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TripAdvisor Inc. (TRIP - Snapshot Report) reported adjusted fourth-quarter 2012 earnings of 24 cents per share, beating the Zacks Consensus Estimate of 23 cents on higher revenues. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

TripAdvisor reported revenues of $169.4 million in the fourth quarter, up 22.9% from the year-ago period. Related-party revenues from Expedia Inc. (EXPE - Analyst Report) totaled $39.5 million, up 6% year over year.

Revenues by Product

Revenues from Click-based advertising totaled $123.8 million, up 24% from the year-ago quarter and representing 73% of the total fourth-quarter revenues. Revenues from Display-based advertising totaled $22.3 million, down 3% year over year and representing 13% of total revenue and revenues from Subscription, transaction and other totaled $23.3 million, up 56% year over year and constituting 14% of total revenue.

Revenues by Geography

Geographically, on a year-over-year basis, Americas grew 16.0% and represented 50.0% of revenues. UK grew 14.0%, accounting for 13.0% of revenues, while revenues from the rest of the world totaled $63.4 million, up 37.0%, representing 37.0% of total revenue.

Operating Results

TripAdvisor reported operating expenses of $111.8 million, up 27.8% from $87.5 million incurred in the year-ago quarter. Selling and marketing and technology and content expenses were both up as a percentage of sales from the year-ago quarters, while general and administrative expense declined. The net result was a GAAP operating margin of 27.7% compared with 24.4% in the year-ago quarter.

Reported pre-tax income was $43.3 million, up from $33.5 million in the year-ago quarter. Pre-tax margin grew 130 basis points year over year to 25.6%.

On a GAAP basis, TripAdvisor recorded a net profit of $33.6 million or 23 cents per share compared with $22.0 million or 16 cents per share in the year-ago quarter.

TripAdvisor generated adjusted net profit of $34.4 million compared with $25.7 million in the year-ago quarter. Pro forma earnings per share came in at 24 cents compared with 19 cents in the last quarter.

Balance Sheet & Cash Flow

TripAdvisor exited the fourth quarter with cash, cash equivalents and short-term investments of approximately $486.4 million versus $183.5 million in the year-ago quarter.

Cash flow from operations was $71.1 million versus $26.2 million in the year-ago quarter. Capex was $8.7 million versus $5.3 million in the year-ago quarter. Free cash flow increased 199% year over year to $62.4 million.

During the quarter, the company's board of directors authorized up to $250 million of share repurchases to be funded by available cash and future cash from operations.

Our Take

TripAdvisor, Inc. is an online travel research company, which continues to witness rapid top-line growth in every quarter. The company delivered a decent fourth quarter, with both earnings and revenues above the prior year figures, helped by a stronger travel market all over the world,

Though we are encouraged by the company’s strong fundamentals and improvement in traffic and hotel shopper growth in the quarter, management states that the new investment in a brand marketing campaign will impact revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) growth in the near term.

We believe that the opportunity in the Asia-Pacific region is significant and is likely to remain one of the strongest drivers of the company’s business over the next few quarters, particularly since online penetration in many Asia/Pacific markets remains relatively low.

However, lack of visibility and macro uncertainty may keep the share price range bound 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 #3 (Hold). Other stocks in the sector that have been performing well and are worth a look include Autodesk Inc. (ADSK - Analyst Report) and Netflix Inc. (NFLX - Analyst Report), both with a Zacks Rank #2 (Buy).

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