Tripadvisor (NASDAQ:TRIP) is the owner of the popular online booking platforms Tripadvisor, Viator and TheFork. In the last 12 months, shares of TRIP have risen almost 33% after previously stagnating for several years.
Is TRIP stock finally about to take off, and is now the time to get in on the popular online travel booking business?
Tripadvisor’s Numbers and Governance Improvements
Although Tripadvisor isn’t generating massive levels of revenue growth, its recent results have been solidly respectable.
In Q2, for example, revenue came in at $529 million, up 7 percent from the year-ago quarter. The quarter saw a modest 3 percent contraction in the core Tripadvisor brand, but this was more than made up for by double-digit growth from both Viator and TheFork.
Revenue growth from TheFork was particularly promising, as the segment’s quarterly revenue was 28 percent above where it was a year earlier.
Adjusted earnings growth was similarly positive, with non-GAAP net income rising 5 percent from a year earlier to $60 million. Once again, this increase wasn’t enormous, but it was strong enough to show that Tripadvisor is still successfully growing in an increasingly challenging macro environment.
An equally appealing piece of Tripadvisor’s overall picture is its strong cash position of $1.2 billion, an amount that equals more than half of the business’s entire current market cap. This cash position also substantially exceeds Tripadvisor’s long-term debt of $822 million.
The business’s strong liquidity has also allowed management to pursue share buybacks in order to build value for shareholders. In the second quarter alone, Tripadvisor bought back around $40 million of its own shares at an average price of $14.22. Management still has an outstanding buyback authorization of $160 million left, suggesting that more repurchases could be on the way in the near future.
It’s also worth noting that Tripadvisor has gone through some fairly large changes in governance over the past year that could help to set it on a more positive path going forward. Until fairly recently, Tripadvisor was working under the weight of a dual-class share structure, with controlling ownership held by Liberty Media.
In August, though, Tripadvisor formally merged with Liberty Tripadvisor Holdings, a move that allowed it to simplify its share structure while no longer being controlled by an outside entity.
Between Tripadvisor’s solid performance, strong balance sheet and the improvements that have been made to how the business is governed from a shareholder perspective, there’s quite a lot to like about it at the moment.
This is especially true in light of the fact that Tripadvisor still has a strong market position with an estimated 38% share of the reservation and online booking market. With Viator and TheFork still growing rapidly, it seems likely that Tripadvisor will be able to keep expanding and creating new value for its investors.
Can Activist Input Help Tripadvisor?
Another potential positive for TRIP shareholders is the involvement of activist investment advisor Starboard Value, which disclosed a 9 percent position in Tripadvisor earlier this year.
Though Starboard has something of a mixed reputation as an activist investor, it has spearheaded several very successful investments over the years. Among these were the merger of Office Depot and OfficeMax in 2013 and a turnaround of AOL at a time when the business was flagging severely.
When Starboard disclosed its position in Tripadvisor, it specifically noted that the stock appeared to be undervalued. Indeed, it’s possible that Starboard may not have to take a particularly active role in its TRIP position. With that said, the activist investor’s stake could help to improve market sentiment around TRIP stock while also giving management access to a deep pool of expertise that Starboard has built up over the years for executing on future growth initiatives.
Is Trip Stock Undervalued?
Unsurprisingly, shares of TRIP have risen recently on both the strong earnings report and the news of Starboard’s involvement with the business. The stock now trades at 37.4x earnings, 1.4 times sales and 14.8 times operating cash flow. Though perhaps no longer deeply discounted, Tripadvisor could still be a fairly priced stock to own for long-term growth.
At $18.51, Tripadvisor is trading at an almost identical price to the analyst consensus target of $18.16. This is yet another possible sign that the shares are fairly priced at the moment. Considering the fact that shares are up more than 30 percent in the last 12 months, though, it’s somewhat surprising that TRIP still appears to be priced at a reasonable level.
A particularly strong argument in favor of Tripadvisor’s value may be found in the overall growth expected from the online accommodation booking market over the next several years. This market is expected to grow at a rate of more than 10 percent annually through 2030. As a leading player in the space, Tripadvisor could be in an excellent position to take advantage of these growth tailwinds.
Tripadvisor’s Short-Term Macro Risks
One of the most immediate risks to buying TRIP today is the fact that the business could be in for a bit of a difficult time amid ongoing inflation and weakening consumer confidence. With inflation still running above the 2 percent target range and the job market cooling, consumers may begin skipping or downsizing travel plans.
Though spending has remained fairly steady so far, it’s possible that the US economy could be in for a time of more muted consumption in the near future.
However, long-term growth trends likely outweigh this short-term risk. Tripadvisor could see some volatility in its performance if consumers cut back, but in the long run it seems probable that the overall growth in online bookings will keep going in spite of possible temporary setbacks.
So, Is TRIP Stock About to Take Off?
With large gains already under its belt as the result of an improved share structure, a solid Q2 and the backing of Starboard Value, it’s possible that TRIP has already captured most of the gains it’s likely to make in the short term. In this sense, TRIP has probably already taken off, and investors looking at the stock today will be paying higher prices than Starboard and Tripadvisor itself have been able to get over the past several months.
That said, TRIP still looks like it could be fairly valued and primed for steady, compounding growth going forward. Taking everything into account, Tripadvisor could still be a moderate buy for long-term appreciation, though investors probably won’t see the kind of rapid double-digit gains the stock has produced in recent months continue at the same pace.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.