TRIP - Tripadvisor Inc.

[muscleman]

LTRPA's consolidated balance sheet represents no reality. Where can I find unconsolidated balance sheet? Or do I have to look at TRIP's balance sheet and reverse engineer one out?

 

LTRPA's TRIP stocks are worth 2.5 bn on December 31 2015, which means 1.9 bn as of today. Margin loan is 431 million. So the value excluding Buy season is 1.5 bn.

 

The consolidated balance sheet is confusing to me. Goodwill is 3.6 bn in LTRPA, but only 0.7 million in TRIP's balance sheet. I thought LTRPA's treatment is to add everything TRIP has onto its balance sheet for consolidation, as LTRPA has 58% of voting power.

 

Can anyone help me understand the discrepancies?

 

Ping...........

Can anyone help me understand the discrepancies?

[rishig]

JBTC, I think Priceline's moat is covered pretty well by Ross at the start of the PCLN thread:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pcln-priceline-group-inc/

 

Going through the PCLN thread now, and came across this good summary of PCLN from Rishig:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pcln-priceline-group-inc/msg206395/#msg206395

 

Thanks Larkin.

 

I saw those before. Just trying to think about the few things that really matter in the long-term.

 

I vaguely thought TRIP and PCLN could merge before. I know you believe that. I was hoping to understand if and how much PCLN might need TRIP. As being pointed out, PCLN's change of mind in IB does seem to indicate the necessity of a partnership.

 

If I was in PCLN's shoes, these are the threats I am facing.

 

1) Hotels are consolidating. The highly consolidated nature of the US hotel market already makes OTAs' life not as good as elsewhere. Of course the hotels are being forced to consolidate due in large part to OTAs and Google and TRIP. Given the hotel consolidation is an unmistakable trend everywhere, the larger PCLN gets the better.

 

 

2) Google is powerful. Without Google PCLN makes no living. While Google seems to be content to cooperate for now, PCLN's utter dependence on Google is a serious risk in the LT.

 

The search engines are at the top of the "funnel" aggregating clicks. They take all kinds of signals and intents and redirect. TRIP is the next in the funnel and PCLN is at the bottom that is aggregating hotel rooms and hotel relationships. The three together is what makes this work. As you pointed out, PCLN makes no living with the search engines, but search engines and TRIP also make a lot of money from PCLN. All of these players and other OTAs have been in the international markets for a while - if it were so easy to build what booking.com has, then you would have started seeing cracks in market share being stolen away. Yet, I see no evidence of that yet.

 

3) Google is determined to dominate even more in travel, with its recent launch of Destinations. It's increasingly a more direct attack on TRIP and other meta search engines. Think about it - everything a meta search engine can do, Google can do it. Google knows search, period. To the extent that Google can kill TRIP (it won't) and other meta search engines (it may), PCLN is rendered to an even weaker market position.

 

You think the search engine executives want to kill their golden goose?

 

4) TRIP is not content with sending traffic to PCLN and getting paid peanuts. If IB is successful, it'd be a huge threat to PCLN's profitability.

 

Considering all the above, PCLN buying TRIP would seem both a defensive and offensive move. It will be stronger in customer sourcing and more important to hotels, TRIP's threat is gone (cannibalizing is better than being killed), its market position to Google is enhanced because TRIP does not need Google.

 

Why can TRIP survive the Google onslaught? Because it's both social and search. The search function has already been replicated, but the social part will thrive.

 

1) PCLN's >90% business is international where the hotel industry is highly fragmented. The hotel chains are very small fraction of the internaional market.

 

2) The search engines are at the top of the "funnel" aggregating clicks. They take all kinds of signals and intents and redirect. TRIP is the next in the funnel and PCLN is at the bottom that is aggregating hotel rooms and hotel relationships. The three together is what makes this work. As you pointed out, PCLN makes no living with the search engines, but search engines and TRIP also make a lot of money from PCLN. All of these players and other OTAs have been in the international markets for a while - if it were so easy to build what booking.com has, then you would have started seeing cracks in market share being stolen away. Yet, I see no evidence of that yet.

