Trip page post 1

Investment Analysis Clubs Saul’s Investing Discussions
#6

Saul,

I am fascinated by how you look at companies. It seems to make much more sense than I have heard elsewhere. And your technique seems like a surmountable goal for me to understand and replicate.

I am wondering if you might share your process when you look at TRIP (or any company you prefer). What do you look at? How many past quarterly reports do you look at to gauge their growth? What else do you look at?

You probably have posted this before about other stocks and could direct me there? I really want to understand and start looking at companies with the same perspective you use. Maybe if I look through the same information for a company, I will start learning how to do it better.

Right now, it just seems like too much information. I feel like if I understood which was the important data to consider, then I could do it.

Thanks for being a mentor on this board. It really helps.

Tdonb

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#7

Saul, I am fascinated by how you look at companies. It seems to make much more sense than I have heard elsewhere. And your technique seems like a surmountable goal for me to understand and replicate. I am wondering if you might share your process when you look at TRIP (or any company you prefer). What do you look at? How many past quarterly reports do you look at to gauge their growth? What else do you look at? You probably have posted this before about other stocks and could direct me there? I really want to understand and start looking at companies with the same perspective you use. Maybe if I look through the same information for a company, I will start learning how to do it better. Right now, it just seems like too much information. I feel like if I understood which was the important data to consider, then I could do it. Thanks for being a mentor on this board. It really helps.

Tdonb

Hi Tdonb,

Thanks for the nice compliments. When I started this board I gave my investing philosophy in posts 4 to 8 at the very beginning. (You can get to them from any post on the board by typing in the number of the post in the upper right where it says Number, and hitting Go.) Why don’t you read through those posts and then ask me if you have some specific questions. I’ll be glad to do my best to answer them.

Saul

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#8

Andy, I seem to remember that TRIP was recommended somewhere on MF but now I can’t find it. Do you happen to remember?

Saul

#9

Don’t bother, I found it.
Saul

#10

Hi Andy, I researched TripAdvisor. When the recommendation first came out on MFRB two years ago, some posts were saying “Why in the world did you recommend this? Lots of the recommendations are either revenge attacks or competitor attacks or owner puffs.” There are only 127 posts on the RB board in two years, which doesn’t show a lot of interest for an internet stock. Only 85 posts on the Hidden Gems board where it was recommended twice and was a best buy and a core stock - after two and a half years. That’s a rather impressive lack of interest for a “Core” stock which was recommended twice. I don’t know if this is a good or bad sign, but MF subscribers seem mightily uninterested.

The current PE is about 49 using adjusted earnings and about 59 using GAAP earnings. However GAAP earnings climbed about 2% from $1.37 to $1.40 from 2012 to 2013. Adjusted earnings grew 10% from 2011 to 2012, and 9% from 2012 to 2013, which isn’t much better. That’s from $1.40 to $1.54 to $1.68. Not very impressive. All the growth in price has been by an increase in the PE.

You can’t even say that the lack of earnings growth is all due to advertising spend, because revenues were only up 20% from 2011 to 2012, and 24% from 2012 to 2013. That’s hardly enough to support a PE or 50 or 60 any way you look at it. Right now, after the first quarter, even using adjusted earnings, we have trailing earnings of 1.70 up from $1.66 a year ago, basically unchanged in a year.

If your thoughts are “I don’t care about earnings now because they are growing revenues”, why not put your money in something like Zillow, where revenues are growing at well over 50% per year, or if you just want a growing business, in BOFI where trailing earnings are up 28%, not 2%, tangible book value is up 29% year over year, and the PE is in the low 20’s.

I don’t see the attraction in TRIP. I actually shouldn’t say that, because it IS a growing business, but I don’t see how it can compete for my limited investing dollars when everything I see around seems to have advantages over it.

Saul

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#11

Thanks Saul and a great post. I didn’t realize it was on HG also I only knew about RB.

If your thoughts are “I don’t care about earnings now because they are growing revenues”, why not put your money in something like Zillow, where revenues are growing at well over 50% per year, or if you just want a growing business, in BOFI where trailing earnings are up 28%, not 2%, tangible book value is up 29% year over year, and the PE is in the low 20’s.

I do have BOFI (thanks to you) and I have looked at Zillow but I really do not like investing in stocks that do not have any earnings, it makes them more risky and if I do I want to understand the industry.

