TripAdvisor, Inc. — Q1 2016 Form 10-Q Summary
Business context and reporting period
TripAdvisor operates an online travel research and booking platform, with Hotel and Non-Hotel reportable segments. The filing covers the three months ended March 31, 2016, compared with the same period in 2015. The first quarter is generally a seasonal low point for the business. TripAdvisor reported 340 million average monthly unique visitors, 350 million reviews and opinions, and 3,108 employees at quarter-end.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $352 million | $363 million | Down 3% |
| Operating income | $42 million | $90 million | Down 53% |
| Net income | $27 million | $63 million | Down 57% |
| Diluted EPS | $0.18 | $0.43 | Down $0.25 |
| Adjusted EBITDA | $85 million | $127 million | Down 33% |
| Net cash from operations | $120 million | $99 million | Up 21% |
Operating margin declined to approximately 11.9% from 24.8%, net margin declined to approximately 7.7% from 17.4%, and Adjusted EBITDA margin declined to 24.1% from 35.0%. The effective tax rate increased to 28.9% from 26.7%. Stock-based compensation was $19 million, compared with $16 million in the prior-year quarter.
Hotel revenue declined 5% to $303 million, while Non-Hotel revenue increased 14% to $49 million. Hotel Adjusted EBITDA declined 20% to $106 million, with margin falling to 35% from 41%. Non-Hotel Adjusted EBITDA was a loss of $21 million, compared with a $5 million loss, reflecting investment in Attractions, Restaurants and Vacation Rentals.
Cash, cash equivalents and marketable securities totaled $709 million at March 31, 2016, including $653 million of cash and cash equivalents. Cash increased from $614 million at December 31, 2015. Capital expenditures were $17 million, compared with $31 million in Q1 2015. Financing cash outflows of $94 million primarily reflected a $90 million repayment under the 2015 Credit Facility.
Total debt was $111 million, consisting of $110 million of long-term debt and $1 million of short-term Chinese borrowings. The company had approximately $888 million of available capacity under its $1 billion revolving credit facility and approximately $49 million available under its Chinese facilities. Management stated that liquidity and expected operating cash flows should fund operations, capital expenditures, growth initiatives, debt obligations, lease obligations, share repurchases and potential acquisitions for at least the next twelve months. The company was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue declined despite a 13% increase in average monthly unique hotel shoppers, because revenue per hotel shopper declined 24% to $0.44 from $0.58.
- TripAdvisor-branded click-based and transaction revenue decreased 13% to $189 million, primarily following the expanded rollout of instant booking, which monetized at a lower rate than metasearch and click-based advertising.
- TripAdvisor-branded display-based advertising and subscription revenue increased 11% to $68 million, and other Hotel revenue increased 12% to $46 million.
- International revenue declined 11% to $161 million and represented 46% of total revenue, compared with 50% in the prior-year quarter. North American revenue increased 5%.
- Selling and marketing expense increased 10% to $172 million, technology and content expense increased 24% to $61 million, and general and administrative expense increased 12% to $37 million.
- Operating cash flow improved because of working-capital benefits, including increases in deferred merchant payables and deferred revenue, despite lower net income.
- The company repurchased 24,077 shares for approximately $1 million, leaving approximately $103 million authorized under the repurchase program.
Guidance, outlook, commentary and risks
The filing does not provide a clear quantitative revenue or earnings guidance range. Management emphasized continued investment in mobile products, international expansion, content, instant booking and Non-Hotel businesses. Mobile average monthly unique visitors grew 29% year over year, and mobile monetization remained below desktop and tablet monetization.
Management stated that instant booking had been substantially rolled out globally by March 31, 2016. The feature is intended to improve user experience and increase transactions, but its lower current monetization and consumption-based revenue recognition may reduce near-term revenue per hotel shopper and shift revenue recognition to the date of stay.
Key risks include dependence on advertising and a limited number of large partners, including Expedia and Priceline; competition from online travel agencies, search engines, Airbnb and other platforms; changes in search-engine algorithms; lower mobile monetization; foreign-exchange exposure; seasonality; privacy, data-security and regulatory requirements; intellectual-property and legal claims; and the ability to convert traffic into profitable bookings.
The company is subject to IRS and other tax audits, including matters involving transfer pricing for 2009 and 2010. It recorded a $1 million tax benefit during the quarter related to the Altera stock-based compensation cost-sharing matter. Foreign earnings and approximately $562 million of cash, cash equivalents and marketable securities held internationally were intended to remain invested outside the United States, and repatriation could create additional taxes.
There were no material changes to commitments and contingencies, no material off-balance-sheet arrangements, and no litigation matters that management believed were likely to have a material adverse effect. Management concluded that disclosure controls were effective and that no material changes occurred in internal control over financial reporting.
Important facts for investors to verify
- Whether instant booking can close its monetization gap with metasearch and whether consumption-based bookings create further revenue-recognition timing effects.
- Trends in revenue per hotel shopper, hotel shopper growth, mobile monetization and partner bidding activity.
- Whether the Hotel segment can recover revenue and Adjusted EBITDA margins while the company continues funding Non-Hotel growth initiatives.
- The outcome and potential financial exposure from IRS transfer-pricing audits, other tax examinations and the Altera-related tax position.
- Foreign-currency movements, international revenue trends and the tax consequences of repatriating foreign cash.
- Compliance with the 2015 Credit Facility’s leverage covenant and the company’s ability to maintain liquidity while repaying debt, investing and repurchasing shares.
- Reliance on major advertising partners, search engines and third-party systems, as well as exposure to privacy, cybersecurity, regulatory and intellectual-property claims.