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TripAdvisor: Falling Margins, Low Mobile Conversion Rates Create A Shorting Opportunity

En Passant profile picture
En Passant
119 Followers

Summary

  • Operating and gross margins are falling in a highly competitive industry.
  • TripAdvisor converts mobile customers at a lower rate than desktop customers.
  • Mobile grew 60% last year.
Current Price: $63.21 (2/3/2015) Market Capitalization: $9.11 Billion
Enterprise Value: $8.80 Billion P/E: 40
Price Target: $31.6 (~50% downside) Time Frame: 12 - 24 months

TripAdvisor Price ChartTripAdvisor Price Chart

This has been on my short watchlist for a while, but I have been so focused on filling the long part of the portfolio. I'm not a fan of shorting amidst volatility since I short with put options. The price has fallen from $85 at the beginning of the year to $63 today for no fundamental reason. It has simply been the result of the Chinese slowdown and low oil prices. Nevertheless, I feel that at $63, the stock is still overpriced.


Business Model

TripAdvisor, Inc (NASDAQ:NASDAQ:TRIP) is a website that provides reviews of travel related content. The reviews are posted by its users and are accessible to anyone. TripAdvisor operates under two segments:

  • Hotel - Includes revenues generated from services related to hotels. In total, 91% of fiscal year 2015's revenues were derived from the hotel segment.
  • Other - Segment accounted for 9% of fiscal year 2014's revenues. The segment includes three sub-segments:
    • Attractions - This sub-segment primarily includes the 2014 acquisition, Viator. Viator is a website for researching and booking destination activities around the world. Viator works with local operators to provide travelers with access to tours and activities in popular destinations worldwide, earning a commission.
    • Restaurants - This primarily includes the recent acquisition Lafourchette. Lafourchette is an online restaurant booking platform with a network of restaurant partners across Europe. This is similar to OpenTable in the U.S. that was recently acquired by Priceline (PCLN). Lafourchette also offers management software solutions helping restaurants to maximize business by providing a flexible online booking, discount and data tool. Lafourchette makes money by charging a fee for each restaurant guest seated through the online reservation systems.

This article was written by

En Passant profile picture
119 Followers
21 yr old recent college grad with a passion for Investing! I have spent the past 3 years reading about value investing, and I have decided to run a public portfolio on my website at www.mazivalue.com. You can follow me on twitter @maziume. I will be tweeting my research on there.

Analyst’s Disclosure: I am/we are short TRIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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