If you’re basing your analysis on its 2019 results, TripAdvisor (NASDAQ:TRIP), and its TRIP stock, might look like a bargain.
TripAdvisor posted a profit of $126 million, 90 cents per share of TripAdvisor stock, on revenue of $1.56 billion in 2019. That would seem to justify a market capitalization of $7.5 billion, five times that revenue. And TripAdvisor stock would look poised for growth.
But this is 2021. In 2020, TripAdvisor lost $289 million, $2.14 per share of TripAdvisor stock, and revenue was just $604 million. In that context, the April 5 opening price of $56.91 makes no sense.
Bulls are giving TripAdvisor, and companies like it, a mulligan. They’re throwing out 2020, pretending the pandemic didn’t happen. But it did.
Repairing the 2020 Damage
TripAdvisor is due to report first-quarter results on May 20. Analysts are expecting a loss of 46 cents per share, or about $70 million, on revenue of $120 million. Growth would have to accelerate sharply from there to get anywhere near 2019’s revenue figure.
It should be noted that that figure was short of 2018’s $1.61 billion, just about even with 2017’s $1.56 billion. You should also discount the earnings-per-share figure because TripAdvisor is selling $300 million in convertible shares — debt that can become stock — with options to buy another $45 million within 13 days after closing.
TRIP’s controlling shareholder is Liberty Media, the John Malone media conglomerate. Their Liberty TripAdvisor (NASDAQ:LTRPB), run by Liberty CEO Greg Maffei, owns a majority of TripAdvisor’s voting stock, 57.5%. But at the depth of last year’s crash, it had a $350 million margin note come due. This required a $325 million bailout, in the form of preferred stock, from Greg O’Hara’s Certares Management. The deal gave Certares most of the recent gains in Liberty’s TripAdvisor holdings. Preferred stock created through the loan is only now being retired.
The point is that 2020 did indeed happen. What will 2021 bring?
Will 2021 Happen?
The industry TripAdvisor operates in has also changed. The rise of Airbnb (NASDAQ:ABNB) has created competition for the hotels that are TripAdvisor’s main clients, in the form of homes, apartments and even bedrooms.
TripAdvisor’s response is TripAdvisor Plus, a subscription discount service at $99/year. It’s claiming the program lets hotels replace 30% commissions with direct bookings in exchange for discounts and perks for regular travelers.
TripAdvisor is calling Plus a multi-billion dollar “opportunity,” the “Amazon (NASDAQ:AMZN) Prime of travel.” But hotels and consumers must sign up for it to succeed.
TripAdvisor’s pitch deck notes that Sabre (NASDAQ:SABR) and Amadeus, the two largest travel distribution networks, are on board. Analysts are pushing this as a good deal for the hoteliers but consumer response is unclear.
TripAdvisor will also have to get past ill will created by a recent change in its terms and conditions. Small property owners are upset that the company can now use their website content for free across all TripAdvisor sites. These are the “special” places the company needs to sign up to make TripAdvisor Plus work.
The Bottom Line on TRIP Stock
The rise in TRIP stock is a product of optimism that travel will soon return to normal, or even exceed it.
But how much of that gain TripAdvisor takes will be determined by the success of TripAdvisor Plus. It needs business travelers to see the $99/year fee as a good deal. It needs both large and small hotels to sign up for the direct listing service and for business travel to come back in a big way.
The bottom line is that 2021 won’t be like 2019. It might be better, but it won’t be the same.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.