Closing Out A Losing Trade (TRIP, AOL)

By: ispeculatornew
Date posted: 02.10.2012 (5:00 am) | Write a Comment  (4 Comments)

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Ah well, after some early jitters and 3 great trades to start off the year, today was an awfully bad day. TripAdvisor (TRIP) which I have been very positive about and even decided to buy despite the fact that it was such a recent IPO. My basis was that the company had been around for a long time. Yesterday, TRIP announced earnings that were decent but were well below what analysts had been expecting.

Revenue jumped 30% to $137.8 million while profits rose 19% to $22 million ($0.16 EPS). It’s not great but certainly not terrible either. However, from the looks of it, most expected way better and also expected better guidance.

The impact this morning was brutal with TRIP trading down 15% or so… I thus easily reached my stop loss at today’s close and will be closing out the trade on tomorrow’s opening. That and a bad start to my GOOG/VCLK trade have taken down my average trade return down to 2.89%

Still not too bad:) But I will learn from this. I have been asked about providing more post-trade analysis and I would say that it’s difficult to draw conclusions from most trades. On this one however, I made a clear mistake that I should have known about. There is a reason why I tend to stay away from newly issues stocks. The first few days of course always have more volatility than I’d really like.

The bigger reason though is that it’s always tempting for companies to make their financial statements look better or worse in the few quarters before turning public. There are perfectly legal ways to do this and I usually prefer to wait a few quarters before making a trade to see if growth can keep up.

I Thought TRIP Was Different

For some reason, I thought that TRIP would be different. Since it was part of the already public Expedia (EXPE), I expected that the statements would provide a fairly accurate image. I’m not saying that they didn’t but it’s true that Expedia had a lot of business with TRIP so even if it did intend to provide accurate statements, it certainly makes it very tricky to do so. Was EXPE paying TRIP enough for its traffic, did that cost change? There are plenty of valid questions. Especially when you consider that in the previous quarter, 34% of TRIP’s revenues came from Expedia while that proportion dropped to 27%… not saying it’s fishy but.

I will certainly spend more time looking into all of this and will continue to provide more thoughts both here and in the technology stocks newsletter which you can join for free:

On a side note, Expedia (EXPE) which was reporting last night also ended up coming up with disappointing results, though I’m not sure how related both of those numbers are but it’s certainly possible that the entire online travel industry is suffering a bit these days.

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4 Comments

  1. Comment by Hans — February 10, 2012 @ 9:32 am

    My concern about MOST IPO’s is, that they tend to suffer share declines within the first year of their offering…

    Yes, there are many exceptions, however, all to often they do not leaving investors with large losses…

  2. Comment by Intelligent Speculator — February 11, 2012 @ 7:51 am

    @Hans – Clearly a concern, especially with Facebook IPO coming up soon…

  3. […] Closing Out A Losing Trade (TRIP, AOL) […]

  4. […] perspective but also hopefully seeing more potential trade opportunities. No, I will not repeat my TripAdvisor mistake by trading Facebook right away although I might get into the action as a longer term, speculative […]

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