What TripAdvisor’s tumble really means

Much has been said this week about TripAdvisor’s dip in earnings, but if the company’s chief executive doesn’t care should we? Sally White takes a look

Great though it is at the travel business, TripAdvisor has not quite got this stock market business sorted. The problem, it would appear, is that the brokers’ analysts like it too much. Tuesday’s Q3 report showed that yet again they’d gone over the top and had computed profit figures that TripAdvisor could not possibly reach.

Of course, that knocked the share price right off its perch, creating a fantastic opportunity for the bane of company boards – the momentum traders. There is nothing they like more than shares that they can knock about, jumping in and out, taking a turn on the price at every go! Once they latch on to a company the shares are stuck on a roller-coaster. 

A look at TripAdvisor’s share price over the last year tells the story – they’ve traded between $71 and $111, rising up to peaks of $110, $107 and $104 within that time and between them dipping to $73, $77 and $79. Yesterday they were at $72, against the pre-Q3-announcement’s $86. Enough to make a long-term investor queasy – and the rest of the travel wondering what on earth is going on.

No wonder CEO Steve Kaufer was driven to say to a BostonGlobe journalist asking him about his share price that “I don’t know – don’t care”. Understandably to a guy who’s still building a hugely diverse, multi-billion dollar online travel site, the world’s largest, the shares have “nothing to do with the fundamentals of the business”.

It is a bit like the case of another growth phenomenon - China! After China’s 10-12% GDP growth rates early this millennium the fall to the current 7.7% rate is causing global panic.

What Kaufer announced was net income of $54 million or $0.37 per a share, compared to $56 million or $0.38 per share for the year-ago quarter. Analysts were going for $0.60 this time. For Q4 they are trying for $0.60 again.  

Key to all this is that for Kaufer, these are not the numbers that count. He is in it for “long-term growth” and whatever that takes. At the moment he is sales focused. And (the real killer) he does not give guidance to analysts on his short-term margin and profit targets. 

Justifying his stance are TripAdvisor’s excellent margin, cashflow and investment-return numbers.

Offsetting TripAdvisor’s impressive 3rd Q sales rise of 39% (to $54m, beating analysts’ estimates) were a heck of a lot of rising costs. (Plus, slightly worrying lower than expected click-based revenue.)

The industry is becoming more crowded and customers have to be wooed, which means increased advertising, more discounts and more loyalty programmes. On top of that come costs of acquisitions, diversifying to speed expansion – this quarter TripAdvisor spent $200 million buying out tours provider Viator to get closer to the customer – and, of course, boost sales.

 

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