Description

TripAdvisor has been written several times on VIC, so I am not going to spend too much time describing the business. At these levels, I believe that TRIP offers an interesting opportunity as people underappreciate the FCF power of the Core business and that Viator probably represents the entire EV of TRIP today. At today's price, TripAdvisor trades at net cash and represents a 50%+ upside opportunity by 2024. 

TripAdvisor is the largest travel guidance platform in the world. Known for its reviews of hotels, restaurants, attractions, etc., it is one of the first places tourists look for trip information. TripAdvisor has 3 main businesses: TripAdvisor Core, Viator and The Fork.

• TripAdvisor Core (65% of revenue): the legacy TripAdvisor business of metasearch and reviews. Main sources of revenue are Hotels Revenue, which comes from click-based advertising for hotels and online travel agencies (“OTAs”). Followed by Display and Platform Revenue where TRIP sells advertising on its platforms to various customers, Experiences and Dining, where TRIP offers dining and experiences and charges commissions on bookings.
• Viator (33% of revenue): an experience booking marketplace that connects tour providers and tourists looking for experiences such as tours, museum tickets, classes, etc. in different cities. Viator provides access to over 300k experiences and over 50k operators. These are instantly bookable online in over 190 countries.
• The Fork (8% of revenue): Europe’s leading restaurant reservation platform (i.e., the OpenTable of EU), offering travelers and diners a comprehensive online marketplace with access to more than 55k restaurants to discover and book reservations in 12 countries across the UK, western and central Europe, and Australia.
• Lastly, the Other segment is comprised of a small booking platform.
• Eliminations (6% of revenue)

• The legacy business is not dead and is a free cash flow machine
  • TripAdvisor is the #1 visited travel research site in the US and one of the largest globally with 180mm visits per month.
    • Traffic to the site is up 10.7% across the first nine months of 2023, and the business has an American Customer Satisfaction Index score (published by University of Michigan) generally above peer internet travel companies.
    • Global tourism arrivals in 2022 comprised only two-thirds of 2019, and a normalization of international travel should provide a sectoral lift to TRIP and other OTAs
  • The core TripAdvisor business is thought to be a poor and declining business. However, it has already recovered to 2019 levels and continues to generate free cash flow. Moreover, robust activity on the site hints that this will not change anytime soon.
  • TRIP’s core business is expected to generate ~$330mm of EBITDA in 2023, and over $220mm of FCF if we assume all capex, working capital, cash interest and taxes are burdened on the core business. 
  • If we exclude the Viator and The Fork business, the core TripAdvisor business is currently trading at 7.0x EV/EBITDA of 8% FCF Yield.
  • The Core business suffered prior to the pandemic as the OTAs pulled spending from metasearch, however, over the past 3 years it has remained flat and TRIP is actually taking share from Trivago, its closest competitor. 
    • Prior to the pandemic, the Core Business (which excluded Experiences & Dining) was declining in the low single digits between 2017 and 2019, while overall revenue remained flat. However, Adj. EBTIDA margins expanded from 26% to 40% (Core Business) and from 21% to 28% for the overall business.
    • The prior management team, thinking that TRIP might fade to irrelevance, decided to compete directly with Booking and Expedia with its own direct booking platform, pouring millions of dollars into the failed effort. Which they then followed with a subscription business idea, that didn't get traction either.
    • The previous management was then replaced with Matt Goldberg (former VP at the Trade Desk) as CEO in 2022, which he followed up by building a new team around him with people from Airbnb and Booking.
    • Thus new management understood the core essence of the TRIP business which is advertising and lead generation, thus they have spent their focus there.

• Viator is a hidden asset that provides a margin of safety to the value of the business
  • TRIP’s Viator business could be worth more than the entire EV of TRIP’s business. Based on 2023E revenue of $716mm and 4.0x EV/Revenue, Viator could be worth $2.8bn, ~$400mm more than current EV.
    • For reference, GetYourGuide, a Viator competitor, just raised a private round at a $2bn valuation despite being smaller than Viator. As of 2021, latest year of GetYourGuide’s reported financials, it had sales of ~$145mm vs. Viator’s $184mm, making Viator about 25% bigger than GetYourGuide, and growing 79% YoY vs. Viator’s 235% YoY growth.
    • Viator gets 33mm visitors per month and has over 395k bookable experiences vs. 23mm and 60k respectively for GetYourGuide.
    • If we assume that GetYourGuide grew in 2022 at the same rate as Viator, then it would have revenues of ~$320mm, so they raised at a valuation of 6.25x.
  • Despite being unprofitable at the EBITDA level, TRIP management mentioned that the business can breakeven if marketing spend is reduced.
    • Viator has been profitable in several quarters over the past couple of years. Showing mgmt.’s flexibility to dial back spending if needed.
  • Viator can have long-term margins of 30-35% similar to Booking. It took Booking 10 years to go from negative margins to 30%+, while Airbnb took ~5 years to break the 20% EBITDA margin level.
  • Assuming that Viator can grow at 13% for the next 10 years, reaches 25% margins by that year (still below Booking's), with minimal capex and working capital, and discount it to PV at 10%, you can get a present value of $3.2bn for just Viator, 28% higher than the entire EV of TRIP today. 
  • On top of that, due to the nature of the Viator business where customers book ahead of time and TRIP then disburses to providers when the service is complete, there is a negative working capital benefit that the Street under appreciates and allows Viator to grow with internal capital.

Valuation

Due to most of the future value coming from Viator, splitting up the businesses makes most sense. In a base case we assume that the core business trades for 5.0x EBITDA (OTAs trade for midteens) and Viator is valued at 2.0x Revenue (below what GetYourGuide recently raised at), reaching a $30 stock doesn't seem too far off. 

 

Financial Highlights

Risks

John Malone is known to be an aggressive sponsor: there are risks to sitting on the other side of the table with John Malone, which begs the question, “how do I get screwed”. One of the potential tools he has used in the past is the merger of HoldCo and Opco. In this case he could merge LibertyTrip (owns 21% of the TRIP shares and has 57% of the vote) with TRIP or could issue more TRIP shares to repay LibertyTrip debt.

Highly Competitive / Uncertain Sustainability of Core Business: The travel metasearch business has been a declining business since the entrance of Google into the segment and the push from OTAs for more direct traffic. Booking and Expedia have reduced their metasearch spend from 16% of marketing costs in 2014 to 8% in 2022. For TRIP this has translated into an average -6% decline YoY in the Core Segment, which accelerated due to the pandemic years. Despite this overall EBITDA only declined 2% [Core EBITDA impact for those years can’t be measured as Co changed reporting segments].

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Catalyst

Viator becoming 50%+ of TripAdvisor revenue where people realize this is not a reviews site anymore

Potential large share buyback with excess cash

Viator spinoff (the co hinted at spinning off the business a few years ago)