 

3 and 4)  I question all of this. The search engines, TRIP, and PCLN are three different points in the funnel. You can argue that the search engines are powerful enough that no aggregation vertical should develop. I think this is a fallacy, because the aggregation verticals provide further signals and intent that the platforms above in the funnel don't have.

 

IB successful requires aggregating hotel relationships all over the world. There is a reason TRIP decided to partner with PCLN. If they could go on their own, they would have. That takes dollars and time and upsetting their largest customer in the meantime. Can it happen 10 years out? Sure, it can. Was PCLN at 1000$ so expensive that I had to know with certainty that PCLN will be displaced by TRIP. I don't think so.

[KCLarkin]

I think you are looking at the wrong data.

68.97% Of traffic is from Search.

 

No, we are looking at two different things. If you trust that site (I don't know), then it breaks down like this:

 

69% of traffic is from search.

99.5% of search traffic is free

0.5% of search traffic is paid

--

0.35% of traffic is from paid search

 

And the top paid keywords are all variations of "tripadvisor". TRIP is paying a tax to Google because people are too lazy to type tripadvisor.com

[scorpioncapital]

You just have to type 't' in your address bar and if you've been before it fills it in. An expensive 't' indeed!

[rishig]

I think you are looking at the wrong data.

68.97% Of traffic is from Search.

 

No, we are looking at two different things. If you trust that site (I don't know), then it breaks down like this:

 

69% of traffic is from search.

99.5% of search traffic is free

0.5% of search traffic is paid

--

0.35% of traffic is from paid search

 

And the top paid keywords are all variations of "tripadvisor". TRIP is paying a tax to Google because people are too lazy to type tripadvisor.com

 

You are assuming that people end on TripAdvisor *only* because they explicitly start looking for TripAdvisor. This isn't true. There are general keywords like "cheap hotels in Indonesia" or "top resorts in Bali" or "romantic holiday in Paris" and a hundreds of "ad" words that TRIP, PCLN, EXPE want to capture.

[JBTC]

JBTC, I think Priceline's moat is covered pretty well by Ross at the start of the PCLN thread:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pcln-priceline-group-inc/

 

Going through the PCLN thread now, and came across this good summary of PCLN from Rishig:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pcln-priceline-group-inc/msg206395/#msg206395

 

Thanks Larkin.

 

I saw those before. Just trying to think about the few things that really matter in the long-term.

 

I vaguely thought TRIP and PCLN could merge before. I know you believe that. I was hoping to understand if and how much PCLN might need TRIP. As being pointed out, PCLN's change of mind in IB does seem to indicate the necessity of a partnership.

 

If I was in PCLN's shoes, these are the threats I am facing.

 

1) Hotels are consolidating. The highly consolidated nature of the US hotel market already makes OTAs' life not as good as elsewhere. Of course the hotels are being forced to consolidate due in large part to OTAs and Google and TRIP. Given the hotel consolidation is an unmistakable trend everywhere, the larger PCLN gets the better.

 

 

2) Google is powerful. Without Google PCLN makes no living. While Google seems to be content to cooperate for now, PCLN's utter dependence on Google is a serious risk in the LT.

 

The search engines are at the top of the "funnel" aggregating clicks. They take all kinds of signals and intents and redirect. TRIP is the next in the funnel and PCLN is at the bottom that is aggregating hotel rooms and hotel relationships. The three together is what makes this work. As you pointed out, PCLN makes no living with the search engines, but search engines and TRIP also make a lot of money from PCLN. All of these players and other OTAs have been in the international markets for a while - if it were so easy to build what booking.com has, then you would have started seeing cracks in market share being stolen away. Yet, I see no evidence of that yet.

 

3) Google is determined to dominate even more in travel, with its recent launch of Destinations. It's increasingly a more direct attack on TRIP and other meta search engines. Think about it - everything a meta search engine can do, Google can do it. Google knows search, period. To the extent that Google can kill TRIP (it won't) and other meta search engines (it may), PCLN is rendered to an even weaker market position.

 

You think the search engine executives want to kill their golden goose?

 

4) TRIP is not content with sending traffic to PCLN and getting paid peanuts. If IB is successful, it'd be a huge threat to PCLN's profitability.

