On Thursday, BMO Capital Markets adjusted its outlook on TripAdvisor (NASDAQ:TRIP), reducing the price target for the company's shares to $20 from the previous $23. The firm maintained a Market Perform rating on the stock. The adjustment comes in response to several factors negatively affecting the travel platform's financial prospects.
The analyst from BMO Capital highlighted that TripAdvisor shares have experienced a significant drop of 29% due to various challenges. One of the primary issues is the impact of Google (NASDAQ:GOOGL)'s Search Engine Optimization (SEO) changes on TripAdvisor's brand revenue growth.
These changes are expected to result in a high single-digit percentage decline in the second quarter of 2024 compared to the same period the previous year, with a mid-single-digit percentage decline by the end of the fiscal year 2024.
Moreover, the growth of Viator, a TripAdvisor company offering tour and activity bookings, is slowing more than anticipated. BMO Capital projects a growth rate of 13% for the second quarter and 16% for the full fiscal year 2024. This slowdown is another contributing factor to the revised price target.
The analyst also noted that the possibility of a potential transaction for TripAdvisor has been put aside following a strategic review. This development further influences the current evaluation of the company's stock.
Despite these setbacks, the analyst suggested that the current share price, trading at approximately 8 times the estimated EBITDA for 2024, might attract activist investors due to the perceived attractive valuation levels. The report implies that there could be interest from investors looking to engage with the company to potentially influence its direction or unlock value.
InvestingPro Insights
As TripAdvisor navigates through SEO challenges and the growth deceleration of its Viator platform, it is important for investors to consider the company's financial health and market performance.
According to InvestingPro data, TripAdvisor's market capitalization stands at $2.47 billion, and while it is trading at a high earnings multiple with a P/E ratio of 147.34, the adjusted P/E ratio for the last twelve months as of Q1 2024 is more moderate at 62.76. The company has also demonstrated strong gross profit margins of 91.45% over the same period, indicating efficient control over its cost of goods sold.
An InvestingPro Tip highlights that TripAdvisor holds more cash than debt on its balance sheet, a sign of financial stability that could be reassuring to investors in volatile times. Additionally, analysts predict the company will be profitable this year, which aligns with the expectation of net income growth.
Still, it is worth noting that the stock has faced significant pressure recently, with a one-week price total return of -31.6% as of a recent 2024 date. This could present a buying opportunity for those who believe in the company's long-term prospects, especially considering that the InvestingPro Fair Value estimate stands at $27.93, suggesting potential upside from the current price level.
For investors seeking more in-depth analysis on TripAdvisor, there are 11 additional InvestingPro Tips available, which can be accessed through the dedicated page for TripAdvisor on InvestingPro. These tips could help investors make more informed decisions about their investments in the company. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering even more insights to guide your investment strategy.
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