Expedia’s Trip Advisor Spinoff Analysis
Friday, April 08, 2022 10:40 AM

Expedia, Inc. (NASDAQ: EXPE) has announced the company's intention to spin off the TripAdvisor brand and associated websites into a separate company. TripAdvisor is the world's largest travel website. The site allows visitors to plan a vacation itinerary and book the airfare, car rental and hotels through affiliated links. The Expedia side includes the Expedia.com and Hotels.com travel booking websites plus localized Expedia.com websites and a corporate travel booking business.

The TripAdvisor spin off, if approved, is expected to take place in the third quarter of 2011. The press release from Expedia states the Board of Directors must first approve the final details of the transaction and then the proposal will probably put to a vote of the company shareholders. The spinoff is expected to be a non-taxable event for investors.

For 2010, total revenues of Expedia, Inc. were $3.35 billion. Of that total TripAdvisor accounted for $486 million. Total company revenue was 13 percent higher than for 2009. The growth rate for TripAdvisor was a much higher at 38 percent for the year. TripAdvisor accounted for 14.5 percent of total revenue. On the operating income line, TripAdvisor earned $260 million, which was 31 percent of the Expedia, Inc. total for 2010. The TripAdvisor operating income increased at the rate of 33 percent in 2010.

EXPE shares jumped by 12 percent at open after the pre-market announcement of the spin off proposal. At $25 per share the market cap of Expedia, Inc. is $6.68 billion. One item of news analysis puts the market value of TripAdvisor at up to $ 4 billion. A possible reason for splitting the company may be management belief the current share price severely undervalues the company. If TripAdvisor really is worth $4 billion, the undervalued theory may be the case.

Even with the jump in share price today, EXPE is trading below the share price at the end of 2009. Over the same period of time competitor Priceline (NASDAQ: PCLN) shares have gained close to 150 percent in value. PCLN trades at a P/E of close to 50 and EXPE is at 17 times earnings. It is easy to see whey Expedia management could be frustrated with the current share price.

The proposed spinoff of TripAdvisor by Expedia, Inc. appears to be a value adding proposition for current Expedia shareholders. There seems to be little downside to pick up EXPE shares now and watch the revenue and earnings breakdown over the next couple of quarters to see how TripAdvisor and the rest or the Expedia business fares. After the company is split into two and investors have received their shares of TripAdvisor, the separate companies should be evaluated separately for growth potential.