TripAdvisor Inc. (TRIP) reported adjusted third-quarter 2014 earnings of 39 cents per share, missing the Zacks Consensus Estimate by 12 cents. The adjusted earnings per share exclude one-time items but include stock-based compensation expense. Following the dismal earnings, shares plunged 11.6% in after-hours trading.
Revenues
TripAdvisor reported revenues of $354.0 million in the third quarter, up 9.6% sequentially and 38.8% from the year-ago period, driven by strength in click-based revenue business. Also, the Viator acquisition aided revenues which beat the Zacks Consensus Estimate of $346.0 million.
Revenues by Product
Revenues from Click-based advertising were $247.0 million, up 31% from the year-ago quarter and represented 70% of the total revenue. Revenues from Display-based advertising were $35.0 million, up 13% year over year and accounted for 10% of total revenue. Subscription, transaction and other revenues totaled $72.0 million, soared 106% year over year, and contributed 20% to the total revenue.
Revenues by Geography
Geographically, on a year-over-year basis, the North American revenues increased 35% to $176.0 million, representing 50% of total revenue, while Latin America revenues increased 78% to $16.0 million, representing 5% of total revenue. Revenues from the EMEA (Europe, Middle East and Africa) increased 43% to $119.0 million and contributed 34% of total revenue, while revenues from the Asia-Pacific region increased 30% to $43.0 million, representing 12% of the total third-quarter revenue.
International revenues accounted for 53% of third-quarter revenues, flat year over year.
Operating Results
TripAdvisor reported operating expenses of $259.0 million, up 57% from $165.0 million incurred in the year-ago quarter. Selling & marketing and general & administrative expense were up as a percentage of sales from the year-ago quarter, while technology & content expenses declined. The net result was a GAAP operating margin of 23.7% compared with 32.9% in the year-ago quarter.
Reported pre-tax income was $75.0 million, down from $84.0 million in the year-ago quarter. Pre-tax margin was 21.2% versus 32.9% in the year-ago quarter.
On a GAAP basis, TripAdvisor recorded a net profit of $54.0 million or 37 cents per share compared with $56.0 million or 38 cents in the year-ago quarter.
TripAdvisor generated adjusted net profit of $58.4 million compared with $56.8 million in the year-ago quarter. Pro-forma earnings came in at 40 cents per share versus 39 cents in the year-ago quarter.
Balance Sheet & Cash Flow
TripAdvisor exited the quarter with cash, cash equivalents and short-term investments of approximately $576.0 million versus $638.0 million in the prior quarter. Accounts receivables were $180.0 million, down from $185.0 million in the last quarter.
Cash flow from operations was $58.0 million versus $158.0 million in the prior quarter. Capex was $13.0 million versus $22.0 million in the last quarter. Free cash flow was $45.0 million compared with $136.0 million in the sequentially preceding quarter.
During the quarter, the company did not repurchase any share.
Our Take
TripAdvisor is one of the largest online travel research companies in the world. The company delivered a weak third quarter, with the bottom line significantly missing the Zacks Consensus Estimate. However, the top line surpassed the Zacks Consensus Estimate, aided by the Viator acquisition.
We are encouraged by the company’s strong fundamentals, strong focus on improving its mobile products, expansion into international restaurant reservation space and improvement in traffic and hotel shoppers in the quarter.
Additionally, TripAdvisor’s recent Viator acquisition complements its travel product portfolio and helps improve efficiency, expand the user base, increase traffic, hotel shoppers and profits. However, the recent data breach at Viator remains a matter of concern.
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.
However, lack of visibility, increasing competition from Priceline (PCLN), Expedia (EXPE) and Google (GOOGL), which are expected to enter the online travel market very soon, remain the concerns.
Currently, TripAdvisor has a Zacks Rank #4 (Sell).
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