With Trip I agree with you that the P/E is rather high but I think that growth above 20% on revenue is pretty good. That means that every 3.6 years the business will double. How can that be bad? They are buying a lot of companies right now trying to grow their market share and grow internationally. I think they will take over the market. When they get larger then their earnings will get better. When their selling and marketing come down that will help them grow their earnings. The cash flow is pretty amazing also. Mostly growing by big multiples. Last quarter was not good but if you go back you will see its growing pretty healthy.

So Saul I think this is a solid company, while its not growing as fast as some of the companies you invest in I think it is safer than some of the stocks you have invested in. Revenue, Earnings, and cash flow are all positive. This space is very competitive so that makes it risky.

Thanks Saul for giving me your thoughts on this it helps everyone to see what you are looking at and that is very powerful. It helps me become a better investor. Please keep pointing out anything you see wrong.

Andy

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#12

So Saul I think this is a solid company, while its not growing as fast as some of the companies you invest in I think it is safer than some of the stocks you have invested in.

Andy,

I think a stock growing earnings consistently at 9-10% per year, and selling at 60 times earnings, is inherently risky. It’s maybe six times higher than it should be, which gives a lot of room to fall.

When I look at my stocks, starting from the biggest, there’s

UBNT, trailing earnings up 100% from a year ago with a PE of 19.

BOFI growing trailing earnings at 28% and at a PE of 23.

CELG, growing trailing earnings at 20%, PE at 22 to 23.

SYNA, trailing earnings up 88%, PE of 14

AMBA, trailing earnings up 32.5%, PE of 20

You get the picture. That’s where almost 50% of my portfolio is.

HZNP, my current next biggest, still has negative trailing earnings, but revenue last quarter was up over 400% from the year before and trailing 12 month revenue was up about 350%, and they made 13 cents positive last quarter. If they just stay flat for the next three quarters and don’t grow at all (extraordinarily unlikely), their earnings will be 52 cents, and they will have a PE of 25. It’s more likely that they will have earnings of at least a dollar and a PE of 13.

I don’t see my stocks as particularly risky. My big 5 have trailing PE’s of 14 to 23, with rapid growth. I got rid of most of the risky ones with the huge PE’s and slow growth, like the 3D printing stocks, Intuitive Surgical, ones with huge losses (like WPRT, which I held for a short time), etc.

I’ve held on to Zillow for instance, but their 2013 revenue was THREE TIMES what their 2011 revenue was (66 million to 197 million). Compare that to the relatively flat revenue of TRIP. Zillow’s adjusted EBITDA per share for 2013 was up 100% from what it was in 2011, while TRIP’s earnings were up 9% or 10% a year. Zillow could cut their rate of growth in half and still be growing enormously fast. That’s a big cushion.

Anyway, I don’t mean to belabor a point which I seem to be doing unnecessarily. Sorry,

Saul

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#13

Hi Andy,

I someone have the impression that TRIP is a potential takeover target and that may explain why it has such high PE multiples. Or was that Yelp?

Anirban

#14

HZNP, my current next biggest, still has negative trailing earnings, but revenue last quarter was up over 400% from the year before and trailing 12 month revenue was up about 350%, and they made 13 cents positive last quarter. If they just stay flat for the next three quarters and don’t grow at all (extraordinarily unlikely), their earnings will be 52 cents, and they will have a PE of 25. It’s more likely that they will have earnings of at least a dollar and a PE of 13.

Nice Saul I didn’t realize that. That is impressive.

Compare that to the relatively flat revenue of TRIP.

I suspect you just made a mistake Saul unless you think 20% growth in revenue is flat? If that is the case than maybe I need to ponder a little on that.

while TRIP’s earnings were up 9% or 10% a year

Thats true Saul but if they were to cut Selling and Marketing out completely for the last quarter they would have had Income margins of 60% This would have added 101 million dollars onto the bottom line and given them an EPS of $1.16 for the quarter. I think as they get bigger and better known more of the Selling and Marketing will drop to the bottom line. Their next biggest cost is Technology but I don’t think that will ever decline because they need to be constantly making their products better. One good thing is that they are keeping their SG&A pretty flat over the last year. So lets say they cut the Selling and Marketing in Half so now their income margins are at 30% would that get you more excited?

Anyway, I don’t mean to belabor a point which I seem to be doing unnecessarily. Sorry,

Please do not appologize Saul. If I wasn’t learning something off of you I wouldn’t need to be here. I want you to give your thoughts and discuss these stocks. I take everything you are saying and think it over. After all you are only giving your honest thoughts about the stocks, and these are companies, not wives, we are discussing. I have given you a rec for each of your posts.

