The beginning of 2021 was very positive for investors in the stock market. In January-February, it was difficult to buy shares that would not have risen in price in the end. For example, the value of the securities of cannabis companies has increased by hundreds of percent, and this is just one of the striking examples.
In the euphoria of the profits made, speculators rushed to look for new ideas for purchases. And then Warren Buffett came to their aid, whose fund invested in the banking sector, after which the shares of its participants began to rise in price. As a result, the profit-making period continued until the summer.
But any rise is always followed by a decline. Cannabis stocks plummeted and bank stocks slowed despite positive Q2 earnings.
What to do now and where to look for a clue about which stocks to invest in at this stage?
Unfortunately, or fortunately for some, now it is necessary to independently search for new investment ideas, analyze companies, look for securities with low cost and high potential for income growth. One of these issuers is the company TripAdvisor, Inc… (NASDAQ: TRIP), whose securities over the past 4 months fell by 45%.
TripAdvisor was founded in 2000. She operates several websites through which you can book hotel, accommodation, transportation, restaurant reservations anywhere in the world, and leave feedback about your trip.
At the beginning, TripAdvisor had only one site, but over time, the company expanded and bought other platforms that provide services for those wishing to travel. As a result, it currently operates 19 websites around the world, and tripadvisor.com has localized versions in 48 markets and 28 languages, which are visited by 462 million monthly users.
Reduce TripAdvisor Costs
Since the company operates in the travel services industry, the pandemic has negatively affected its operations. With annual revenues falling from $ 1.5 billion to $ 600 million, TripAdvisor was forced to cut costs. This led to the layoff of 25% of the staff, the closure of offices and the transfer of employees to remote jobs.
The firm’s management recommended that employees around the world work 4 days a week at a 20% pay cut, and the company’s CEO waived his salary by the end of 2020.
TripAdvisor’s debt load has grown during the pandemic, but fortunately, the company has enough assets and free cash so that investors do not think about default.
TripAdvisor Conducts a Population Survey
Now the situation is changing for the better. Vaccination leads to a sharp increase in the demand for travel services.
TripAdvisor conducted a survey of U.S. customers to understand market sentiment, which found that of 100% of vaccinated travelers surveyed, 52% planned to vacation within their home country, 22% to travel abroad, and the rest did not plan to travel at all. The survey also found that vaccinated people feel more confident and plan longer rest periods.
Airline reports similarly suggest that tourist flows are recovering as demand for passenger air travel is growing. Aircraft manufacturer The Boeing Company (NYSE: BA) has seen an increase in passenger aircraft orders.
The recovery is proceeding at a very fast pace, which causes certain problems. For example, air carriers, having previously cut their staff, are now facing a shortage of staff.
It is possible that TripAdvisor may suffer the same fate. But this problem will be rather temporary and will slightly flatten the income growth curve, stretching it for a longer period, which will increase the amount of positive news about revenue growth in the future.
TripAdvisor Introduces Annual Subscription
During the pandemic, TripAdvisor decided to slightly change its business model. The tip came from streaming services. In 2020, the number of subscribers from streaming companies has increased dramatically, as users increasingly opted for a subscription for a certain period instead of a one-time payment for a particular service.
TripAdvisor has also decided to implement a $ 99 annual subscription. It provides the client with a discount on hotel reservations, or free services during their stay, as well as a discount on car rental.
Hertz Five Star with TripAdvisor subscription
For example, paying for a TripAdvisor subscription earns a customer Hertz Five Star elite status. This status in Hertz is granted to those who have spent at least USD 2,400 per year on car rental. The main value of Hertz Five Star is points that are awarded for every dollar spent. With this status, the client receives 1.25 points, which is 25% more than without it. Points can be used to pay for future rent.
Hotels also benefit from TripAdvisor’s switch to subscriptions. Previously, they had to pay a commission to the aggregator for each registration. Thanks to the subscription, this commission is not charged, but in return the hotel is obliged to provide discounts on its services, for example, free access to SPA procedures, a discount on room reservations, and so on.
Why is a subscription interesting for investors in the stock market?
From the point of view of the stimulus for the growth of the value of securities, the company made the right decision. The main thing is that the number of subscribers should constantly increase. Let me explain why this is important using the example of the social network Facebook.
After the company entered the IPO, market participants needed a driver for the growth of the share price. Facebook does not pay dividends, so simply buying shares and living off dividends with Zuckerberg’s company will not work. In this case, it was necessary for the company to constantly observe the growth of some indicator that would have an impact on its income.
This metric was the number of new registered users. This number grew, the income of the social network grew, and along with it the value of shares increased. But when the number of registered users exceeded 2 billion people, it became clear that the limit was already very close, since not everyone in the world has access to the Internet, and even more so not everyone is required to have a Facebook account.
As a result, the clouds began to gather over the company, and at a certain moment the management decided to stop publishing data on the number of new registered users. Instead, it started publishing the number of monthly active users. This was a new growth driver, and on this news the securities continued to move upward.
TripAdvisor boasts a monthly site traffic of over 462 million and an establishment account number of 8.6 million. These numbers may continue to grow in the future, but they will slow down, which is not the case for the number of subscribers.
For now, subscriptions are only available to US residents, and the number of subscribers is starting to grow slowly. Consequently, the media will actively exaggerate the topic with subscribers after each quarterly report. And if at the very beginning we see 1,000 subscribers, and after 3 months – 10,000, then in publications this will be presented as an increase of 900%. The numbers are impressive.
Do not think that the subscription was introduced solely for the purpose of increasing the value of shares. This direction allows the company to forecast revenues and more confidently channel available funds to expand its activities, and it becomes easier for investors and experts to predict the company’s future revenues.
Experts increase the target share price to 62 USD
As soon as it became known about the new business model of TripAdvisor, experts immediately revised the ratings of the company’s shares, changing the recommendation from “Neutral” to “Buy” and designated a target level of 62 USD per share. The shares are now worth around 35 USD per share, which suggests 75% upside potential.
Since the launch of the subscription, nothing has changed for the worse, the growth of tourist interest in travel only continues. We will find out the first data on subscriptions in the company’s quarterly report on August 5. The news could boost demand for TripAdvisor stocks, halting their decline and catalyzing further gains.
Now there is a correction in the stock market, which is expressed in the fall of stock indices. When it ends, nobody knows. But many investors use this situation as an opportunity to buy shares at a lower price.
TripAdvisor papers are also declining along with the market. According to fundamental analysis, the company is doing well, which means that securities at current levels can be considered undervalued. But do not rush, it is better to wait until the price drop stops and the first “green” candles with increased trading volume appear on the chart. This will be a signal for the completion of the correction and the resumption of growth in the value of TripAdvisor securities.
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