Adding A New Stock To My Radar: Tripadvisor (TRIP)

avatar By: IS
Date posted: 12.27.2011 (5:00 am) | Write a Comment  (4 Comments)

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I guess I didn’t do my homework. Or something like that. I’ve been discussing the Zynga (ZNGA) and Facebook IPO’s 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 TripAdvisor (TRIP) Was Barely Mentionned

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 Tripadvisor 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 (ZNGA) 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 Tripadvisor 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, Tripadvisor 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, Tripadviso 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 Tripadvisor’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 allienate 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 travellers community. It does remain a risk, but not a significant one in my opinion.

High Margins

The incredible feat for companies that let users generate the content such as Facebook, LinkedIn (LNKD) and Tripadvisor 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 which have to spend big to acquire and produce content.

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4 Comments

  1. Comment by Jerry Hung — December 30, 2011 @ 3:22 pm
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    Is it a typo when you use “TripAdviser” in blog title and throughout…shouldn’t it be “TripAdvisor” officially?

    Tripadvisor Inc (Public, NASDAQ:TRIP)

    Either way, I personally love TA website for its information and user community…if only it can be less ad-intrusive, or less popups

    It needs a new interface change really..

  2. Comment by IS — December 30, 2011 @ 9:24 pm
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    @Jerry – Thanks for pointing that out:) I will fix that. I agree to some extent on the interface, I don’t think it’s that bad! So have you already bought some shares?

  3. avatar

    […] TRIP was spun off by EXPE late last year and we heard little about it, but it’s an incredible business, perhaps the best play on social currently available. […]

  4. avatar

    […] names with Priceline (PCLN) being a personal favorite. That being said, I’ve also disclosed how much I like Tripadvisor (TRIP). Today, I wanted to take a deeper look at Travelzoo (TZOO) which has a fairly unique business […]

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