Regular readers would know that I am a an of a few things that I discuss on this blog. Trading internet/technology stocks is one of those main things. I have been tracking quite a few companies that you can see on the page of stocks that we follow. Most of them are publicly traded companies but for a few others such as Facebook, Twitter and Zynga. I like to do long & short trades that give me less exposure to the market in general and more exposure to the individual companies. The ideal trade is one where both companies are in the same sector. Even better when they trade at similar valuations (in terms of price per earnings) because I can go into what makes one company overvalued or undervalued.
Many sectors such as the social web and search are interesting to follow but difficult to trade. Why? Because social players are mostly private companies while the only pure search companies that are private are Google (GOOG) and Baidu (BIDU), which I have been reluctant to trade since the whole Google in China debacle. There is one sector where many possibilities exist however; Internet Travel.
Companies like Travelzoo (TZOO), Priceline (PCLN), Expedia (EXPE) and Orbitz (OWW) are all players in the US market with foreign players from China Ctrip (CTRP) and India MakeMyTrip (MMYT). I have tracked four of these companies and will be adding the two others (OWW & MMYT) in my dashboard.
I would not expect to trade either name for now because of they are new mostly but for other reasons to be discussed later on. While I did get burned badly in my last trade on Travelzoo (TZOO), I have generally been successful on these names, especially going long on Priceline (PCLN) which despite its status as the biggest name, continues to manage high growth.
Without further wait, let’s look at numbers for the 6 names:
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P/E ratio evolution
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There is a lot to discuss of course and this is only an introduction but I will still do a quick review of the 6 names:
CTrip (CTRP) is a company that is difficult to judge for me because it is based in China and does business with Chinese customers. That also means that getting traffic metrics is more challenging. What is clear however is that sales are exploding as the middle class continues to grow quickly and travelling is a very high growth industry in China. You can simply take a look at the sales growth of CTrp over the past few quarters and you will see how expontial growth has been. It does however still trade at a high P/E ratio which makes me cautious about the stock.
Expedia (EXPE): Many think that Expedia is just one website, Expedia.com. There is much much more to it however. They manage dozens of websites from travel guides such as TripAdvisor to other “ecommerce” websites such as Hotels.com, Hotwire.com, elong.com (which does business in China). etc. That makes Expedia the “AOL/Yahoo” of the travel industry. It’s not necessarily bad but it’s certainly a challenge to manage so many properties. Still Expedia has been able to keep growth at a fairly high level and for now I consider its valuation to be reasonable.
MakeMyTrip (MMYT) is a recently listed company that for now is a very simple company. It is based in India and a quick look on their website (MakeMyTrip.com) will give you a quick glance at their current business. Trips to and from India. Even when you are on their foreign websites, it is mainly about trips to India. I do like that aspect which is very specific. However the company is very new, has very little data available right now because of its very recent IPO and is barely profitable which means that information like a P/E ratio is difficult to analyze. I will not be touching this name for the moment.
Priceline (PCLN): No doubt, Priceline is my favourite name. While it currently trades at a high P/E as you can see in the chart above, it has historically been very cheap when you look at the strong sales growth the company has been able to sustain for years now. It is the largest player in the travel space but remains competitive thanks to a very strong brand as well as top ranked customer service. How muh longer can Priceline keep up the growth? It’s difficult to say really but you can expect me to go long on Priceline in the near future.
Travelzoo (TZOO): Travelzoo has been the target of a few short trades on my part, most of which ended very well but the last one didn’t. Analysts were very impressed by the most recent earnings from Travelzoo. The company has a different business model as it sends out weekly newsletters by email to millions of members with most of its deals. It does have websites but a significant portion of its revenues come from that newsletter. In my opinion, it was not a blowout quarter and the stocks looks overvalued, but I would hesitate to short a stock with so much momentum…
Orbitz Worldwide (OWW) : Orbitz is a company that is not looking very strong right now. It has a few other and smaller properties but Orbitz.com remains its core and that website is a little like Yahoo right now… it has not improved very much in recent years and is quickly falling behind the competition. That is translating into no growth and thus no profits, no P/E ratios, etc…For now I can’t really consider this stock but for now I will not trade Orbitz.