Tripadvisor (NASDAQ:TRIP) sees its share price pop 12% premarket. Investors have a lot to be happy about. Particularly since in the past year, its share price has been highly volatile, but mostly trending lower.
Does this quarter turn Tripadvisor into a phoenix that returns from the ashes? I’m not entirely convinced that’s the case.
And even as I recognize that there’s a lot to be bullish about, I don’t believe this is a blemish-free earnings report.
Revenue Growth Rates Setup to Impress
Tripadvisor delivered 16% y/y revenue growth rates. At the time of writing, Tripadvisor hasn’t had its earnings call yet, thus we have no updated Q4 guidance to go on.
For my part, I believe that around a 10% revenue growth rate will be what’s provided on the earnings call. I don’t know if that is accurate, but this is what I do know:
As it stands right now, analysts expect close to 6% y/y growth rates for Q4. And given the momentum Tripadvisor has found, I believe that not only is this Q4 consensus figure too low, but by extension, I believe that Q1 2024 is also too low.
Now, let’s take a small step back and think through this setup holistically. Tripadvisor came out of 2022 with the “Great Reopening” tailwinds to its back.
Then, in 2023, as Tripadvisor went through its comparables with the prior year, of course, its revenue growth rates moderated.
What’s more, the economy is noticeably cooler too, which should dampen its near-term growth rates. But even considering all those elements, it appears that Tripadvisor will still exit 2024 with Q4 delivering around 10% CAGR.
Now, before we get too bullish on Tripadvisor, it’s important to keep in mind that this business is highly seasonal. More specifically, Q2 and Q3 is high season for the business, with Q4 and Q1 being low seasons.
Consequently, I urge caution in extrapolating the performance of Q3 into Q4. Nonetheless, I still believe that Tripadvisor has more momentum in its underlying prospects than analysts are giving it credit for.
TRIP Stock Valuation — Has Its Work Cut Out
Here the plot thickens further. Tripadvisor has already made $0.90 of EPS in the trailing 9 months of 2023. If we take analysts’ un-updated Q4 EPS estimate of $0.21, this would mean that Tripadvisor would deliver $1.11 of EPS in 2023. This compares with the $0.75 EPS reported in 2022, which is a 48% y/y increase.
On the surface, that’s a terrific improvement, and I trust you’ll agree. But on the other hand, this leaves Tripadvisor priced at 16x this year’s EPS.
And I’m not entirely convinced that this leaves new investors looking at the stock with much upside potential. Note, here I’m not referring to investors that were already in the stock, they’ll be delighted by the pop in these results. I’m referring to new, uncommitted, unbiased, and unentrenched capital.
Management Sees Value
And now, this plot takes yet another twist. On the one hand, management bullishly declares that it will repurchase its shares. And that’s always a headline grabber. A vote of confidence that management believes the business is undervalued.
On the other hand, let’s recall that in 2020 Tripadvisor also aggressively deployed $115 million to repurchase shares, and yet, not only is Tripadvisor’s share price now unchanged including the premarket pop, but also, consider this graphic:
Even if Tripadvisor did repurchase its shares over the next two years, would its share count remain low, or would it once again start creeping higher?
And finally, to confound the bull case further, let’s discuss Tripadvisor’s cash flow profile.
Tripadvisor is hardly oozing free cash flow. In fact, its cash flows from operations are down significantly compared with the same period a year ago. And recall, this is meant to be Tripadvisor’s seasonally strong period.
The Bottom Line
In light of the recent market movement and Tripadvisor’s financial performance, it becomes increasingly challenging to ascertain whether the current surge in the stock is indicative of a sustainable upward trajectory.
While some indicators point to a potential revival, the inherent uncertainties surrounding Tripadvisor’s seasonal business model and its recent cash flow trends raise pertinent questions about the longevity of this positive momentum.
Moreover, a partially stretched valuation multiples further muddy the waters, casting doubt on the stock’s true value proposition.
With management’s optimistic yet unfulfilled promises in the past, one cannot help but approach Tripadvisor’s current situation with a tempered sense of optimism, remaining wary of the potential pitfalls that could still emerge in the company’s path towards sustained growth and value creation.