RBC Downgrades TripAdvisor, Prefers Other Names In Online Travel Space

In a report published Monday, RBC Capital Markets analyst Mark Mahaney downgraded shares of Tripadvisor Inc (NASDAQ: TRIP) to Sector Perform from Outperform with an unchanged $91 price target due to a preference in other names within the online travel space and other risks associated with the company's business.

According to Mahaney, shares of Tripadvisor are trading at a 22x EV/EBITDA based on his 2015 estimates, "meaningfully" above Expedia Inc (NASDAQ: EXPE)'s 12x valuation and Priceline Group Inc (NASDAQ: PCLN)'s 18x valuation.

"At a broad strategic level, we see Priceline and Expedia as likely having greater success moving up the marketing funnel with their acquisitions of Kayak and Trivago, than TripAdvisor with its Instant Book offering and recent M&A activity," Mahaney wrote.

Mahaney also noted that in 2014, Expedia and Priceline accounted for 46 percent of TripAdvisor's total revenue and 65 percent plus of its Click-Based Advertising Revenue. The analyst added that given the recent purchases by Expedia of Travelocity and Wotif (and the pending acquisition of Orbitz Worldwide, Inc. (NYSE: OWW)), both Expedia and Priceline will likely contribute over 50 percent of Tripadvisor's total revenue and over 70 percent of its Click-Based Advertising revenue by the end of 2016. This could pose a "material challenge" to Tripadvisor's fundamentals in the future.

Mahaney argued that one of the negative recent Internet trends has been pressure faced by companies (such as Tripadvisor) that face pricing pressure caused by the rise of programmatic ad buying solutions. The analyst stated that he sees few reasons why TripAdvisor wouldn't face similar pressure.

Bottom line, shares of Tripadvisor have "corrected" over 40 percent from the middle of 2014 until the beginning of 2015. While shares are likely to reach the analyst's $91 price target, he concluded that valuation at its current levels "simply doesn't seem as compelling."