Andy

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#15

Hello Anirban,
It was bought by Orbitz at one time and then spun back off. I don’t think this will be a buy out target because both Priceline and Orbitz have bought other business’s to compete with Trip. Kayak for instance is how Priceline is getting into the market. But Trip is constantly growing by buying other companies out and bolting them on. They have now bought into the restaraunt reservations in Spain and France. They want to be the go to place for all things vacations and this is a very big market that they can grow into.

Andy

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#16

It was bought by Orbitz at one time and then spun back off.

Thanks! That’s what I was getting confused about.

I will look more into this.

Anirban

#17

In TRIP’s defense, they are expecting revenue this year to accelerate to the high 20% low 30% range. About a year ago, they changed their platform to meta search that occurred directly on TRIP’s website from a click through search and this slowed revenue growth during 2013 as advertisers sorted through the economics of the new system. As TRIP expected when they made the decision, now that their advertisiers have seen the conversion rates of the new platform, they’re willing to spend more now than they were before, which has re-accelerated revenue growth. The article below explains it in a little more detail.

http://seekingalpha.com/article/2064303-tripadvisors-meta-di…

I own about 1/2 position in TRIP but have decided not to add at these levels. I like the company but agree that it is very pricey. I also think they can become a dominant player in the online travel market.

Jason
(who actually predicted that Saul would not like this company based on his prior assessments of PRLB and IPGP)

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#18

Your welcome Anirban, Here is some information that I have on them.

Andy

Tripadvisor (Trip)
Terms used in the industry.
CPC = cost per click
CPM = Cost per thou¬sand (the M is the Roman numeral for 1,000). What it’s mea¬sur¬ing is the cost per thou¬sand ad impres¬sions.
OTA = Online travel agency
SEM = Search engine marketing
IBE= Internet Booking Engines

CEO:
Steve Kaufer co-founded TripAdvisor in 2000 with the mission to help travelers around the world plan and have the perfect trip. Under his leadership, TripAdvisor has grown into the largest Web 2.0 company in the northeast and the largest travel site in the world. Steve now leads TripAdvisor, Inc., which includes 21 travel brands. Prior to co-founding TripAdvisor, Steve was president of CDS, Inc., an independent software vendor, and prior to that, was co-founder and vice president of engineering of CenterLine Software. The winner of the 2005 Ernst & Young Entrepreneur of the Year Award, Steve holds several software patents and has spoken at dozens of travel and high-tech conferences worldwide. Steve is on the board of directors at Glassdoor (www.glassdoor.com);

CFO:
Julie M.B. Bradley is responsible for overseeing corporate finance, investor relations, accounting, corporate development, human resources, and real estate at TripAdvisor. Julie previously served as senior vice president and chief financial officer of Art Technology Group (ATG), where she was responsible for managing all financial activities, investor relations, and global infrastructure. During her tenure, she guided the company to profitable revenue growth and ultimately oversaw the acquisition of ATG by Oracle. She was also named 2010 CFO of the Year Award Honoree by the Boston Business Journal. Prior to joining ATG, Julie was vice president of finance at Akamai Technologies. She started her career at Deloitte.

TripAdvisor the business:
Tripadvisor is the world’s largest travel site. It allows customers to plan a trip and provides travel advice from real travelers that have been there. Tripadvisor has more than 260 million unique monthly visitors and over 125 million reviews and opinions covering more than 3.1 million accommodations, restaurants, and attractions. They operate in 34 countries. They also operate TripAdvisor for Business, a division that gives the tourism industry access to monthly Tripadvisor visistors.

Tripadvisor operates 21 other website’s under these brands: www.airfarewatchdog.com, www.bookingbuddy.com, www.cruisecritic.com, www.everytrail.com, www.familyvacationcritic.com, www.flipkey.com, www.gateguru.com, www.holidaylettings.co.uk, www.holidaywatchdog.com, www.independenttraveler.com, www.jetsetter.com, www.niumba.com, www.onetime.com, www.oyster.com, www.seatguru.com, www.smartertravel.com, www.tingo.com, www.travelpod.com, www.virtualtourist.com, www.whereivebeen.com, www.kuxun.cn, and www.DaoDao.com.

Hotels
On Tripadvisor.com you can look at Hotels, Flights, Vacation Rentals, and Restaurants. When you click on the Hotel it allows you to pick the city you want to go to and then brings up different Hotels for that city. These Hotels will be rated by members of Tripadvisor and will have reviews. When you find the hotel you like and click on it you can put in the dates you want and click show prices which will allow you to see the different prices for the hotels. The prices you see are from different OTA’s (see terms above). You will not always see the cheapest price first, it maybe a higher price. The reason for this is that all of the OTA’s are bidding for the right to come up higher on the list. The more you pay for CPC the higher you will come up on the list. Bidding prices are fluid and can change depending on how much the OTA’s are willing to pay.

Flights
When you click on flights it will automatically let you pick flights with the OTA that pays the most cpc. For example if Priceline is the highest paying OTA then when you go to Flights it will come up automatically with Priceline. You can pick the other OTA’s by clicking on them. This will allow you to check prices and compare other flights through that OTA. But it isn’t always intuitive and some people may just go with the first OTA.

Vacation Rentals
When trying to rent a vacation rental you have your choice of many rental properties. Tripadvisor uses flipkey to co-ordinate this. Tripadvisor is aggressively going after this market by allowing people to advertise their property for free on their website and then when the booking is complete they charge 3% of what the rental fee is. This allows many people to rent their properties and not have to worry about any out of pocket fees.

Restaurants
They also give reviews on restaurants. Any city you are going to they will allow you to see the best restaurants in that location. This allows you to set up a seamless vacation.

More background on the business:
Tripadvisor made it clear in their Q3 2013 conference calls that they are not interested in being an OTA. They only want to be a facilitator for the OTA’s, allowing customers to shop for the best price. But the transaction will still be done by the OTA’s.

Tripadvisor IPO’d on December 21, 2011. They were a spin off from Expedia. This would allow them to provide a service to all OTA’s without any thought that they would be looking out for Expedia’s best interest. Tripadvisor was an early adopter of user generated content. They allow their members to post pictures and reviews on their trips. They also are linked with Facebook so people can post reviews and pictures there. I believe this provides them a shallow moat, the more people that go to Tripadvisor for reviews, and post more reviews, it keeps people coming back.

Visitors:
In 2011, Tripadvisor had 44 million monthly unique visitors with over 60 million reviews and opinions on over 550,000 hotels and accommodations and 900,000 restaurants and attractions. By third quarter 2013 they had 260 million monthly unique visitors with over 125 million reviews and opinions on over 3.1 million accommodations, restaurant and attractions.

Download of mobile app:
In 2011 TripAdvisor had 13 million mobile downloads of their mobile app. They also launched 23 mobile city guides for Android and iOS, which allowed access to TripAdvisor traveler reviews. By 3rd quarter 2013 they have reached 69 million cumulative app downloads and they have 26 North American city guides, 31 Europe city guides, 15 Asia and Australia city guides, 6 Central and S. America city guides, and 4 Middle East and Africa city guides.

Distribution of Revenue:
Fourth quarter 2011 revenue was distributed 52% in the U.S., 14% in the UK, and 34% in rest of the world. For the third quarter of 2013, revenue from North America was 51% of total revenue, 32% from Europe, Middle East and African region, 13% from the Asia-Pacific region, and 4% from the Latin America region.

Meta-Search
In Q4 2012, Tripadvisor launched their meta-search feature in an app for mobile phones. Meta-search allows searches across multiple independent search engines. This is how Tripadvisor is able to give the price of any product in real time. They found the app to be cumbersome because instead of being able to do everything in at one site you would click on a link and it would take you to one of the OTA’s sites. So they decided that in 2014 they would allow direct booking on all mobile phones along with the option of going to an OTA’s site to book their transactions. There are two reasons for this. One is what they call leakage, where a customer will go to book a room or flight and when taken to an OTA’s site with the cheapest price, they will just close down the purchase to go home and discuss it with their spouse. Then when they have made their decision they will just go to the OTA’s site and make their purchase. This will not provide a cpc for Tripadvisor. The second reason is that on a smart phone it is very cumbersome going from one site to another. It is much easier to just make the purchase on one website. This has been a drag on revenue while trying to cut over to the new meta model but they expect it to pick up. They just started advertising on TV and more ads should start appearing to help them get their name more in the public eye. They are going through four phases with the Meta Model. Phase one was adding meta hotel price comparison late last year. Phase two included refreshing the user interface and writing native apps on iOS and Android for speed and design. Phase three includes translating the app design components to the phone. And phase four, starting sometime in 2014, will aim to remove friction from the booking process, allowing travelers to make a reservation while staying on TripAdvisor. With the meta-search, Tripadvisor may let any hotel or chain advertise their rates, as long as they have an Internet Booking Engine (IBE). Some of the hotels that have an IBE are Marriot, Hilton, and
Intercontinental. For independent hotels two of the IBE’s that are already on the meta search are iHotelier, and Synxis.

Competition:
Expedia recently bought Trivago and Trivago is in competition with TripAdvisor. Priceline owns Kayak and Kayak is in competition with Tripadvisor. Steve Kaufer, CEO of Tripadvisor claims that he hasn’t seen any effect from either competitor. Looking and Trivago it looks like a well crafted website and might give Trip a run for their money, but looking at Kayak it just looks clunky and at this point in time I do not see any competition there.

Conclusion:
TripAdvisor is the leader in their industry. They have three ways of making money.

  1. Click based advertising
  2. Display based advertising
  3. Subscription, transaction and other.

The 3 / 4 of their revenue is in Click based advertising. They are very focused on selling hotels rooms and listening to the conference call you can tell that the CEO is willing to delay profits in order to grow the business. He is definitely engaged in the ins and outs of this business. One of ways that they look to penetrate new markets is to leverage their expertise in search engine marketing, or SEM. In mature markets, for instance, they tend to bid SEM to maximize profit, but in the emerging markets, they may bid to break-even or at a loss in order to build their brand, gain more users for their product, collect content and to scale more quickly.

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#19

Anyway, I don’t mean to belabor a point which I seem to be doing unnecessarily. Sorry,

please labor away!

3 Likes
#20

I think a stock growing earnings consistently at 9-10% per year, and selling at 60 times earnings, is inherently risky. It’s maybe six times higher than it should be, which gives a lot of room to fall.

When I look at my stocks, starting from the biggest, there’s

UBNT, trailing earnings up 100% from a year ago with a PE of 19.

BOFI growing trailing earnings at 28% and at a PE of 23.

CELG, growing trailing earnings at 20%, PE at 22 to 23.

SYNA, trailing earnings up 88%, PE of 14

AMBA, trailing earnings up 32.5%, PE of 20

You know, when you put it that way, with the numbers and such, it all makes perfect sense. It is almost like falling off of a log (and I have actually done that – fallen off of a log – not a great experience, but not hard to do).

So I am going to tape that above excerpt to my computer and refer to it when I get tempted by a FORM or an LGF. I will just fill in the appropriate numbers in the first sentence and then read the rest and see how I feel afterward.

Thanks for a very valuable board.

Rich

CED

who remembers you from the Global Gains days, where IIRC you were almost a lone screaming voice in the wilderness about Chinese accounting "methods – I had a different name back then, “BrokeIntheBurgh”

and who thinks – probably wrongly – that Avigilon (AVO on the Toronto Exchange) actually survives the above test well and also is beaten down in price for an obvious short-term reason (CFO leaving for health reasons the day before earnings), even though results, CEO statements and future-oriented discussions are all positive and nothing has surfaced to put a cloud on the CFO departure.

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#21

I had a different name back then, “BrokeIntheBurgh”

Hey Rich, I remember you from the GG days and that you were not a very happy MDP member :slight_smile:

It looks like you totally ditched the old identity. Glad your still posting.

Those GG Chinese picks ended up a lose lose proposition. Companies like CMFO and AOB were delisted and a good company like YONG that kept growing and should be in a position to do really well over the next few years is being stolen away from shareholders at a very significant discount to fair value.

#22

Those GG Chinese picks ended up a lose lose proposition. Companies like CMFO and AOB were delisted and a good company like YONG that kept growing and should be in a position to do really well over the next few years is being stolen away from shareholders at a very significant discount to fair value.

From my list of what I look for in a company:

  1. I won’t touch ANY Chinese company. Not even Baidu. This is due my experience in 2010 or so with 13 little companies (some recommended by MF Global Gains), of which fully 11 turned out to be fraudulent in one way or another. You simply can’t tell what’s going on in a Chinese company. Consider that Yahoo is a major company and owned 40% of Alibaba, and the Chinese CEO blithely gave himself the fastest growing subsidiary as a present without telling Yahoo. If it can happen to a big company like Yahoo, what chance do I have? I probably wouldn’t invest in companies in other emerging markets either.

Saul

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#23

probably wouldn’t invest in companies in other emerging markets either.

Saul, is this the reason you haven’t invested in MELI?

Chris

#24

Saul, is this the reason you haven’t invested in MELI?

Chris, it’s probably the reason I didn’t look into it when the recommendation came out, but the Fool recommends so many stocks, and I only can invest in 25 or so, so I may not have any reason at all for not investing in most of them.

Saul

#25

Hi Saul,
I see that you like pharma stocks.
What do you think of ICPT.
One of my savvy investing friends mentioned that he thought it would go from where it is now (around 220/share) to 600.
Cheers,
MC