TripAdvisor (TRIP) has been on an aggressive expansion spree, especially with its Instant Booking rollout. TRIP has been investing heavily in the business, as can be seen by its sharply increasing cost structure.
Despite this, TRIP has managed to keep its debt in check, generally following an ongoing trend of debt reduction. However, for the past two quarters, its debt has increased. The total debt on TRIP’s balance sheet has decreased from $201 million at the end of 2015 to $171 million at the end of 2016. However, its debt has risen from $92 million at the end of 2Q16.
However, TripAdvisor (TRIP) has substantially higher cash on its balance sheet. At the end of 2016, TRIP’s cash and short-term investments on its balance sheet totaled ~$730 million higher than the ~$661 million at the end of 2015.
TRIP’s rival Expedia (EXPE) has also maintained constant debt since 4Q15. However, due to its improving EBITDA,[1. earnings before interest, tax, depreciation, and amortization] its debt has decreased from $466 million in 2015 to $352 million in 2016. EXPE’s net debt-to-EBITDA ratio improved to 3.4x at the end of 3Q16.
Cash flow from operations declines
For 2016, TripAdvisors (TRIP) cash flow from operations fell 6.9% to ~$1.1 billion compared to ~$1.2 billion in 2015. Free cash flow from operations rose 2.9% to $893 million compared to $868 million in 2015.
Why is increasing leverage worrisome?
High leverage and interest costs reduce TRIP’s ability to cope with unfavorable conditions. In times of such growth uncertainty, TRIP’s increasing leverage could be a cause of concern for investors.
TRIP makes up 1.4% of the PowerShares NASDAQ Internet Portfolio ETF (PNQI).