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TripAdviser - A Potential High-Margin Player to Watch
Posted by: Intelligent Speculator (IP Logged)
Date: December 27, 2011 07:01AM
I guess I didn’t do my homework. Or something like that. I’ve been discussing the Zynga (ZNGA) and Facebook IPOs over and over but one of the most interesting web companies turned public and I didn’t even say a word about it (I did mention it on Twitter, but it was late).
Good thing for me is that I’m not the only one. As much I’d love to blame the Christmas Holidays for my miss, the truth is that this one went under everyone’s radar.
Why TripAdviser (TRIP) Was Barely Mentioned
The biggest reason in my opinion is that this company did not go the more traditional route of being private and then going for the IPO. Instead, it was bought a few years ago by Expedia (EXPE) which decided to spin it off earlier this month. I’m not sure why Expedia did not put more of an effort to make this more public.
I’m Not Complaining Though
Believe me, I’m more than happy to see Tripadviser go unnoticed. Why? It certainly looks like the company’s valuation is lower than it probably would have been. Right now, TRIP is trading at a valuation of $3.5B or so. That is a bit over half of Zynga’s valuation with revenues also close to being half of its competitor. You might think that I’m crazy to compare the two. Obviously, I beg to differ.
Zynga And Tripadviser Are Both Plays on Social
While Zynga has an incredible team of designers and programmers, the thing that sets it apart from competitors such as Electronic Arts and Blizzard is the fact that it was able to acquire a dominant position in social, especially on Facebook. As the web moves to a more social environment, that is proving to be key. In a similar way, Tripadviser is also a leader in its sphere from a social perspective.
If you don’t know Tripadviser, it is the leader in travel guides. It offers the possibility for visitors to view hotels, restaurants, things to do, find out how others liked their time, what their Facebook friends did and who has visited a given place. It’s by far the paradise for those booking travel from the web (increasingly everyone!). The best part is that all of the content is built by users while Tripadviser staff and engineers can focus on the structure, features such as the Facebook integration, etc.
How TRIP Makes Money
Basically, every time a user decides to book a hotel or restaurant, Tripadviser tries to make an amount of money off of that reservation. Because of that, the company has been profitable for almost 10 years now. I encourage you to view the video below if you’d like more information about the company.
The Concerns Regarding TRIP
There are certainly downsides in Tripadviser’s business, like most new digital companies (or all of them for that matter). The two main ones in my opinion are:
-Competition: There is no doubt that many powerful players including Google are going after the local market. I still think that Tripadviser’s “travel perspective” remains unique and basically unchallenged. Also, it will be a significant challenge for players like Google to build such a site. Personally, I think that the competition factor is less important than for players like Zynga.
-Reliance on Community: There is certainly the potential for any social player to screw up big time. Companies like MySpace managed to screw up big time and alienate their users to the point where they all left. I think this remains a risk, especially as a public listed company with shorter term horizons. So far, the company seems to be able to manage things in the right way and continues to get increased respect from the travelers community. It does remain a risk, but not a significant one in my opinion.
The incredible feat for companies that let users generate the content such as Facebook, LinkedIn (LNKD) and Tripadviser is that they can turn very significant margins. Why? Their costs are very limited. Over time, I think that will prove to be a critical factor and I personally give a lot more credit to revenues from a company like TRIP than others like ZNGA and Pandora (P) which have to spend big to acquire and produce content.
Stocks Discussed: TRIP, ZNGA, EXPE, LKND,
Re TripAdviser - A Potential High-Margin Player to Watch
Posted by: peter_burke_ceo (IP Logged)
Date: December 28, 2011 09:45AM
good background but what about the numbers? what about the valuation (multiples)?
Stocks Discussed: TRIP, ZNGA, EXPE, LKND,
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