07 April 2011
TripAdvisor - Rational Decision or?
In February of 2010 Expedia's CEO Dara Khosrowshahi was busy denying the IPO or spin out of Trip Advisor. Oh what a difference a year makes. Announced today after the markets closed on the US East Coast Expedia Inc announced the split of the company into two entities.
it is interesting considering the parentage of Expedia as a Baby Bill spin off from Microsoft. Today Microsoft is struggling having fallen behind both Google and Apple in tech stock value. Perhaps it should split up... but I digress.
One can speculate as to what has been in mind with the future of the Expedia family - but someone needs to get value because the stock is getting its ass kicked by the smaller PCLN.
But what do the analysts say? Well the jury is out. The move has been expected for quite some time so in my view the value of Trip Advisor has already been factored in.
Quoting the first guy to come out and put out a research note on this who is Deutsche Bank's Herman Leung - he is being cautious and maintaining a short term value of $25 and says HOLD. He argues that the bears would have a 9x valuation at the low end to bulls who could go as high as 15X. Pretty broad spread but understandable. I wont steal his thunder.
In my view there is the devil you know and the devil you don't know. I concur with his analysis that TA's yields are better and therefore the multiple for the TA business should be higher than that of the residual transaction based business. It tells me that there is a certain fear that competing with PCLN on a direct basis will actually see Expedia's value drop in an apple to apple comparison. This may have been one reason why EXPE has been holding onto TA for so long.
Now that the company has done quite a few things to shore up their core business to wit:
Partnering in Asia Pac with Air Asia.
Using Cleartrip to power domestic India
Coming to terms with AA
Abandoning the pure GDS based supply model for Air
Now therefore would be a good time to give some opportunity to eke out some better equity value.
For Trip Advisor this is good. Steve and the team will now be free to ply their own wares. one thing to think about will be an Air Search engine. Will they go the me too route with Kayak with ITA or native ITA or will they be bold and go with a Vayant or an Everbread. Even develop their own directly or with a third party group.
The possibilities are broad and this can shake things up in search.
Of course one key question will be how they handle community with positive relationship with Facebook or will they try and challenge the Dentist's son's juggernaut.
With thanks to Strawberry Walrus website.