Tripadvisor: With full travel recovery, TRIP could be a bargain
Tripadvisor (NASDAQ: JOURNEY) is a company with a lot of potential. It is sad to see that they are having such a hard time monetizing the site. Incredibly, it has more traffic than even Booking.com (BKNG) or Airbnb (ABNB). However, the company struggled to find the optimal business model to convert visitors seeking to read reviews into revenue for the company. Still, while low for visitation, the company is generating revenue and operating cash flow, and we believe the stock is currently very cheap assuming travel picks up in 2022.
Tripadvisor trades with a market cap that’s barely around 3.5% of Airbnb’s, which makes us think that if the company doesn’t find the right business model, someone will probably offer to buy them out and to solve it for them.
Management has tried to solve the monetization issue by offering a subscription service called Tripadvisor Plus, but so far it hasn’t really lived up to expectations. The subscription, which offered subscribers initial hotel discounts for $99 a year, has faced stiff opposition from major hotel chains over rate parity issues. It is currently in the process of offering less attractive cash back payouts after stays.
Prior to the pandemic, Tripadvisor was able to generate over $400 million annually in operating cash flow and over $340 million in free cash flow. Comparing these numbers to the current market capitalization, we see that the company barely trades at around 10 times that cash flow figure. In the event of a full travel resumption, the company should in theory be able to generate even more profit and free cash flow, given that it has removed more than $200 million in costs from its cost structure. post-pandemic, and said a significant portion of those savings are expected to remain post-recovery.
Fortunately, the company has enough cash on hand to wait for the travel resumption to arrive, even if not in 2022, but rather in 2023 or 2024. Tripadvisor has over $1 billion in cash. between cash and equivalents, and of an unborrowed revolver capacity.
We can see how much the valuation has come down by looking at the EV/Revenue multiple and comparing it to its historical average. This multiple is more than a third below the average and the forward multiple is less than half of this historical average.
Analysts expect a significant increase in profits over the next two years. The average estimate for FY24 is currently $2.34, giving a FY24E P/E of 10.9x.
Potential Growth and Catalysts
It is expected that in 2022, travel will have recovered to 2019 levels, which will greatly benefit the business. Above all, as we mentioned, thanks to the costs he suffered right after the start of the pandemic. The company expects these savings to continue even after a full recovery. This should make the business more profitable than it was before the pandemic.
There are other potential catalysts for unlocking value beyond a potential takeover. One would be a successfully redesigned subscription service. While the first attempt at Tripadvisor Plus ran into problems, the company is trying to modify the product and relaunch it soon. Two other growing segments are Viator and TheFork. Viator is the premier marketplace for travel experiences and has seen tremendous growth. TheFork is a restaurant reservation app that works primarily in Europe, similar to OpenTable in the US market. Both of these businesses have recovered faster than Tripadvisor’s core hotel business. Tripadvisor is also considering selling a minority stake in Viator to public shareholders, with Tripadvisor retaining control of the brand. This could unlock value and show investors how much this business is worth to the company. Tripadvisor has already filed a draft S-1 Confidential Registration Statement with the SEC.
Competitors GetYourGuide and Klook have been valued at over $1 billion, so Viator could definitely move the needle for Tripadvisor. Especially since Viator is considered the industry leader in booking experiences. Experience booking levels surpassed 2019 levels in October 2021.
TheFork (LaFourchette) operates in 12 countries and partners with approximately 60,000 restaurants to manage reservations for them. This is another rapidly growing Tripadvisor business that at some point could also be considered for an IPO, spin-off or sale.
Tripadvisor stocks are really cheap, especially if a full travel resumption is coming soon. With the costs that have been taken out of the business, it has the potential to be more profitable than before, and the company is experimenting with ways to better monetize its massive web traffic. It’s also possible that they become an acquisition target of another company that has ideas on how to monetize all the visits they receive. There’s also a lot of value in some of the other businesses Tripadvisor owns, like Viator and TheFork.