2 Very Different Market Reactions to Priceline and TripAdvisor's Strong Quarters

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In this Motley Fool Money podcast segment, host Chris Hill, Million Dollar Portfolio's Jason Moser, and Total Income's Ron Gross discuss the online travel agencies' earnings results, which were solid, and their outlooks, which were less than some investors were hoping for. But Priceline's (NASDAQ: PCLN) shares had been pushed to a fairly heady valuation in the past year, while TripAdvisor's (NASDAQ: TRIP) had been declining, which gave them a different jumping-off point. But going beyond the matter of stock price, how are these two companies faring, and where do they go from here?

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A full transcript follows the video.

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This video was recorded on Aug. 11, 2017.

Chris Hill: Priceline and TripAdvisor both reporting strong second-quarter profits this week. Ron, Priceline's stock taking a hit, though.

Ron Gross: Took a hit, but it's a really strong report. If this was a private company, if you were the owner of 100% of this company, you'd be awfully happy with the performance here, with revenue up 18% and net income up 20%. You'd be thrilled, but that's not how it works in the public-markets game. It's all about expectations, as we like to talk about. 

And guidance going forward was just a bit too weak for investors, and they decided to sell off the stock. And that's what happens when you get a company that's trading at 40 times, 50 times earnings. The growth expectations have to move into the future years. Otherwise, investors say, "Now it's no longer worth it." So gross bookings guidance was weak, hotel room nights booking was weak, and that led to net income guidance being weak and people said, "OK, I'm out of here." But in a vacuum, forgetting about the stock for a second, I think the company put up a really solid quarter.

Hill: Over the past year, Priceline shares up 30% even with the drop this week. Not the same story, Jason, with TripAdvisor. That stock has really taken a hit over the last year. And it was interesting, because immediately after the report, TripAdvisor shares were down as well, and I think it took Wall Street a couple of hours to figure out that things might actually be a little brighter for TripAdvisor once they really dug into their latest report.

Jason Moser: Yeah. This, to me, was the most interesting earnings reaction of earnings season so far, because right after the report hit, just after the market closed, the stock was up 8.5%. The following day, the bottom fell out; it was down 8.5%. But by the end of trading that day, the stock finished up 2.5%, and it's had another wonderful Friday. So, really finished the week on a bright note there. And I think that makes a lot of sense, because when I initially looked at this release when it came out, everything actually looked really good. All the engagement numbers lead us to believe that this is a platform that continues to become more engaging, not less. And really, that's the crux of why you would invest in TripAdvisor to begin with. It's a platform that offers a lot of value for travelers. 

So I think, perhaps there was some cautious guidance here for the rest of the year, but that wasn't a secret. They got that out there last quarter as well. The move to mobile, it's going well, but it doesn't monetize quite as well, so I think there's going to be a little bit more time before we see that trickle down to the bottom line. But again, this is a good business, and if you look at the non-hotel segment that focuses on attractions, restaurants, and vacation rentals, that was up 31% for the quarter. To me, that represents a tremendous opportunity for TripAdvisor, because I think that's really where this platform offers the most value, speaking as a user. The non-hotel segment is just a really great part of that platform. So, plenty to be optimistic about. It's going to take them a little while to get through this instant-booking blunder, so to speak, but still a bright future, I think, for this company.

Gross: Interesting to see the company took advantage of the relatively weak stock to buy back $100 million worth of stock during the quarter to complete their whole repurchase program of $250 million. We'll see if that ends up being a good capital-allocation decision, but I think perhaps it might.

Moser: They finished that authorization in, I think, record time, which was impressive. I think CEO Stephen Kaufer realized that the stock has been subject to a lot of pessimism lately. I hope that does prove to be a good use of those dollars.

Chris Hill has no position in any stocks mentioned. Jason Moser owns shares of TripAdvisor. Ron Gross has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group and TripAdvisor. The Motley Fool has a disclosure policy.