 

Considering all the above, PCLN buying TRIP would seem both a defensive and offensive move. It will be stronger in customer sourcing and more important to hotels, TRIP's threat is gone (cannibalizing is better than being killed), its market position to Google is enhanced because TRIP does not need Google.

 

Why can TRIP survive the Google onslaught? Because it's both social and search. The search function has already been replicated, but the social part will thrive.

 

1) PCLN's >90% business is international where the hotel industry is highly fragmented. The hotel chains are very small fraction of the internaional market.

 

2) The search engines are at the top of the "funnel" aggregating clicks. They take all kinds of signals and intents and redirect. TRIP is the next in the funnel and PCLN is at the bottom that is aggregating hotel rooms and hotel relationships. The three together is what makes this work. As you pointed out, PCLN makes no living with the search engines, but search engines and TRIP also make a lot of money from PCLN. All of these players and other OTAs have been in the international markets for a while - if it were so easy to build what booking.com has, then you would have started seeing cracks in market share being stolen away. Yet, I see no evidence of that yet.

 

3 and 4)  I question all of this. The search engines, TRIP, and PCLN are three different points in the funnel. You can argue that the search engines are powerful enough that no aggregation vertical should develop. I think this is a fallacy, because the aggregation verticals provide further signals and intent that the platforms above in the funnel don't have.

 

IB successful requires aggregating hotel relationships all over the world. There is a reason TRIP decided to partner with PCLN. If they could go on their own, they would have. That takes dollars and time and upsetting their largest customer in the meantime. Can it happen 10 years out? Sure, it can. Was PCLN at 1000$ so expensive that I had to know with certainty that PCLN will be displaced by TRIP. I don't think so.

 

I wasn't questioning your investment in PCLN. I used to own it. It's well run, growing, highly profitable. But at this point I am focused on exploring the potential of TRIP. I ask questions about PCLN because they are and will be intricately linked.

 

My interest in TRIP does not depend on a buyout. But I fear it. I have accumulated a small position. If I can rule out a buyout in the short-term, I will have plenty of time to add.

 

My worry is if PCLN thinks long-term and wants to cement its competitive position for the future, it might pull the trigger. PCLN is close to all time high, while TRIP is near a multi-year low.

 

My entire focus is on the next 5-10 years. Couldn't care less how much TRIP makes this year or next. Which is also why many of your arguments, clearly valid today, are not important to me.

 

Sure the international market is more fragmented. But the trend has just accelerated towards consolidation and in 5-10 years the market could be a lot more consolidated.

 

Yes it seems not easy to build the hotel network Booking has, although I don't fully understand why and wonder if it's just a matter of time. I travel in Europe and Asia a lot, and I don't recall I often encountered a situation where Booking has a hotel that hotels.com doesn't.

 

For the small hotels, shouldn't they try to get into every channel and listing? There are numerous IT firms focused on building connectivity for the small hotels in the world. In the early days, marketing on Internet may require a lot of in-house resources, but today a hotel can get instant help from people such as below. 

 

https://www.tripadvisor.com/ConnectivityPartners

 

I got no evidence for this yet, but my best guess is as online booking continues to mature, an OTA's listing advantage will be eroded.

 

Of course, TRIP readily acknowledges the tremendous amount of value PCLN brings to IB. Steve Kaufer raves about the Japanese-language hotel room description that PCLN has, because IB needs it to make things work today. But I was wondering, is this foreign language room description a moat for PCLN in the long haul?

 

Sorry if I think too far out for some of you guys. But what's the point in getting involved with TRIP if its future is only a slightly improved version of today? There are plenty of other stocks to look at if that's what we look for.

 

[KCLarkin]

I am trying to understand the core thesis for an investment in TRIP at 33x earnings. A few guesses:

 

A - Pay 33x for a company growing EPS at 13%.

B - Revenue is growing faster than earnings because they are investing heavily (technology and marketing) for IB roll-out. Margins will revert to normal once these investments slow. In other words, owners earnings are greater than reported earnings.

C - Operating leverage as company grows revenue 15%-20% per year for the next decade (this seems obvious but is the opposite of what we are seeing in B)

D - TRIP's revenue per shopper is tiny compared to OTAs. TRIP will be able to close the gap using IB and mobile.

