TripAdvisor (NASDAQ: TRIP), an online travel company providing booking for hotel reservations, transportation, lodging, travel experiences, and restaurants, is scheduled to announce its fiscal fourth-quarter results on Thursday, February 18. We expect TripAdvisor’s revenues to likely be in-line while earnings miss consensus estimates. The travel sector has been the worst hit during the pandemic. While TripAdvisor saw demand rebound in Q3, its numbers were still far below 2019 levels. In fact, air travel and vacation trends likely won’t fully recover until the Covid-19 threat has passed. That said, we believe that the travel company will continue to show sequentially improving sales and profit trends in the upcoming Q4, but it might be a year or even longer before it begins to show operating trends similar to the pre-pandemic levels.
(1) Revenues expected to be in-line with the consensus estimates
Trefis estimates TripAdvisor’s Q4 2020 revenues to be around $108 Mil, in-line with the consensus estimate. In the first nine months of 2020, TripAdvisor’s revenues declined a major 60% year-over-year (y-o-y). Particularly in Q3, the company’s revenue grew nearly 150% from only $59 million in Q2 2020 to $151 million in Q3 2020. But the revenues were still down 65% from year-ago quarter levels in Q3. It is also worth mentioning that monthly unique users on TripAdvisor websites grew from only 33% in April to 74% in September of the prior year’s comparable periods. Traffic trends on its websites improved since the onset of the pandemic, suggesting that consumers are rather interested to travel now but are hesitant to book their plans. The company is planning to roll out a direct-to-consumer subscription service, TripAdvisor Plus, that will offer consumers discounts on hotels and travel attractions – which could likely help the company in recovery post-Covid.
(2) EPS likely to marginally miss consensus estimates
TripAdvisor’s Q4 2020 earnings per share (EPS) is expected to come in at a loss of 27 cents as per Trefis analysis, marginally lower than the consensus estimate of -25 cents. Vaccines will obviously change the course of the pandemic, and travel may pick up later in the year. But with the United States experiencing a number of new Covid-19 cases, and Europe extending its lockdowns to limit the Covid-19 spread, travel demand could really struggle in the next few months. Consequently, the travel company will likely continue posting losses well into next year. In addition, the company could likely continue to underperform the broader travel market due to increased competition from Google and Airbnb, and weaker margins (-22% op. margin TTM). While the company has a strong balance sheet to safeguard it from the current downturn (a cash balance of $446 million, another $1 billion in liquidity, and an outstanding debt of $490 million), there are still too many potential stumbling blocks on the road to recovery.
For the full-year, we expect TripAdvisor revenues to decline 62% y-o-y to $597 million.
(3) Stock price estimate lower than the current market price
Going by our TripAdvisor’s Valuation, with a revenue per share (RPS) estimate of around $4.27 and P/S multiple of around 6.0x in fiscal 2020, this translates into a price of over $25, which is 31% lower than the current market price of around $37.
While TripAdvisor stock could trade lower post Q4 earnings, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Google vs Corcept Therapeutics shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.