Should You Buy Tripadvisor Stock At $42?

by Trefis Team
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Trefis
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TripAdvisor
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[Updated: 6/7/2021] Tripadvisor Update

Tripadvisor’s stock (NASDAQ: TRIP) has gained 2x – moving from about $21 to $42 in the last twelve months. However, Tripadvisor’s revenues have fallen 69% to a consolidated figure of $449 Mil for the last four quarters from the consolidated figure of $1.46 Bil for the four-quarter period before. We believe that this revenue and stock price mismatch looks like a reason to sell the stock – as TRIP stock remains highly valued at a price-to-sales ratio of around 10x. The company’s current P/S multiple could likely see a downward correction based on its historical multiples in the short to medium term. Our dashboard, Buy or Fear Tripadvisor Stock provides the key numbers behind our thinking, and we explain more below.

The fact of the matter is that the company has been grappling with hotel revenue declines ever since 2018, which account for more than half of its total sales. That said, the problems that plagued the company before the pandemic will still continue to put pressure once the pandemic passes. Needless to say, growing competitive threats from the likes of Airbnb and Google, coupled with a declining hotel revenues trend could result in Tripadvisor’s stock price declining in the medium term. 

Tripadvisor’s business grew modestly in the first quarter of 2021, as vaccinations led consumers back to planning leisure travel, particularly in the U.S. The company’s revenues were up 6% sequentially from $116 million in Q4 2020 to $123 million in Q1 2021. However, TRIP’s revenues declined 56% from year-ago quarter levels in Q1 and also stood at about 33% of 2019’s comparable period. Net loss in the first quarter was $80 million and adjusted EBITDA was negative $26 million. It is also worth mentioning that Tripadvisor’s monthly users on its website increased slightly each month of Q1 2021 – reaching 53%, 56%, and 58% of 2019’s comparable periods respectively through January, February, and March. That said, air travel and vacation likely won’t fully recover until the Covid-19 threat has passed. It might be a year or even longer before Tripadvisor begins to show operating trends similar to the 2019 pre-pandemic levels.

[Updated: 05/04/2021] TRIP Q1 Earnings Preview

Tripadvisor (NASDAQ: TRIP), an online travel company providing booking for hotel reservations, transportation, lodging, travel experiences, and restaurants, is scheduled to announce its fiscal first-quarter results on Thursday, May 6. We expect Tripadvisor’s stock to likely trade lower post Q1 results with both revenues and earnings missing consensus estimates. The company’s revenue declined nearly 23% from $151 million in Q3 2020 to $116 million in Q4 2020. In fact, these revenues were still down 65% from year-ago quarter levels in Q4 – as Tripadvisor saw uneven travel recovery trends with major parts of the world under lockdown. In addition, we expect this trend to extend into the first half of fiscal 2021 as well. Air travel and vacation likely won’t fully recover until the Covid-19 threat has passed. That said, it might be a year or even longer before Tripadvisor begins to show operating trends similar to the 2019 pre-pandemic levels.

Our forecast indicates that Tripadvisor’s valuation is at $43 per share, which is 10% lower than the current market price of $47. Look at our interactive dashboard analysis on Tripadvisor Pre-Earnings: What To Expect in Q1? for more details.

(1) Revenues expected to miss consensus estimates

 

Trefis estimates Tripadvisor’s Q1 2021 revenues to be around $117 Mil, 3% below the consensus estimate. In 2020, Tripadvisor’s revenues declined 61% year-over-year (y-o-y). However, it is also worth mentioning that monthly unique users on Tripadvisor websites grew from only 33% in April to 59% in December of the prior year’s comparable periods in 2020. 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.

Tripadvisor has been looking at a recurring revenue stream and has launched its new Tripadvisor Plus subscription service earlier this year. This direct-to-consumer subscription service will offer consumers discounts on hotels and travel attractions (at a fee of $99 per year) which could likely help the company recover post-Covid. For the full year 2021, we expect Tripadvisor revenues to rise 50% y-o-y to $0.9 billion.

(2) EPS likely to marginally miss consensus estimates

Tripadvisor’s Q1 2021 earnings per share (EPS) is expected to come in at a loss of 36 cents as per Trefis analysis, marginally lower than the consensus estimate of -32 cents. In 2020, the company’s EPS came in at a loss of $2.14, compared to a profit of 91 cents in 2019. We expect Tripadvisor to likely continue to underperform the broader travel market due to increased competition from Google and Airbnb, and weaker margins (-55% op. margin in 2020). While the company has a strong balance sheet to safeguard it from the current downturn (a cash balance of $418 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.

(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 $6.48 and a P/S multiple of around 6.6x in fiscal 2021, this translates into a price of $43, which is nearly 10% lower than the current market price of around $47.

It is helpful to see how its peers stack up. Check out Tripadvisor Stock Comparison With Peers to see how Tripadvisor compares against peers on metrics that matter.

See all Trefis Price Estimates and Download Trefis Data here

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