Barron's | Streetwise | By Michael Santoli
Reasons to Rally?
Excerpt from December 12, 2011
Then there's TripAdvisor, the largest travel site on the Internet, and a profitable one, at that. TripAdvisor, which helps people find good ways to jet away from it all, is about to be spun off, quietly and without much hoopla, by Expedia (EXPE). TripAdvisor, whose site features user reviews on hotels and such, has expanded revenue by about 30% lately, and runs 50% operating margins.
Expedia shares are at $28.50, up nicely from $25.17 when the stock was mentioned favorably here last spring, based in part on the TripAdvisor spinoff (May 16). Yet there remains some upside for Expedia holders, as the Street will focus on TripAdvisor, once it comes public, in the context of other 'Net plays.
Expedia holders last week approved the spinoff, which will net them one Trip-Advisor share for each Expedia share they own. Beforehand, Expedia will execute a 1-for-2 reverse stock split. The "when issued" shares of the post-split Expedia (EXPEV) and TripAdvisor (TRIPV) now reflect that cosmetic doubling in price.
Based on the prevailing price-to-sales and price-to-cash-flow ratios of similar companies, some professional investors peg TripAdvisor's post-split value above $35, versus $27.91 on the when-issued market. Spin-Off Research, a firm that analyzes such corporate cleavings, pegs the combined value at more than $66 per post-split Expedia share, which computes to more than a 15% gain from Expedia's current pre-split quote.