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TripAdvisor Inc. (TRIP - Snapshot Report) reported adjusted first-quarter 2014 earnings of 48 cents per share, beating the Zacks Consensus Estimate by a couple of cents. This is the sixth consecutive positive earnings surprise by the company. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

TripAdvisor reported revenues of $281.0 million in the first quarter, up 31.9% sequentially and 22.2% from the year-ago period, driven by continued strong hotel shopper growth, increased ad rates and strength across product suite. However, the first-quarter revenues were slightly below the Zacks Revenue Estimate of $282.0 million.

Revenues by Product

Revenues from Click-based advertising were $207.0 million, up 16% from the year-ago quarter and represented 74% of total revenue. Revenues from Display-based advertising were $32.0 million, up 28% year over year, and accounted for 11% of total revenue. Subscription, transaction and other revenues totaled $42.0 million, up 62% year over year, and contributed 15% to total revenue.

Revenues by Geography

Geographically, on a year-over-year basis, the Americas (North America and Latin America) revenues increased 20.0% to $156.0 million, representing 56.0% of total revenue. Revenues from the EMEA (Europe, Middle East and Africa) increased 27% to $90.0 million and contributed 32% of total revenue, while revenues from the Asia-Pacific region increased 30.0% to $35.0 million, representing 12.0% of total first-quarter revenue.

Operating Results

TripAdvisor reported operating expenses of $185.0 million, up 30.3% from $142.0 million incurred in the year-ago quarter. Selling & marketing expense and technology & content expenses were up as a percentage of sales from the year-ago quarter, while general & administrative expenses declined. The net result was a GAAP operating margin of 34.2% compared with 38.3% in the year-ago quarter.

Reported pre-tax income was $94.0 million, down from $84.0 million in the year-ago quarter. Pre-tax margin was 33.5%, down 300 basis points (bps) year over year.

On a GAAP basis, TripAdvisor recorded a net profit of $68.0 million or 47 cents per share compared with $62.0 million or 43 cents per share in the year-ago quarter.

TripAdvisor generated adjusted net profit of $69.5 million compared with $62.7 million in the year-ago quarter. Pro-forma earnings came in at 48 cents per share compared with 43 cents in the year-ago quarter.

Balance Sheet & Cash Flow

TripAdvisor exited the first quarter with cash, cash equivalents and short-term investments of approximately $461.0 million versus $482.4 million in the prior quarter. Accounts receivables were $151.0 million, up from $97.0 million in the prior quarter.

Cash flow from operations was $109.0 million versus $71.2 million in the year-ago quarter. Capex was $20.0 million versus $16.1 million in the year-ago quarter. Free cash flow was $89.0 million versus $55.1 million in the prior quarter.

During the quarter, the company did not repurchase any share.

Our Take

TripAdvisor, Inc. is an online travel research company, which continues to witness robust top-line growth in every quarter. The company delivered a decent first quarter, with earnings exceeding the Zacks Consensus Estimate, on the back of improved global travel market.

We are encouraged by the company’s strong fundamentals, strong focus on improving its mobile products, expansion into international restaurant reservation space and improvement in traffic and hotel shoppers in the quarter. Moreover, the company’s launch of meta-display platform last year helped the company to increase the AD rates, thereby expanding revenues.

Additionally, TripAdvisor’s recent purchase of Vacation Home Rentals and Tripbod will boost its travel product portfolio with the addition of more properties at famous destinations. The company will now feature more than 550,000 rental properties worldwide.

However, lack of visibility, increasing competition from Priceline (PCLN - Analyst Report), Expedia (EXPE - Analyst Report) and Google , which is expected to enter the online travel market very soon, may weigh on the shares in the near term. Over the long term, TripAdvisor is well positioned for growth, given its expanding user base, improving margins and increasing monetization of social and mobile platforms.

Currently, TripAdvisor has a Zacks Rank #2 (Buy).

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