 

My discussion around SEM is solely to understand if B is valid. Are there a bunch of temporary marketing costs surrounding the IB rollout? My feeling is no. Marketing costs will increase if the rollout is successful (with the exception of TV advertising, which they have reduced).

 

I haven't looked into the R&D spend yet.

 

---

You are assuming that people end on TripAdvisor *only* because they explicitly start looking for TripAdvisor. This isn't true. There are general keywords like "cheap hotels in Indonesia" or "top resorts in Bali" or "romantic holiday in Paris" and a hundreds of "ad" words that TRIP, PCLN, EXPE want to capture.

 

That wasn't my intention. I am putting search into two buckets. "SEO" - organic, free search. "SEM" - paid advertising.

 

SEM: Tripadvisor can't profitably outbid PCLN for "romantic holiday in Paris". So I don't think this is a meaningful portion of TRIP's search traffic.

SEO: Given the great content, TRIP has an advantage over the OTAs in organic search. So TRIP gets lot's of organic "romantic holiday in Paris" traffic. This is what gives them an advantage in customer acquisition costs.

 

Anyway, I think this level of detail might distract from getting to the core thesis here. I suspect the answer is D but haven't convinced myself that it will work. Would really prefer a combo of D + B/C.

 

In other words, I want this to be a good investment even if IB is a failure.

 

[JBTC]

Anyway, I think this level of detail might distract from getting to the core thesis here. I suspect the answer is D but haven't convinced myself that it will work. Would really prefer a combo of D + B/C.

 

 

It's the combo for me but I am afraid the focus of the company is on D. TRIP says this all the time on the calls that we want to get our fair share, and it's clear that parity with booking is not what they look for.

 

Investors who anticipated operating leverage would be sorely disappointed in the past few years. But I do agree with the company that TRIP has improved in market position with its continued investments.

 

If you don't think IB has a good chance to pan out, there is probably not enough margin of safety for you here. The reason is a possible lag between finding out IB not working and realigning costs back to a pure ad model. Stock will get killed before costs are cut and margins go up again.

 

[rishig]

Anyway, I think this level of detail might distract from getting to the core thesis here. I suspect the answer is D but haven't convinced myself that it will work. Would really prefer a combo of D + B/C.

 

 

It's the combo for me but I am afraid the focus of the company is on D. TRIP says this all the time on the calls that we want to get our fair share, and it's clear that parity with booking is not what they look for.

 

Investors who anticipated operating leverage would be sorely disappointed in the past few years. But I do agree with the company that TRIP has improved in market position with its continued investments.

 

If you don't think IB has a good chance to pan out, there is probably not enough margin of safety for you here. The reason is a possible lag between finding out IB not working and realigning costs back to a pure ad model. Stock will get killed before costs are cut and margins go up again.

 

At 16-18x trailing earnings, PCLN was a lot easier to go long at $950-$1000. It's up 30% and I have reduced my position in half (all my investments are in non taxable accounts). I think PCLN can continue to do well for the next 5 years, while TRIP is trying to ramp up. Also, I don't think it is as easy as it looks to get to the scale that PCLN is at. So, PCLN will continue to co-exist. Not to say TRIP is not a great business with very high potential, but at current earning multiples, I find answering the questions you raised in my "too hard" category. If you can figure it out and have high confidence in your analysis, you will do very well and likely way better than holding PCLN.

[KCLarkin]

If you don't think IB has a good chance to pan out, there is probably not enough margin of safety for you here.

 

I'm not worried about the margin of safety. The business quality protects the downside.

 

But I think there is a potential lollapalooza here:

 

- Revenue increased 2.34x. Net income increased only 10%. (2011-2015)

- Stock is down 40% from peak

- Currency headwinds

- Temporary revenue headwinds from IB

- Growth investments

- Mobile usage is skyrocketing, but monetization is poor (but improving)

- Opportunity to increase revenue per shopper (via IB, new products,mobile)

- (potential) Operating leverage

- Strong balance sheet for acquisitions or buybacks

- Optically very expensive (48x according to Google)

- Liberty as controlling shareholder means strong capital allocation or buyout

- Solid moat

- Capital light business

- negative cash conversion (float)

- Potential for PCLN buyout

 

Everything looks great! But I just don't have a solid explanation for the inverse operating leverage since the spin-off. How did revenue more than double but earnings are flat?

