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TripAdvisor’s Valuation: What It Means for Investors

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Forward PE ratio

Currently, TripAdvisor’s (TRIP) forward PE (price-to-earnings) ratio stands at 34.5x, which is mid-level to its all-time high of 50.69x in July 2014 and its all-time low of 17.4x in October 2012. Let’s look next at a few noteworthy comparisons.

  • TripAdvisor enjoys a multiple that’s higher than peers Expedia (EXPE) and Priceline (PCLN).
  • Expedia’s (EXPE) PE ratio at 30.8x is higher than its closest peer, Priceline Group (PCLN).
  • Priceline (PCLN) had a forward PE multiple of 27.3x during the same period.

The PE ratio is used widely because of its simplicity, but the measurement has some disadvantages. For example, earnings can be easily manipulated, thus making the ratio meaningless. We’ll thus compare these companies on a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple.

Forward EV-to-EBITDA ratio

Currently, TRIP has a forward EV-to-EBITDA ratio of 15.8x, which is lower than its average of 20.3x. The multiple is higher than Expedia’s forward EV-to-EBITDA multiple of 13.9x and lower than Priceline’s multiple of 20.0x during the same period.

What should investors look for?

Investors should continue to monitor the profitability of TripAdvisor’s instant booking platform. Sustainable revenue growth led by revenue per shopper growth will also be a key measure to track. Mobile monetization rates that are defining TRIP’s instant booking monetization rates should also be watched.

In the long term, if all the above factors play out well, growth in the travel industry driven by economic growth will be a key valuation driver for TripAdvisor.

Investors can gain exposure to TripAdvisor by investing in the First Trust Dow Jones Internet ETF (FDN), which holds 1.6% in TRIP. It also holds 3.1% in Expedia (EXPE) but has no holdings in either Priceline (PCLN) or Ctrip.com International (CTRP).

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