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The following segment was excerpted from this fund letter.
Liberty TripAdvisor (NASDAQ:LTRPA)
Another high velocity upside position that we increased by more than 50% in the recent months is Liberty TripAdvisor (LTRPA). Liberty TripAdvisor is not anchored by cash, like the biotechs are. In fact, its net asset value (NAV) actually collapsed to less the zero in recent months. However, its debt is termed out, meaning it basically functions as a very long-dated call option, or warrant, on Tripadvisor (TRIP).
TRIP’s world class board has appointed a new CEO to optimize every aspect of its core business — something it has long gone without. Matt Goldberg’s background at The Trade Desk (TTD) and multiple direct-to-consumer web properties (such as the Lonely Planet) make him perfectly positioned to better monetize Tripadvisor’s long admired position as the world’s most visited travel website. The exciting part of Matt’s mission is that he wants to make core Tripadvisor great again, in its hotel auction, in the Tripadvisor Plus model, and in the new advertising verticals it has developed for hotels, restaurants and tour operators.
This year’s travel season is absolutely on fire, but there are substantially more legs to this rally. Americans are traveling abroad 30% less frequently than before Covid. This is a core demographic for Tripadvisor’s traffic and purchase intent. So while the market worries that certain travel businesses are experiencing peak earnings in 2022, we believe there is substantial room to run for those focused on a more international destination, like Tripadvisor.
But the real upside will come from Tripadvisor’s determination to extract value from its two fastest-growing supply aggregation properties: Viator and The Fork. Both platforms dominate their respective fields and are aggressively acquiring new customers. Viator’s experiences supply is without comparison in the world, and it is currently processing twice the amount of transactions than it was prior to Covid. Given over 80% of travel experiences are still booked offline, Viator looks as attractive to us, if not more so, than booking.com did a few decades ago.
Given controlling shareholder Liberty TripAdvisor is highly motivated to realize value from its holdings, we also believe the company will able to unlock value from its ecosystem, no matter what economic environment we head into. While Tripadvisor itself is heavily shorted around trough valuations, Liberty TripAdvisor has even more velocity to the upside given the significant leverage it has. Accordingly, we have kept it as a mid-single-digit position in the portfolio as it has recently rebounded significantly. Yet, it provides our conservative portfolio with jet fuel for a recovery when it happens.
While high velocity upside positions like Liberty TripAdvisor sound like they are not at all fitting with our conservative posture, these positions not only can perform in any environment, but they allow us to maintain a higher cash balance during these periods of uncertainty. Liberty TripAdvisor’s leverage, for example, allows us to maintain less than a third of the capital position that would be required to be invested in Tripadvisor. This strategy was highly effective for us in 2009, as we were able to seize deeply distressed opportunities while also maintaining a comfortable cash position and market shorts.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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