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TripAdvisor Adds Two New Risk Factors
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TripAdvisor Adds Two New Risk Factors

Shares of online travel company TripAdvisor, Inc. (TRIP) have dropped as much as 16% to $30.91 after its weaker-than-expected Q3 performance earlier this week. Even though the company’s top line remained robust, it failed to impress the market.

With this in mind, let us look at the changes in TRIP’s key risk factors that investors should know.

Risk Factors

According to the TipRanks’ Risk Factors tool, TRIP’s top risk category is Finance & Corporate, which accounts for 34% of the total 44 risks identified. In its recent third-quarter report, the company has added two key risks under the Finance & Corporate risk category.

In its first newly added risk, TRIP highlights challenges associated with its 2026 senior notes. The new accounting guidance adopted by TRIP in the first quarter of 2021 requires a company to use the if-converted method in the calculation of diluted earnings per share for convertible instruments. This method may reduce TRIP’s reported diluted earnings per share.

The company adds that if any of the conditions in the conversion of these notes are satisfied then TRIP may have to reclassify the liability carrying value as a current instead of long-term liability. Such a scenario could substantially decrease the company’s reported working capital.

In the second risk factor, TRIP notes the risks associated with the capped calls it entered to decrease the potential dilution to its common shares. The risk remains that any of the hedge counterparties may default under the capped call.

If any of these parties become subject to insolvency proceedings then TRIP will become an unsecured creditor. Such an event may also result in negative tax consequences for TRIP, along with more stock dilution than it currently anticipates. (See Insiders’ Hot Stocks on TipRanks)

Wall Street’s Take

On November 10, Truist Financial analyst Naved Khan reiterated a Buy rating on the stock but decreased the price target to $60 from $66, which implies upside potential of 93.6%.

The analyst noted that TRIP lagged expectations owing to an uneven recovery in the travel market. Nonetheless, its business segments displayed a robust rebound, which indicates the appeal of the platform.

Additionally, Khan sees strong growth in 2022 due to higher vaccination rates coupled with rising international travel.

Consensus on the Street is a Hold based on 6 Buys, 4 Holds and 3 Sells. At the time of writing, the average TripAdvisor price target was $40.08, which implies upside potential of 28.26%. Despite the recent downtrend, shares are up 15.2% so far this year.

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