 

From Valueline:

"Meanwhile, as the company attempts to fend off stiff competition, marketing investments will probably remain heavy, keeping margins in check."

 

But this seems odd rationale, since most of Trip's traffic appears to be free (at least according to Similarweb). Or is this marketing spend offline? Or mobile? How are they spending almost half of revenue on marketing? How does that spending breakdown?

 

--

This discrepancy between revenue growth and earnings growth is so large, I assume that TRIP or sell-side must have discussed it in detail. Why the magnitude of marketing spend? Will their be operating leverage in their marketing once IB is up-to-speed? Is the marketing spend justified because the LTV is earned over multiple years? Can anyone point me in the right direction?

 

[JBTC]

If you don't think IB has a good chance to pan out, there is probably not enough margin of safety for you here.

 

I'm not worried about the margin of safety. The business quality protects the downside.

 

But I think there is a potential lollapalooza here:

 

- Revenue increased 2.34x. Net income increased only 10%. (2011-2015)

- Stock is down 40% from peak

- Currency headwinds

- Temporary revenue headwinds from IB

- Growth investments

- Mobile usage is skyrocketing, but monetization is poor (but improving)

- Opportunity to increase revenue per shopper (via IB, new products)

- (potential) Operating leverage

- Strong balance sheet for acquisitions or buybacks

- Optically very expensive (48x according to Google)

- Liberty as controlling shareholder means strong capital allocation or buyout

- Solid moat

- Capital light business

 

Everything looks great! But I just don't have a solid explanation for the inverse operating leverage since the spin-off. How did revenue more than double but earnings are flat?

 

From Valueline:

"Meanwhile, as the company attempts to fend off stiff competition, marketing investments will probably remain heavy, keeping margins in check."

 

But this seems odd rationale, since most of Trip's traffic appears to be free (at least according to Similarweb). Or is this marketing spend offline? Or mobile? How are they spending almost half of revenue on marketing? How does that spending breakdown?

 

--

This discrepancy between revenue growth and earnings growth is so large, I assume that TRIP or sell-side must have discussed it in detail. Why the magnitude of marketing spend? Will their be operating leverage in their marketing once IB is up-to-speed? Is the marketing spend justified because the LTV is earned over multiple years? Can anyone point me in the right direction?

 

That is a great list and I agree with them all.

 

I have to concede I didn't look too closely into the expenses, but considering just a few of the things they did in the past few years:

 

- redesigned key functionalities from the silly popup windows to meta search to now IB

- spent money on TV to promote the brand and general awareness

- spent money on newer initiatives such as restaurants and attractions etc

 

I did believe SG&A went up because of money well spent. The result is a stronger market position (vs. Google and OTAs) and a clear path to greater revenue share.

 

They have 350mn visitors each month. These are not the Facebook people who just sit around and chat and browse pictures. The TRIP visitors are highly motivated to spend anywhere from hundreds to thousands of dollars on hotels in the coming weeks. These people are valuable. So far TRIP can only collect about 35 cents from each visitor per month.

 

Remember the time no one believed Facebook can monetize? Well, Facebook can. I think TRIP should be able to do better.

 

[JBTC]

I found this statement surprising -

 

"At the risk of being biased through personal experience and of those around me, today almost everyone uses TRIP for planning. However, when it comes to booking, there is almost always a cheaper option available (5-10%) than found on TRIP’s site or any of the other links that it provides."

 

http://beowulfcap.com/2016/03/19/trip-advisor-and-liberty-trip-advisor-trip-ltrpab/

 

[JBTC]

Your Next Trip, Courtesy of Google Search

 

http://www.nytimes.com/2016/03/13/travel/trip-planner-google-destinations.html?_r=0

 

[KCLarkin]

there is almost always a cheaper option available (5-10%) than found on TRIP’s site or any of the other links that it provides."

 

I saw this but not sure how it is possible given the contracts the hotels sign with OTAs? Anyone seen a more thorough analysis on this?

[Sionnach]

there is almost always a cheaper option available (5-10%) than found on TRIPs site or any of the other links that it provides."

