April 8, 2011 / 10:53 AM / in 7 years

Expedia shares gain on TripAdvisor spin-off plan

ATLANTA (Reuters) - After Expedia Inc completes its announced plan to split into two public companies this year, the spun-off TripAdvisor will likely find more favor on Wall Street than its former parent.

Shares of Expedia rose 13 percent on Friday as analysts hailed the online travel agency’s separation plan as a way to unlock potential value.

TripAdvisor, which sells ad revenue on its sites that feature travel reviews, has been the growth engine at Expedia in recent quarters and is seen as the part of the company with more exciting prospects.

Justin Patterson, an Internet and e-commerce analyst with Morgan Keegan, said TripAdvisor revenue has risen about 34 percent year over year, while the core Expedia side of the business grew about 8 percent in 2010.

“Between the two assets, the spin-out has largely been designed to realize value in TripAdvisor,” Patterson said. He said TripAdvisor could possibly attract buyer interest but added he couldn’t think of any logical acquirers.

Expedia, whose chairman is media billionaire Barry Diller, has a current market capitalization of about $6.14 billion.

The spin-off, disclosed after markets closed on Thursday, is expected to be completed in the third quarter.

The new TripAdvisor would have operations of the current travel business that include 18 popular travel brands, while Expedia Inc would continue to comprise transaction brands such as Expedia.com, Hotels.com, Hotwire and carrentals.com.

“Media-driven business models seem to be gaining traction in the online travel industry,” Morningstar analyst Warren Miller said.

Bank of America Merrill Lynch analyst Justin Post said in a client note the move likely reflected management’s impatience with Expedia stock, which was down 10 percent on the year before Thursday’s announcement, and confidence in growth opportunities for TripAdvisor despite competition from services such as Google Places.

TripAdvisor had revenue of about $485 million in 2010, accounting for about 15 percent of Expedia’s overall revenue, according to Bank of America data.

CONCERN ABOUT STANDALONE EXPEDIA

But experts also said the spin-off could expose the standalone Expedia’s slow growth and leave it more vulnerable to growing competition. Analysts have said planned investments to improve technology and move into certain global markets could pressure Expedia results this year.

Debt-rating agencies also cautioned that splitting TripAdvisor from Expedia could hurt margins and cash flow generation.

“I agree that there is some concern about the growth trajectory there,” Patterson said, adding that rival Priceline.com is expected to continue outperforming Expedia this year based on international strength.

Patterson said it is still unclear whether Expedia’s investments will pay off.

“This divestiture has the potential to hurt Expedia’s credit quality depending on how assets and liabilities are divided in the transaction, given the loss of TripAdvisor’s profits,” Morningstar’s Miller wrote.

Expedia shares rose 13 percent to $25.30 by the close of Nasdaq trading on Friday.

Reporting by Karen Jacobs; Editing by Steve Orlofsky, Dave Zimmerman, and Tim Dobbyn

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