right, it is clear that you don't think about risk and outcome the same way as Buffett and Ajit Jain do (watch him talk about calling the wrong shots but getting the right results :

)

 

I also didn't say the market is ALWAYS right, please reread my comment again. If market " is very often incorrect" how do you explain the distribution of investment returns of investors that fit exactly to the distribution of somewhat efficient markets ?

I try to be respectful but I strongly believe you have very little knowledge about EMH since if you did you would easily understand that any volatility you show as an example can be explained by the introduction of new information. The fact that the market got something wrong doesn't say it is not efficient, it just says the information changed.

 

I will just say that if you are a smart investor and like to make "easy" money just publish any "proof" you have to why markets are not efficient and not only that you will probably win a nobel prize you will have huge opportunists regarding managing money and taking your well deserved 2/20.

 

I will keep my eye on the nobel prize winners but I guess I won't see any proof anytime soon.

 

edit: by the way forgot to mention i'm actually still positive on my position, but it doesn't make a difference, the long term expectation I had changed and that's all. Even if I had lost money it doesn't matter since the stock doesn't know i'm angry or happy, you may feel good about trolling people over the internet but that's probably it...

[scorpioncapital]

http://ir.tripadvisor.com/common/download/download.cfm?companyid=AMDA-MMXS5&fileid=941981&filekey=A0C62A13-DD88-40E1-B9BD-78B57E8A8672&filename=TripAdvisor_Reports_First_Quarter_2017_Financial_Results.pdf

 

Bought back 3.5 million shares....

Does anyone know why their business has more FCF in Q1 & Q2 and much less in Q3 and Q4? Of course this is not a trend just observing the last 2 or so years and FCF in truth has been somewhat volatile quarter to quarter.

[KCLarkin]

Does anyone know why their business has more FCF in Q1 & Q2 and much less in Q3 and Q4? Of course this is not a trend just observing the last 2 or so years and FCF in truth has been somewhat volatile quarter to quarter.

 

This depends on the revenue mix. The revenue recognition works differently for IB versus metasearch. Plus, there will be seasonal impacts and the one-time impacts from business model changes with IB and vacation rentals.

 

Doesn't really answer your question but should explain some of the volatility.