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TripAdvisor Inc. (TRIP - Snapshot Report) reported adjusted first quarter 2013 earnings of 44 cents per share, beating the Zacks Consensus Estimate of 40 cents on higher revenues. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

TripAdvisor reported revenues of $229.9 million in the first quarter, up 25.1% from the year-ago period. Related-party revenues from Expedia Inc. (EXPE - Analyst Report) totaled $60.5 million, up 17% year over year.

Revenues by Product

Revenues from Click-based advertising were $179.4 million, up 24% from the year-ago quarter, and represented 78% of total revenue. Revenues from Display-based advertising were $24.6 million, up 14% year over year, and comprised 11% of total revenue. Subscription, transaction and other revenues totaled $25.9 million, up 51% year over year, and represented 11% of total revenue.

Revenues by Geography

Geographically, on a year-over-year basis, Americas totaled $131.7 million, representing 57.0% of revenues. Revenues from EMEA (Europe, Middle East and Africa) region were $71.3 million, constituting 31% of total revenue, while revenues from Asia-Pacific region totaled $26.9 million, representing 12.0% of total revenue.

Operating Results

TripAdvisor reported operating expenses of $130.5 million, up 28.6% from $101.5 million incurred in the year-ago quarter. General and administrative and technology and content expenses were both up as a percentage of sales from the year-ago quarters, while selling and marketing expense declined. The net result was a GAAP operating margin of 38.4% compared with 40.0% in the year-ago quarter.

Reported pre-tax income was $84.4 million, up from $71.1 million in the year-ago quarter. Pre-tax margin decreased 200 basis points year over year to 36.7%.

On a GAAP basis, TripAdvisor recorded a net profit of $62.3 million or 43 cents per share compared with $48.1 million or 35 cents per share in the year-ago quarter.

TripAdvisor generated adjusted net profit of $63.1 million compared with $49.4 million in the year-ago quarter. Pro forma earnings per share came in at 44 cents compared with 36 cents in the last quarter.

Balance Sheet & Cash Flow

TripAdvisor exited the first quarter with cash, cash equivalents and short-term investments of approximately $406.2 million versus $486.4 million in the prior quarter. Accounts receivables were $113.3 million, up from $81.5 million in the prior quarter.

Cash flow from operations was $43.7 million versus $29.7 million in the year-ago quarter. Capex was $9.3 million versus $7.3 million in the year-ago quarter. Free cash flow increased 54% year over year to $34.4 million.

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 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 shoppers in the quarter, management states that the new investment in a brand marketing campaign will likely impact revenue and EBITDA growth in the near term.

We believe 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, 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 that have been performing well and are worth considering include Zillow, Inc (Z - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy) and Giant Interactive Group (GA - Snapshot Report), carrying a Zacks Rank #2 (Buy).

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