In yesterday's e-mail, I argued that underneath the major indexes' strong performance is a stealth bear market, filled with bombed-out stocks that delight bottom-fishing value investors like me...
It would be hard to find a better example than travel company Tripadvisor (TRIP).
The stock hit an all-time high above $100 in 2014, just a few years after its IPO. And though it steadily declined from there, it still hit above $60 in 2021.
But it has taken a sickening slide since then to close at $8.37 yesterday – just pennies above its all-time low, as you can see in this chart:
My friend and former colleague Glenn Tongue has been following Tripadvisor for years, which led me to take a first look at the stock on January 7, 2025. And I shared his bull case for the company the next day.
Needless to say, he was way too early, as the stock has fallen 44% since then.
But Glenn's pain could be our gain, as he thinks the sell-off is hugely overdone. In an e-mail to me, he wrote:
I think TRIP at today's price is a "fat pitch."
Its current market cap is only $981 million, even though Tripadvisor just sold its European restaurant reservation business, TheFork, to American Express for $700 million in cash. Adjusting for this sale, TRIP trades at an enterprise value multiple of only 2 times to 3 times EBITDA [earnings before interest, taxes, depreciation, and amortization].
The remaining businesses are Viator – which lets travelers book tours, activities, and attractions with local tour companies and independent operators worldwide – and the cash-generative (albeit rapidly declining) hotels operation.
The situation has many positive attributes... The receipt of the cash from the sale of TheFork should be a catalyst. A well-respected activist, Starboard Value, has a 10% position. And management has been saying more strategic portfolio moves may be on the table. I expect this will either result in the sale of more assets or the company will buy back a massive share of the float.
He concluded by breaking down Tripadvisor's valuation:
Using conservative multiples, I think Viator is worth $1.5 billion, and the rest are worth $200 million to 250 million. This translates to a share price of $16 to $19, more than double today's level – and share buybacks would increase the value.
Investors are concerned that Viator will lose its valuable franchise to competitors like GetYourGuide or to AI. I think these fears are overblown, but the third quarter will shed light on how the business has been holding up. Any reacceleration should result in a re-rating of that business.
But even if you give it a material valuation haircut, I think that the current stock price is dramatically mispriced.
This sounds compelling, so let's take a look at the numbers...
Normally I'd show 20 years of historical financials. But with the sale of TheFork, these wouldn't allow us to see the only numbers that matter now – those of the remaining businesses.
So instead, let's take a look at the second-quarter earnings release and investor presentation reported on August 6...
Revenues of the experiences side of the business (Viator) have been growing nicely, offset by a sharp decline in the hotels business:
Revenue in the experiences segment grew 3% year over year in the second quarter, though adjusted EBITDA fell from $38 million to $31 million:
In the hotels segment, revenue and adjusted EBITDA fell by 21% and 22%, respectively:
Total free cash flow ("FCF") fell 29%, but it was a strong $130 million:
The company's balance sheet is strong as well, even before receiving the $700 million from American Express (AXP). In the second quarter, it reported cash of $843 million – nearly equal to its $894 million of debt, with plenty of liquidity:
Overall, this isn't a pretty financial picture – but it's not terrible either. The company has almost no net debt and generates positive (albeit declining) adjusted EBITDA and FCF.
And boy is the stock cheap! After receiving its sale proceeds for TheFork, it will have an enterprise value of only $335 million. That's only 1.4 times its adjusted EBITDA of $243 million over the past 12 months, and only 2.5 times FCF of $133 million over the past four quarters.
Someone using the handle "avahaz" on stock-idea website Value Investors Club agrees with Glenn that the stock is cheap. On June 24, when the stock was at $12.84, they posted:
[It] has truly morphed into a unique business with exceptional prospects but is still trading on the basis of the old mismanaged and declining Tripadvisor business.
With the rapid decline of the legacy Tripadvisor business, the pending divestiture of TheFork and last year's exit of Liberty, Tripadvisor is transforming into a pure play experiences OTA [online travel agency]. I believe experiences is the most attractive category in travel, with the best OTA economics, longest growth runway and highest barriers to entry. Pro-forma for the disposal, Tripadvisor is trading at [less than] 3x forward EBITDA. This compares to 12x for Booking as the leading hotels OTA and 15x for AirBnB as the leading short-term rentals OTA.
Avahaz argued that the experiences business is unique, valuable, and unlikely to be disintermediated:
The experiences market remains highly fragmented. Supply consists predominantly of small, local operators offering one-off activities. There is limited repeat behavior at the supplier level, little ability to build direct relationships, and weak negotiating leverage. Platforms remain central...
This is why the large OTAs have consistently chosen to partner with platforms like Viator rather than build competing supply themselves. It also makes the platform more valuable in an AI-driven world, where answers are easy but booking still requires real, structured supply...
Taking it all together, I believe Viator as a standalone business should trade at a valuation multiple at least in line with Airbnb, and arguably higher, as the business is earlier in its operating leverage curve and margins are still expanding, leading to faster overall long-term growth prospects, and the barriers to replicating and/or disintermediating Viator's experiences platform are higher. At AirBnB's 15x forward EBITDA, Viator would be worth [more than] $3 billion.
As for the legacy hotels business, avahaz argued it will continue to generate FCF:
Management is once again attempting to stabilize the legacy Tripadvisor business. Given the track record, it is reasonable to assume they will struggle, although there is a case to be made that the unparalleled depths of content and travel information contained within Tripadvisor should enable strong monetization from [large language models] and other travel related AI offerings. That said, even as it declines, the business continues to be highly cash flow generative and is likely to deliver $300 million to $400 million of free cash flow over the next three years. I will ascribe a value of $300 million.
Avahaz concluded:
The disposal of TheFork should be completed by the end of this year. I expect they will accelerate buybacks over the course of the year and into next year as the main use of proceeds. By 2028-2029, I expect Viator['s] EBITDA to exceed $300 million. At 15x, this business will be worth [more than] $4.5 billion. Adding in the $300 million for legacy Tripadvisor and approximately $400 million of pro-forma net cash, I derive an equity value of $44, representing an [internal rate of return] of 50-80% depending on whether it takes 2 or 3 years to get there.
I think Glenn and avahaz make compelling cases that TRIP shares are substantially undervalued.
My team and I here at Stansberry Research are going to do our own research on Tripadvisor as well. If we decide to recommend it as part of our Stansberry's Investment Advisory newsletter, our subscribers will, as always, be the first to know.
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Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.