Earnings estimates have fallen sharply for TripAdvisor (TRIP) following disappointing second quarter results. Analysts have unanimously lowered their earnings estimates for both this year and next year, which has sent the stock to a Zacks Rank #5 (Strong Sell).
The stock has sold off sharply since the report, but it certainly does not look like a value at 39x forward earnings.
TripAdvisor is an online travel company, which enables users to plan and book trips. Most of its revenue comes from click-based advertising.
Second Quarter Results
TripAdvisor reported disappointing second quarter results on July 23. Adjusted earnings per share (but including stock-based compensation expense) came in at $0.45, missing the Zacks Consensus Estimate by 2 cents. It was down 6% year-over-year.
Total revenue rose 25% to $405 million, but this was also short of consensus at $412 million. The strong dollar was a headwind in the quarter as 50% of total revenue came from outside of the United States.
TripAvisor reached 375 million average monthly unique visitors, an increase of 30% year-over-year. Click-based advertising revenue rose 13%. North America revenue, which accounted for a little more than half of total revenue, increased 31%.
However, costs soared too. Selling & Marketing expense jumped 51% year-over-year to $192 million, or 47% of total revenue. And General & Administrative expense soared 38% to $44 million.
These factors led to a decline in adjusted EBITDA, even when excluding stock-based compensation expense.
Estimates Falling
Management lowered its full year guidance following its Q2 results. This prompted a flurry of negative estimate revisions from analysts, sending the stock to a Zacks Rank #5 (Strong Sell). This places it in the bottom 5% of all companies that Zacks ranks based on earnings momentum.
The current 2015 Zacks Consensus Estimate is now $1.76, down from $1.90 before the report. The 2016 consensus is now $2.25, down from $2.49 over the same period.
Premium Valuation
In addition to a Zacks Rank of 5 (Strong Sell), TripAdvisor also carries a Zacks Value Style Score of ‘F’. It’s easy to see why.
Shares trade at 39x 12-month forward earnings and have an enterprise value to cash flow ratio of 37.
The Bottom Line
With declining earnings estimates and premium valuation, investors should avoid TripAdvisor for now.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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