Liberty TripAdvisor Holdings (NASDAQ:LTRPA) is a holding company whose primary asset is a controlling stake in TripAdvisor Inc. (TRIP). Though Liberty TripAdvisor’s economic ownership of TripAdvisor is only 23%, the company controls 52% of the voting power. Liberty TripAdvisor itself is controlled by Greg Maffei, the second in command of John Malone’s web of companies. Maffei gained control in 2015 when he exchanged A shares for B supervoting shares with Malone.
Liberty TripAdvisor Write-Ups
- Return on (re)Invested Capital | TripAdvisor Case Study (February 2020)
- About that LTRPA NAV-discount | Liberty TripAdvisor (August 2020)
LTRPA Net Asset Value per Share
Liberty TripAdvisor Valuation Model
I’ve made a simple model that tracks the NAV per share based on the price of TripAdvisor stock and the Accretion Factor of the Preferred Stock:
Click this link to access the Liberty TripAdvisor Google Sheet.
Background
Liberty TripAdvisor came into existence in 2014, when it was spun out of John Malone’s Liberty Interactive. In the spin-off Liberty TripAdvisor received the 23% stake (58% of votes) of TripAdvisor, 100% ownership of a small company called BuySeasons.
Prior to the spinoff, Liberty TripAdvisor took out a margin loan of 400 million, against a collateral in TripAdvisor shares. Subsequently, the company paid a $350 million dividend to Liberty Interactive, retaining the remaining $50 million. At the time, the value of the TripAdvisor stake was around $2.65 billion, so the implied loan to value ratio was about 15%.
The Underlying Asset: TripAdvisor
The story of TripAdvisor since becoming a public company is starting to read like a Greek tragedy. As I have written about previously, TripAdvisor went from 29% operating margin when it was spun out of Expedia in 2011, to a current operating margin of about 8%. The company now faces downstream pressure from Google. At the same time, TripAdvisor has been totally outmanoeuvred by Booking Holdings, which is now, by far, the most dominant OTA.
As a result of the above, TripAdvisor stock has experienced a slow but steady decline from it’s all time high of $110 per share in 2014. By the end of 2019, the stock hovered around $30 per share. The company did pay out a special dividend of $3.50 per share in November 2019, but until that time, the company had reinvested all its earnings back into the business.
TripAdvisor’s situation became even more precarious as the Coronavirus has swept over the glove, putting the tourism industry into an unprecedented standstill. Although it is hard to estimate at this time how hard the blow will be to TripAdvisor’s operations, the damage will be severe. TripAdvisor stock is currently down 40% year to date, after having been down 52% at its lowest during the year.
The Special Situation
As the market value of the TripAdvisor stock deteriorated, the loan to value ratio of the Liberty TripAdvisor margin loan rose. In 2016, the company refinanced a part of its margin loan by borrowing $259 million against a Variable Postpaid Forward transaction. At the end of 2018, margin loan obligation totaled 220 million and the VPF $267 million, or $487 million in total.
During 2019, Liberty TripAdvisor got busy. As was mentioned above, TripAdvisor paid out a special dividend of $3.50 per share in the fourth quarter of 2019. It was the first time that TripAdvisor paid a dividend since becoming a public company. I think it is safe to assume that the primary reason for the dividend was Liberty TripAdvisor’s need for cash. That should not come as much of a surprise, since Greg Maffai is the chairman of TripAdvisor and Liberty TripAdvisor controls 58% of the votes.
Liberty TripAdvisor used the cash it received from the special dividend to pay off the VPF obligation. Earlier in 2019, the company had made certain amendments to the margin loans. As a result, at the end of 2019, Liberty TripAdvisor owed an outstanding amount of $355 million in margin loans, bearing 3.225% interest rate.