All Aboard On TripAdvisor (TRIP)

By: ispeculatornew
Date posted: 08.13.2014 (3:00 am) | Write a Comment  (0 Comments)

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$TRIP

I had hinted this might be coming and finally ended up pulling the trigger on what I first announced via Twitter:

For those that are new, let me do a quick recap of my investing strategy. The core of my portfolio is built on a passive income (dividend portfolio) and index-based investing (ETF portfolio). Then, I’ve started investing more money over the years into riskier strategies, mostly related to tech stocks. Why? Because it is the sector I know most about, enjoy following, and get the best feeling about. There are also many different stocks that can be traded.

My most active strategy is my long and short portfolio, which has done very well over the years, especially this year. It’s something I enjoy a great deal and have done well with, but it’s certainly volatile and short positions can cause bad surprises.

Once in a while, I take what I call a “long term speculative position.” Those are high conviction picks where I believe the upside potential is very significant compared to the downside risk. I tend to invest a significant amount (from my perspective) in those stocks with a multi-year horizon (unless something changes significantly).

-In 2012, I purchased Facebook (FB) +262%
-In 2013, I purchased Apple (AAPL) +24%

Both have done extremely well and I’m hoping this one will do the same.

Why I’m Buying TripAdvisor (TRIP)

In what I often describe as the “ecosystem” world, very few businesses are safe from giants such as Google (GOOG), Apple (AAPL), Facebook (FB), Microsoft (MSFT), and Amazon (AMZN). I’d argue that Netflix (NFLX) has positioned itself to thrive and I think the same can be said for TripAdvisor. There are hundreds of different web properties that focus on travel. What sets TripAdvisor apart is its brand and, more importantly, its community. Members are able to leave reviews, post photos, and add information, and that ends up being a game changer.

Every website tries to get the best inventory, the best features, the best prices, etc. All of those can be duplicated by competitors, which will always be a challenge for companies such as Expedia (EXPE), Orbitz (OWW), and others. I’d argue that building a community is much more difficult to do and will give TRIP a leg up for many more years. It has also helped TRIP become a platform where consumers and business owners can interact.

It’s Not All About Advertising

Yes, Tripadvisor currently relies mostly on advertising to support its business, but I’d argue that it is well positioned to build a relationship with business owners all around the world. At the start, that relationship might simply be about providing information, but it could and will become much more. If TRIP can help those businesses attract more consumers and facilitate transactions, that will end up generating significant cash flows.

revs

image credit: TRIP IR

I personally think that revenues could then accelerate in a similar way to what Facebook has achieved in the past couple of years:

ycharts_chart

 

Credit: YCharts

Valuation

I’ve been looking at TRIP for some time, but the valuation looked very expensive, so I’m finally getting in after a slight miss in its latest earnings that sent the stock down.

When I look at where TRIP is, I think its growth will remain steady for a few years as it continues to bring more users and activity. Then, when profitability becomes the main focus, I believe revenue and earnings growth will actually accelerate.

Think the focus on traffic is paying off? Just look at this chart from Google Trends:

 

trend2

trend1

 

credit: Google Trends

In the end, I think that the Travel industry is huge, will continue to move towards the web and that TripAdvisor is by far the best positioned to profit from it. With expectations of 20%+ growth in revenues for many years and growth acceleration once its focus shifts to revenues, which I think is still a few years down the line.  I’d love to hear your thoughts on TRIP, think this one can do as well?

Disclaimer: Long TripAdvisor (TRIP)

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