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TripAdvisor, a Travel Pioneer, Seeks Global Growth

By    |   Wednesday, 04 April 2012 10:19 AM

In the rapidly moving world of online consumer ratings, travel company TripAdvisor.com (TRIP) is practically a grandfather. Founded in 2000, it was bought by media mogul Barry Diller’s InterActiveCorp and then spun off again in 2005 to fend for itself as a standalone travel brand. Once a pioneer, TripAdvisor now styles itself as the new kid on the block in terms of global travel growth, particularly in China and India.

It has grown over time, building a 20 million member base and boasting 60 million reviews and opinions that cover hotels ranging from humble bed-and-breakfasts up to five-star operations and specialty lodging. Its sites reach into 29 countries, including China under the Daodao.com brand, reporting 50 million unique visitors as of January.

While TripAdvisor is the flagship, it runs 18 individual travel media brands, all focused on travel planning. Its sector competitors include vacation rental site HomeAway (AWAY) and traditional hotel planning site Expedia (EXPE). Like these sites, TripAdvisor makes money in part by linking travelers with providers of bookings.

TripAdvisor management believes that its advertising business has plenty of room to grow. Data from IDC show that the travel industry represents half of all e-commerce transactions globally, yet just 16 percent of travel advertising is online, they point out

Emerging markets are part of TripAdvisor’s plans for growth. The worldwide travel market in terms of bookings is expected to equal $900 billion in 2012, according to PhoCusWright Global Online Travel Overview.

“We believe that this trend will continue as online penetration continues, as more consumers gain broadband access to the Internet, as smartphone and other mobile computing devices continue to proliferate, and as travel grows along with an expanding middle class in certain developing countries like China and India,” TripAdvisor management told investors recently.

The company had 220 employees in Beijing at the end of 2012 and would continue to “invest heavily and operate at a loss in the China market,” management said.

TRIP has a market cap of $4.9 billion and a 12-month trailing P/E of 27.51 vs. 92.63 for its peers. Its current price to earnings growth (PEG) ratio is 1.94 vs. 9.67 among its peers in the Internet retail and catalog business.

Its latest earnings report came in at 23 cents per share, below the market consensus of 24 cents.

Fairly valued

TRIP is followed by 11 investment banks, mostly with neutral or underperform marks. Only RBC Capital Markets analysts believe it will outperform. Ned Davis initiated coverage of TRIP on April 2 with a neutral recommendation

Ford Equity Research has a sell recommendation on TripAdvisor based on what it calls “a negative trend in earnings per share over the past 5 quarters.” It considers TripAdvisor fairly valued but expects share prices “will perform very poorly over the near term.”

TripAdvisor next reports on May 1.

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