A Tourism Winner

11/05/2012 7:45 am EST


Glenn Rogers

Contributing Editor, Internet Wealth Builder and The Income Investor

Building a barrier to entry seems like the last thing you would want to do in the tourism business...unless it was a Chinese wall that would keep your competitors out, like this sharp firm has created, writes Glenn Rogers of Internet Wealth Builder.

Despite all the euro woes, there is definitely a lot of tourism in Europe. And the fall of the euro against the US and Canadian dollars has stimulated this by making prices more attractive.

The hotels are busy, the planes and trains are full, and the various major sites are literally teeming with tourists. And many of these tourists are booking their own travel and looking for restaurants, flights, and hotels online. So I thought it would be interesting to look at the major travel sites and see if any of them offer a good investment opportunity at this stage.

There are plenty of publicly-traded travel Web sites, but the one I found most useful during my recent European trip was TripAdvisor (TRIP), which was spun off by Expedia earlier this year. TripAdvisor has built a barrier to entry since they started early by attracting user reviews; it now has a very large recommendation base of over 75 million in hotels, restaurants, things to do, etc.

TripAdvisor just announced that they have acquired Wanderfly to beef up their social networking capabilities, and the stock responded well to the news.

Second-quarter financial results showed the company generating record quarterly revenue of $197.1 million, up 16% from the same period in 2011. Of this, $151.1 million (77% of the total) came from click-based advertising.

Net income was $53 million (37 cents per share, fully diluted). That was down 2% from the previous year, but was a 10% quarter-over-quarter improvement.

Adjusted EBITDA for the quarter increased 5% year-over-year to $96.9 million, or 49% of revenue. Free cash flow was $55.8 million, or 28% of revenue, up 1% year-over-year. Buy TripAdvisor with a target of $40.

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