 

I saw this but not sure how it is possible given the contracts the hotels sign with OTAs? Anyone seen a more thorough analysis on this?

 

I don't think there is any supporting evidence behind this claim. In fact, I would argue just the opposite. As you mentioned, hotels are required to have prices equal to or less than the OTA pricing in order to be shown on IB (from the IB FAQ page).

[JBTC]

there is almost always a cheaper option available (5-10%) than found on TRIP’s site or any of the other links that it provides."

 

I saw this but not sure how it is possible given the contracts the hotels sign with OTAs? Anyone seen a more thorough analysis on this?

 

I don't think there is any supporting evidence behind this claim. In fact, I would argue just the opposite. As you mentioned, hotels are required to have prices equal to or less than the OTA pricing in order to be shown on IB (from the IB FAQ page).

 

According to the company -

 

"Second, in 2013, anticipating change in consumer preferences, we added Hotel Metasearch enabling users to find all the best prices for more than 200 different booking engines across the web."

 

[KCLarkin]

This is good context for the LTV discussion earlier from a well-known VC

http://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/

 

H/t @brattlestreetcap

[KCLarkin]

Going through the financials and wanted to add a few minor details to the conversation:

1 - $67 million one-time charitable foundation settlement in 2015

2 - Cash conversion cycle is negative. So business doesn't consume WC as it grows. FCF is consistently above my calculated Cash EPS. Instant Book will likely change this dynamic though.

3 - Balance sheet is largely intangibles and excess cash so the returns on tangible equity are incredible. I assume PCLN has similar advantages.

4 - Management looks really good for long term investors (CEO, CFO, Liberty):

http://www.betaboston.com/news/2014/10/06/tripadvisor-ceo-steve-kaufer-explains-why-he-doesnt-obsess-over-the-stock-price/

 

I'm getting really tempted here.

 

I still haven't heard a good explanation for the elevated marketing spend. On the Q3 2015 call, Kaufer said that they run their direct marketing budget at breakeven. So if they spend $1 on search ads, they expect $1 in revenue. Presumably, this supports the hypothesis that some portion of the marketing spend could be "capitalized".

 

To the second part of the question, which marketing channel is the most efficient, we tend to look for as many marketing channels as we can find that deliver ... quality traffic. And for the most part we operate them on a breakeven basis. We view it as acquiring trial. And I'm talking about sort of ROI generating online channels, be it the search or targeting or CPM or any of the other methods of acquiring traffic.

-- Stephen Kaufer, Q3 2015

 

So the "margin" on incremental traffic from paid search is ~0%. Interesting.

[glorysk87]

I love the TRIP business model. But I just don't understand how anyone could justify investing here in the midst of a business model evolution.  Instant Booking is, so far, kind of a question mark. And every time that I've invested in a company in the midst of a model transition, I've gotten burned.  To invest here you have to believe that Instant Booking will really gain traction as a mainstream way for travelers to book trips. I'm not sure I can wrap my head around that.  The tendency of a traveler is to look up reviews on TRIP, and then scour the internet to find the best price they can (usually falling back to their tried and true OTC that they trust).  There's nothing really motivating the customer to stay and thus to capture that sale on the Instant Booking platform.

[KJP]

There's nothing really motivating the customer to stay and thus to capture that sale on the Instant Booking platform.

 

If the customer had confidence that TripAdvisor offered the lowest price, the motivation would be saving time and effort, just like how many people now go to Amazon and buy with confidence without wasting time trying to find lower prices elsewhere.  But I can't blame anyone for saying the future is too blurry to bet on this outcome at TripAdvisor's current valuation. 

[KCLarkin]

I love the TRIP business model. But I just don't understand how anyone could justify investing here in the midst of a business model evolution.  Instant Booking is, so far, kind of a question mark. And every time that I've invested in a company in the midst of a model transition, I've gotten burned.  To invest here you have to believe that Instant Booking will really gain traction as a mainstream way for travelers to book trips. I'm not sure I can wrap my head around that.  The tendency of a traveler is to look up reviews on TRIP, and then scour the internet to find the best price they can (usually falling back to their tried and true OTC that they trust).  There's nothing really motivating the customer to stay and thus to capture that sale on the Instant Booking platform.

