TripAdvisor Inc. (TRIP) reported adjusted third-quarter 2013 earnings of 39 cents per share, beating the Zacks Consensus Estimate by a penny on higher revenues. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Revenues
TripAdvisor reported revenues of $255.1 million in the third quarter, up 19.9% from the year-ago period. The increase was driven by continued strong hotel shopper growth and strength across product suite. Related-party revenues from Expedia Inc. (EXPE) totaled $56.2 million, down 1.0% year over year.
Revenues by Product
Revenues from Click-based advertising were $189.3 million, up 13% from the year-ago quarter and represented 74% of total revenue. Revenues from Display-based advertising were $30.5 million, up 29% year over year, and accounted for 12% of total revenue. Subscription, transaction and other revenues totaled $35.3 million, up 68% year over year, and represented 14% of total revenue.
Revenues by Geography
Geographically, on a year-over-year basis, the Americas (North America and Latin America) totaled $139.4 million, representing 55.0% of total revenue. Revenues from the EMEA (Europe, Middle East and Africa) region were $82.7 million, contributing 32% to total revenue, while revenues from the Asia-Pacific region totaled $33.0 million, representing 13.0% of total revenue.
Operating Results
TripAdvisor reported operating expenses of $166.2 million, up 41.4% from $117.6 million incurred in the year-ago quarter. General & administrative, selling & marketing expense, and technology & content expenses were all up as a percentage of sales from the year-ago quarter. The net result was a GAAP operating margin of 32.8% compared with 43.4% in the year-ago quarter.
Reported pre-tax income was $83.6 million, down from $90.8 million in the year-ago quarter. Pre-tax margin decreased 990 basis points (bps) year over year to 32.8%.
On a GAAP basis, TripAdvisor recorded a net profit of $55.9 million or 38 cents per share compared with $59.4 million or 41 cents per share in the year-ago quarter.
TripAdvisor generated adjusted net profit of $56.9 million compared with $60.2 million in the year-ago quarter. Pro-forma earnings came in at 39 cents per share compared with 42 cents per share in the year-ago quarter.
Balance Sheet & Cash Flow
TripAdvisor exited the third quarter with cash, cash equivalents and short-term investments of approximately $432.4 million versus $396.1 million in the prior quarter. Accounts receivables were $111.1 million, up from $138.0 million in the prior quarter.
Cash flow from operations was $145.0 million versus $76.5 million in the year-ago quarter. Capex was $15.7 million versus $7.3 million in the year-ago quarter. Free cash flow increased 87% year over year to $129.3 million.
During the quarter, TripAdvisor repurchased 1.4 million shares for an aggregate purchase price of $ 100.0 million.
Our Take
TripAdvisor, Inc. is an online travel research company, which continues to witness robust top-line growth in every quarter. The company delivered a decent third quarter, with both earnings and revenues above the prior-year figures, helped by a stronger travel market all over the world.
Though we are encouraged by the company’s strong fundamentals and improvement in traffic and hotel shoppers in the quarter, management states that the new investment in a brand marketing campaign will likely impact revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) growth in the near term.
We believe the opportunity in the Asia-Pacific region is significant and is likely to remain one of the strongest drivers of the company’s business over the next few quarters since online penetration in many Asia-Pacific markets remains relatively low.
However, lack of visibility and macro uncertainty may keep the share price range bound in the near term. Over the long term, TripAdvisor is well positioned for growth, given its expanding user base, improving margins and increasing monetization of social and mobile platforms.
Currently, TripAdvisor has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Melco Crown Entertainment Limited (MPEL) and Kemper Corporation (KMPR). All these stocks carry a Zacks Rank #1 (Strong Buy).
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