TripAdvisor Looks Attractive At $24

TripAdvisor’s stock (NASDAQ: TRIP) at around $24 has partially reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. While the stock is still down 20% from levels seen since the beginning of 2020, it rallied a strong 22% on Monday. Drugmakers Pfizer and BioNTech indicated that their experimental vaccine could be 90% effective in a late-stage trial at preventing Covid-19, giving investors hope that some kind of economic normalcy could be regained.

The travel sector has been severely hit this year. As evident, TripAdvisor’s revenues declined a major 60% year-over-year so far. However, we believe that the stock could see a modest upside from the current levels, riding on the optimism of the vaccine trial results. That said, the online travel booking site stock could also see a strong upside once the Covid-19 fear abates. This is based on the company’s cash balance of $446 million and another $1 billion in liquidity, providing all the cash needed to safeguard from the current downturn. With roughly half of its expenses coming from sales and marketing, TripAdvisor has high variable costs, making it easier for the company to conserve cash and survive the crisis, including a tough 2020 holiday period and likely limited gains in travel demand in the first half of 2021. 

TripAdvisor stock has largely underperformed the broader markets between fiscal 2017 and now. The company’s stock is around 29% lower than it was at the end of fiscal 2017, compared to 33% growth in the S&P. Our dashboard, What Factors Drove 29% Decline in TripAdvisor’s Stock Between Fiscal 2017 and Now? provides the key numbers behind our thinking, and we explain more below.

TripAdvisor’s stock declined 12% from around $34 in 2017 to around $30 in 2019. During this period, TripAdvisor’s revenues were largely flat due to declining Hotel business (which accounts for more than half of its sales). A crucial factor in the drop in the company’s stock price was due to the markets re-valuing the company at a lower P/S multiple from 3.1 in 2017 to 2.7 in 2019. It should be noted that the company’s P/S is down to about 2.2x now, given the volatility of the current situation, and we expect it to increase slightly in the near term.

The company’s Hotel revenues were largely hit by lower click-based advertising revenues on TripAdvisor-branded websites. The company is also facing aggressive competition from Google as it is pushing its own hotel products in search results. TripAdvisor’s non-Hotel segment (Experiences and Dining) has been driving the growth in the company’s revenues for the past few years.

How Is Coronavirus Impacting TripAdvisor’s Stock?

For Q3, TripAdvisor saw demand rebound, but the numbers were still far below 2019 levels. The company’s revenue grew nearly 150% sequentially from only $59 million in Q2 2020 to $151 million in Q3 2020. But the revenues were still down 65% from year-ago quarter levels. It is also worth mentioning that monthly unique users on TripAdvisor websites grew from only 33% in April to 74% in September of the prior year’s comparable periods. Traffic trends on its websites improved since the onset of the pandemic, suggesting that consumers are rather interested to travel now but are hesitant to book their plans.

With Europe heading back into lockdowns to limit the Covid-19 spread, travel demand could really struggle in the next few months. Coming quarters will certainly be difficult for TripAdvisor as the travel industry won’t recover until the vaccine is administered at scale and rolled out widely.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams