The Story So far….
TripAdvisor (NASDAQ:TRIP) was founded in 2000, purchased by IAC Interactive (NASDAQ:IACI) and later spun out with Expedia (NASDAQ:EXPE) a few months later. However, it wasn't until the end of 2011 that the company was spun out and became independent. I've argued that TRIP was one of the top social web plays, and after doing my research and looking at the latest earnings and calls transcript, I'm strongly considering a longer term speculative position. First, let's take a look at Tripadvisor's metrics since its debut.
Most of the data points were provided over time by TripAdvisor in its press releases, financial statements and interviews done by the CEO.
Clearly, traffic is exploding these days and I'd argue that this is actually underestimating the recent growth. Why? Because like most other web properties, an increasing portion of TRIP's traffic is going through its mobile apps which are not included in Comscore rankings for example.
This is a big point of emphasis by TripAdvisor, and rightfully so, as it gives a very good estimate of the activity level by its members, the community and in the end it's the #1 reason why TripAdvisor is consistently ranked #1 in terms of travel related websites.
Revenues are clearly climbing quickly, but I'd argue that the explosion in terms of traffic and reviews that we've seen will also translate into exploding revenues in the coming years.
Financial information for 2008 and 2009 was only provided on an annual basis, I did estimates of the quarterly breakdown based off of the historical season impact on TRIP's financials.
One of the big reasons why I strongly believe in Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) is because of their ecosystems. They have a lock-in effect that makes it very difficult for challengers to catch up. I'd argue that while TRIP is not quite there yet, it is making strong progress. If you think about it, Apple owns an ecosystem where it stands in the middle of iphone owners and content providers:
TripAdvisor is in the process of creating a similar relationship between travelers all around the world and the hotels, airlines, attractions, etc. Here is what it would look like:
Why Is The Lock-In Important?
This is a CRITICAL part of my value analysis. The difference between a useful site that fades over time as competitors with new features come and those that remain relevant is mostly all about the lock-in effect. I've argued that even though new, "cool" apps have been created and gained momentum, Facebook remains the "default" and will remain so for the foreseeable future. TRIP needs to accomplish that by:
- Continuing to innovate and improving its content and features
- Increasingly engaging with the participants (travelers and those offering services)
- Increasing the interactions between participants
I think TRIP is doing exceptionally in all 3 phases:
- Has been improving its sites, developing mobile apps, working on features such as travel rewards, etc. In a mobile world, there are benefits to unbundling one's services. That is why both Google (GOOG) and Facebook (NASDAQ:FB) are launching standalone apps that offer easier access to features that you'd see on their desktop site. TRIP is extremely well positioned here with over 19 different brands that it has acquired, developed, etc.
- Has been building relationships with businesses that are actively engaged on Tripadvisor (more on that later) and also with travelers through emails. Features such as the top hotels in the world or the 10 places you need to see are not only viral but they also get users to interact more with its brand
- For years, the company has made it easier for businesses to react to reviews, giving them an easier way to communicate with the end-clients. Also, in the earnings call, the execs discussed the ongoing project of getting users to have their own "page" on the website which could become a type of blogging/photos platform which certainly has upside
- the next step
- unbundling services
TripAdvisor vs. Facebook
It's certainly interesting to see how TRIP was built on top of Facebook Connect which has made it much easier to get members to sign up, connect with their friends, etc. So yes, it's certainly dangerous for Facebook to be built on top of another ecosystem and you could certainly say that FB is in a better position. Don't get me wrong, FB is a great investment, but I do think that TRIP is positioning itself very well to build its own strong community. I also like how TRIP has been more vocal about its plans to go beyond advertising which I've been hoping Facebook would do at some point.
What Kind Of Potential Is Out There?
As you'd expect, TripAdvisor started off as an advertising-based model and remains to this day mostly based off of that. It was the most logical step and was mostly done through display (CPM) and per click (CPC) ads. While I do think those models are there to stay, there is clearly something much bigger being worked on. The existing business accounts are able to get some type of subscription based services and I'd imagine that over time, TRIP will make it easier for the companies to advertise on the network which could increase significantly the number of advertisers bidding on its ad space.
Over time, it could also help businesses take reservations, process payments, etc. This would most likely be geared towards smaller businesses but those have significant business in the travel world. Just think of what OpenTable (NASDAQ:OPEN) is starting to do with restaurant reservations (going beyond reviews to reservations and even payment processing)
I think that over time, TripAdvisor will be able to generate significantly more per user. In 2013, the company had revenues of $945M with over 2B unique visitors, coming down to an almost insulting $0.47/visitor. The company has been (rightfully so) focused on growth and expanding its reach so far, but I'd expect the focus on revenues to increase significantly in the coming 3-5 years. According to TheInformation.com, revenues/user are between $5-7 for Facebook, LinkedIn (NYSE:LNKD) and even Yahoo (NASDAQ:YHOO). I can't think of a reason why TRIP could not match that.
When I look at comparables in terms of potential visitor profile, I'd probably use a benchmark such as LNKD. Why?
- Travelers have above average income
- Linkedin is in a similar situation (does not own an ecosystem but is in the middle of its users)
- Both target individuals and businesses (which have more corporate money to spend)
That would make TRIP massively undervalued at this point. It would have been nice to get this strong feeling a year ago at a cheaper price but it's far from too late in my opinion. I will likely take a long term speculative position in the near future… I will keep you posted but I'd love to hear your thoughts.,