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Chart in Focus: TripAdvisor’s Leverage after 3Q17

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Debt

After reducing its debt in 2016, TripAdvisor (TRIP) has again been raising debt in 2017. TRIP had total debt of $201.0 million on its balance sheet at the end of 2015, which declined to $90.0 million at the end of 2016, thanks to debt repayment. Its debt increased to $272.0 million at the end of 3Q17.

Online travel sites are facing increasing competition from each other as well as large hotel chains like Marriott (MAR) and Hilton (HLT). For the nine months ended September 2017, Marriott recorded 47.0% YoY growth in revenues to $17.0 billion. During the same timeframe, Hilton recorded 23.8% YoY growth to $6.9 billion.

Expedia’s (EXPE) debt has remained almost constant at $3.2 million for the past seven quarters. However, this debt level increased to $4.2 million in 3Q17, which is slightly lower than EXPE’s cash reserves of $3.9 billion. This trend led to a leverage ratio of 0.26x.

Rival Priceline’s debt increased to $9.6 billion at the end of 3Q17. In comparison, it had cash reserves of $7.3 billion and a net-debt-to-EBITDA ratio of 1.1x at the end of 3Q17.

Rival Ctrip International’s (CTRP) debt has increased to $7.3 billion, and its cash reserves have increased to $6.8 billion at the end of 3Q17. As a result, its net-debt-to-EBITDA ratio increased to 31.1x at the end of 3Q17.

What does this mean for investors?

For the first nine months of 2017, TRIP has generated $220.0 million in cash flow from operations (or CFO), lower than the $276.0 million CFO generated in the first nine months of 2016. Its free cash flow has totaled $170 million in the first nine months of 2017, compared to $219.0 million in the first nine months of 2016.

At the end of 3Q17, TripAdvisor had $763.0 million in cash and short-term investments on its balance sheet—lower than the ~$904.0 million it had at the end of 2016.

However, this metric is still substantially higher than the debt on its balance sheet. TRIP also had an interest coverage ratio of 10.5x at the end of 3Q17, which indicates that TripAdvisor still has sufficient capability to service its debt.

Investors can gain diversified exposure to TripAdvisor by investing in the PowerShares NASDAQ Internet Portfolio ETF (PNQI), which holds 0.6% in TRIP.

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