Upbeat About Expedia Spin-Off of TripAdvisor

Apr.13.11 | About: Expedia, Inc. (EXPE)

It was a surprise to most analysts and I’ve gotta say that I was also surprised by the move. Expedia (NASDAQ:EXPE) announced late last week that it was going to spin off Tripadvisor, as an independent company. For outsiders, Expedia is itself the result of a spinoff by IAC Interactive (IACI) a few years back, it is a group of internet travel properties.That certainly brings up a lot of interesting questions and after doing some research, here are some answers to go with them.

What is TripAdvisor?

I knew the answer to this one of course but since some of you might not. TripAdvisor is basically a community of travelers that have come together to review, rate and comment their favorite hotels, restaurants, things to see & do and much more in virtually every place worth seeing around the world. Many other properties have tried building something similar but nothing comes close to TripAdvisor in my opinion mostly because of the incredible community. The business idea behind it is to then help the users book the activities gaining a cut in the process while also selling advertising.

Why is it being spun off?

As this is a move done by Expedia, I think it’s important to consider their point of view. The most likely explanation is that the board has been unhappy with its valuation and that makes sense given the multiples that some competitors such as Travelzoo have been able to generate. The easiest way to “realize” the value of what they consider to be an “undervalued” asset” is to sell it. In this case, Expedia has decided to simply spin it out which might actually work. The stock did rise 14% which would tend to indicate that it was right.

That being said… wasn’t there another way?

I’m sure there was and doing a spinoff for that reason seems a bit extreme. But what’s done is done right?

Are you happy about the spinoff?

No doubt, I’m thrilled. I do see a lot of value in TripAdvisor because it has a strong community and is a good mix between social and commerce/travel. I think the company could end up doing very well. Also, the internet travel category which has already provided many good trading opportunities now has one additional stock and that means I will have more trading opportunities

Long TripAdvisor & Short Expedia?

That is certainly a possibility, at least for a long term trade. I think the user loyalty towards Expedia is very very low compared to TripAdvisors’s and that will certainly have a long impact.

Will you be buying Tripadvisor as soon as it is spun off?

No way. I still want to find out more about TripAdvisor’s financials and there will be other parts of Expedia that will be included in the new group. Tripadvisor did claim 15% of Expedia’s revenues last year and grew those at 38% which sounds like a lot but I would actually expect more from this property.

Disclosure: No position on EXPE, short IACI