Tripadvisor (NASDAQ: TRIP) stock beat on second-quarter earnings but missed on sales last night, triggering a series of analyst price target cuts on the travel advisory services stock Wednesday morning -- and sending Tripadvisor stock down 11% through 10 a.m. ET.
Heading into the quarter, analysts forecast Tripadvisor would earn $0.37 per share on sales of $504.8 million. Tripadvisor actually beat the earnings number, reporting profits of $0.39. But Tripadvisor missed badly on sales -- just $497 million -- and adding insult to injury, warned of further declines later in the year.
What went wrong at Tripadvisor
The news gets worse. Tripadvisor's earnings may have beaten expectations -- but they still weren't as good as initially appeared. Turns out, both Wall Street's forecast and Tripadvisor's $0.39 profit were non-GAAP (adjusted) numbers and, when calculated according to generally accepted accounting principles (GAAP), the company actually earned only $0.17 per share.
That was flat against earnings from Q2 last year -- no growth at all, which kind of makes sense considering that Tripadvisor's revenue grew a bare 1% year over year. Even worse, free cash flow at the company collapsed, falling 59% year over year to just $37 million.
Is Tripadvisor stock a sell?
Clearly, all is not well at the travel and tourism stock. But was the news really bad enough to justify this much selling?
Wall Street seems to think so. Out of five analysts lowering price targets today, according to The Fly, only one thinks the stock is a buy, while two rate Tripadvisor neutral -- and two more say Tripadvisor is a sell. It's easy to see why. Turning to guidance, Tripadvisor insisted its profits will still end up growing this year, but warned of flat to down revenue in the third quarter, and profit margin "down year over year by approximately 350 to 450 basis points."
All of this seems to add up to a stock that still costs nearly 100 times earnings, but is showing little to no growth this year. It's hard to call something like that a buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tripadvisor. The Motley Fool has a disclosure policy.
