After opening up the first trade of the year yesterday, going long Apple (AAPL) and short Blue Nile (NILE), I am now ready to get moving on a new position. I have 7 slots to fill and would like to get them done sooner rather than later so I move ahead. In today’s trade, I am using a concept that I have often traded on. Among the stocks that I follow, there are many “internet content” companies, which provide information to some level on websites in order to then sell advertising.
Over and over, I’ve been very negative about companies that try to be dominant in dozens of spaces at once. It’s very challenging to pull off. In general, I have put AOL, Yahoo (YHOO) and IAC Interactive (IACI) as the major “big players”. To its credit, IAC Interactive has been very good about spinning off units that turn out to be more successful into their own entities. Once upon a time, Expedia (EXPE) was spun off from IAC. Then, as I discussed a few weeks ago, Expedia ended up spinning paprt of its business as well, TripAdvisor (TRIP).
Today, I decided to open a trade based on this concept. Let’s start off by looking at the numbers:
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Long TripAdvisor (TRIP)
It’s not a big surprise to see some missing information for TRIP, it is a newly turned public company. I rarely get involved in such stocks because there is a lot of uncertainty but I did decide to make an exception on this one. TRIP owns the biggest “travel community” on the web, as its main property, Tripadvisor.com, now includes over 50 million user reviews. As is the case with Zynga (to a smaller extent though), TRIP has been building on the Facebook infrastructure with great success.
Because of the fact that TRIP is so new, I did spend quite a bit of time reading about the company, its business and future perspectives. Even after that, there is still a fair amount of risk with buying such a new company but I do think that the company is trading at a very attractive valuation. For TRIP to be trading at a 17 P/E with man years of high growth in front of it screams bargain in my opinion. I might be biased somewhat as a user of the website but I like to think that just gives me better knowledge of the company.
To some extent, TRIP does seem to depend on a few select advertisers for most of its business which is certainly a risk but I do see this advertising as basically a commission on the future sales so I would not expect those to slow down.
Short AOL (AOL)
For a while there, I was starting to become optimistic about AOL’s future. That time is quickly fading away. AOL’s revenues from its ISP business continue to slip much faster than whatever growth its web business can generate generating a still quickly falling picture for revenues and a very negative outlook for profits. I’m starting to think that many of AOL’s business decisions are flawed and that the costs in operating their network are simply too high to compete.
Additionally, a reasonable number of executives have left AOL in recent months raising concerns about the Armstrong-Huffington leadership. Can things be turned around? Absolutely, but I think it will be a major challenge in a world where AOL competes with Yahoo, Google, Facebook and others for those display advertising dollars.
In the end, I think the outlook is very dark for AOL to this day…
Disclosure: No positions on TRIP or AOL