Tripadvisor (NASDAQ:TRIP) is a company with so much potential. It is sad to see they are having so much trouble monetizing the site. Incredibly, it has more traffic than even Booking.com (BKNG) or Airbnb (ABNB). However, the company has struggled to find the optimal business model to convert visitors seeking to read reviews into revenue for the company. Still, while low for the number of visits, the company does generate some revenue and operating cash flow, and we believe shares are currently very cheap assuming travel recovers in 2022.
Tripadvisor is trading with a market cap that is barely ~3.5% that of Airbnb, which makes us think that if the company does not figure out the right business model, then someone will probably offer to buy them out and figure it out for them.
Management tried to fix the monetization issue by offering a subscription service called Tripadvisor Plus, but so far it has not really met expectations. The subscription, which offered up-front hotel discounts to subscribers for $99 per year, ran into stiff opposition from big hotel chains about rate parity issues. It is currently transitioning to offering less attractive cashback payments after stays.
Pre-pandemic Tripadvisor was able to generate more than $400 million per year in operating cash flow, and more than $340 million in free cash flow. Comparing these numbers to the current market cap, we see that the company is barely trading at ~10x this cash flow number. If there is a full travel recovery, the company should in theory be able to generate even more profits and free cash flow, given that it took out more than $200 million in costs from its cost structure after the pandemic, and has said that a significant portion of these savings should remain post-recovery.
Fortunately, the company has enough liquidity to wait for the travel recovery to arrive, even if it is not in 2022, but in 2023 or 2024 instead. Tripadvisor has more than a billion dollars of liquidity between cash and equivalents, and unborrowed revolver capacity.
We can see how low the valuation has gotten by looking at the EV/Revenues multiple and compare it to its historical average. This multiple is more than a third below the average, and the forward multiple is less than half this historical average.
Analysts are expecting earnings to significantly increase in the next couple of years. The average estimate for FY24 is currently $2.34, which gives an FY24E P/E of 10.9x.
Growth and potential catalysts
There is expectation that in 2022 travel will have recovered to 2019 levels, greatly benefiting the company. Especially, as we mentioned, thanks to the costs it took out right after the pandemic started. The company expects these savings will continue even after a full recovery. This should make the company more profitable than it was pre-pandemic.
There are other potential catalysts to unlock value beyond a potential takeover. One would be a successful re-designed subscription service. While the first attempt at Tripadvisor Plus had issues, the company is trying to modify the product and to relaunch soon. Two other growth segments are Viator and LaFourchette. Viator is the leading marketplace for travel experiences and has been growing at a very good pace. LaFourchette is a restaurant reservation application that works mostly in Europe, similar to OpenTable in the US market. Both of these businesses have seen a quicker recovery than the main Tripadvisor Hotel business. Tripadvisor is also considering selling to public shareholders a minority stake in Viator, with Tripadvisor retaining control of the brand. This could unlock some value and show investors how much this business is worth to the company. Tripadvisor already filed a confidential S-1 draft registration statement with the SEC.
Competitors GetYourGuide and Klook have been valued at more than a billion dollars, so Viator could certainly move the needle for Tripadvisor. Especially considering that Viator is considered the leader of the booking experiences sector. Experiences booking levels exceeded 2019 levels in October 2021.
TheFork (LaFourchette) operates in 12 countries and partners with ~60,000 restaurants to handle reservations for them. It is another Tripadvisor business that is growing quickly and at some point could also be considered for an IPO, a spin-off, or a sale.
Tripadvisor shares are really cheap, especially if a full travel recovery arrives 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. There is also the possibility that it might become an acquisition target from another company that has some ideas on how to monetize all the visits it gets. There is also a lot of value in some of the other businesses Tripadvisor holds, such as Viator and TheFork.