Tripadvisor Stock Looks Expensive At $53

Tripadvisor’s stock (NASDAQ: TRIP), an online travel company providing booking for hotel reservations, transportation, lodging, travel experiences, and restaurants, has climbed more than 2.5x since the levels of $20 in November 2020 (when vaccine efficacy data and approvals rolled out) to around $53 currently. In fact, the company’s stock is now about a solid 80% higher than its pre-pandemic high in February 2020 (at around levels of $30). That said, are further gains likely for the TRIP stock? We think that the company remains overvalued at a price-to-sales ratio of about 12x, and could likely see a downward correction based on its historical multiples in the long term. The fact of the matter is that the company has been grappling with hotel revenue declines ever since 2018, which account for more than half of its total sales. That said, the problems that plagued the company before the pandemic will still continue to put pressure once the pandemic passes. Needless to say, growing competitive threats from the likes of Airbnb and Google
GOOG
, coupled with a declining hotel revenues trend could result in Tripadvisor’s stock price declining in the longer term.

Tripadvisor stock has largely underperformed the broader markets between fiscal 2018 and now. The company’s stock is around 3% lower than it was at the end of fiscal 2018, compared to 66% growth in the S&P. Our dashboard, What Factors Drove 2% Decline in Tripadvisor’s Stock Between Fiscal 2018 and Now? provides the key numbers behind our thinking, and we explain more below.

Tripadvisor’s stock declined about 47% from around $54 in 2018 to around $29 in 2020. This was due to Tripadvisor’s revenues declining a major 63% – as a result of the pandemic restrictions. In addition, the company’s P/S ratio grew from 4.6x in 2018 to 6.4x in 2020. It should be noted that the company’s P/S is up to about 12x currently, and it could potentially see a downside closer to its historical levels.

Tripadvisor’s non-Hotel segment (Experiences and Dining) has been driving the growth in the company’s revenues before the pandemic over the last few years. In addition, the company’s Hotel revenues have been largely hit by lower click-based advertising revenues on Tripadvisor-branded websites.

How Is Coronavirus Impacting Tripadvisor’s Stock?

The travel sector was beaten down in 2020 as the onset of the pandemic led people to stop traveling, forcing travel companies to close global offices and eliminate a quarter of their workforce. As evident, Tripadvisor’s revenues declined 61% year-over-year (y-o-y) in 2020. In addition, the company’s net income came in at a loss of $289 million in 2020, compared to a profit of $126 million in 2019. However, it is also worth mentioning that monthly unique users on Tripadvisor websites grew from only 33% in April to 59% in December of the prior year’s comparable periods in 2020. Traffic trends on its websites improved since the onset of the pandemic, suggesting that consumers are rather interested to travel now but are hesitant to book their plans.

Vaccines will obviously change the course of the pandemic, and leisure travel shall return at some point, but business travel has a very tough road ahead as virtual collaboration tools have never been cheaper or more easily accessible. Tripadvisor has been looking at a recurring revenue stream and has launched its new Tripadvisor Plus subscription service earlier this year. This direct-to-consumer subscription service will offer consumers discounts on hotels and travel attractions (at a fee of $99 per year) which could likely help the company recover post-Covid.

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