 

Great comments. A business model adjustment results in two things: a wobble in earnings and investor uncertainty. So you get multiple compression on top of depressed earnings. And if the transition works, you get revenue acceleration on the other side.

 

Obviously, you need to be selective. But off the top of my head, here are a few business model changes that worked:

Google - transition to mobile http://www.thestreet.com/story/11742377/1/googles-mobile-mess.html

Facebook - transition to mobile http://marketrealist.com/2014/01/facebook-ipo/

Cimpress (vistaprint) - moved up-market http://docslide.us/documents/2012-q3-letter-kcm.html

Adobe - transition to Cloud http://www.bloomberg.com/news/articles/2012-04-23/adobe-s-cloud-math-means-new-programs-will-sell-for-less

 

Eric Khrom described this as riding the "j-curve" (I assume he didn't invent the term but I've found it a useful investment framework).

 

To invest here you have to believe that Instant Booking will really gain traction as a mainstream way for travelers to book trips. I'm not sure I can wrap my head around that.  The tendency of a traveler is to look up reviews on TRIP, and then scour the internet to find the best price they can (usually falling back to their tried and true OTC that they trust).  There's nothing really motivating the customer to stay and thus to capture that sale on the Instant Booking platform.

 

On desktop, I somewhat agree. But on mobile, there is an enormous advantage to get your reviews and booking done in a single app.

[kab60]

If you're close to dipping in KCLarkin, could you share some rough thoughts on how you approach it from a valuation standpoint? Thanks in advance.

[KCLarkin]

If you're close to dipping in KCLarkin, could you share some rough thoughts on how you approach it from a valuation standpoint? Thanks in advance.

 

No, I still haven't figured it out. I am slowly working my way back through conference calls to try to unravel the ramp in marketing spend.

 

I would also really like to understand why this went above $100 in 2014. It looks fairly valued even after a 40% drop. Were people already pricing in IB success? Liberty spin sparked speculation of PCLN takeover? Anyone have old analyst reports on TRIP?

[Ross812]

If you're close to dipping in KCLarkin, could you share some rough thoughts on how you approach it from a valuation standpoint? Thanks in advance.

 

No, I still haven't figured it out. I am slowly working my way back through conference calls to try to unravel the ramp in marketing spend.

 

I would also really like to understand why this went above $100 in 2014. It looks fairly valued even after a 40% drop. Were people already pricing in IB success? Liberty spin sparked speculation of PCLN takeover? Anyone have old analyst reports on TRIP?

 

KC,

 

I read through the Morningstar archives and the high prices in 2014 appear to be related to growth and fare aggregator excitement. Q4'13 was the first quarter the new fare aggregator at the top of the TRIP website when viewing a hotel reached parity. It was anticipated this would really take off as OTA were bidding for position on Trip's page. The excitement started to fade in Q3'14 as investors realized slower growth than they had anticipated. This analyst note from September '14 sums it up pretty well:

 

Throughout most of 2013, the new model led to less click-based advertising revenue, as many website visitors clicked on links to just get further information on hotels (and not to book a hotel). The displaying of pricing and availability led initially to fewer clicks, and advertisers--who now had to bid for top placement, similar to Google AdWords--initially hesitated about bidding for top placement on TripAdvisor. In the fourth quarter of 2013, however, the new model achieved revenue neutrality, meaning that the new revenue model was generating the same level of revenue as the old revenue model. With major travel companies realizing the benefit of the now higher quality leads on TripAdvisor, we expect more aggressive bidding from advertisers to lead to higher prices per click and an acceleration in click-based advertising revenue in 2014. In 2013, the number of hotel shoppers increased 36%, but click-based advertising revenue increased only 18%, with lower price per clicks weighing on revenue growth. In 2014 we expect click-based advertising revenue growth to accelerate to 30%, with the new model driving more rapid growth. We expect click-based advertising to grow faster than display advertising, due to our expectation for increased bidding to lead to a higher price per clicks.

[muscleman]

What's TRIP's moat?

All its information is public. As a software engineer, I know I can build a new website and craw all of TRIP's user reviews onto my website for free. I think I can replicate TRIP with just a few million dollars.