Tripadvisor, Inc. 2013 Q2 Form 10-Q Summary
Business context and reporting period
Tripadvisor operates an online travel research and advertising platform, including TripAdvisor and 20 other travel media brands. Revenue is primarily generated from click-based and display advertising, with additional subscription, transaction and content-licensing revenue. The unaudited report covers the three and six months ended June 30, 2013, compared with the corresponding 2012 periods.
The company reported more than 220 million monthly unique visitors, over 100 million reviews and approximately 53 million marketable members during the quarter. It had 1,799 employees at June 30, 2013 and one reportable segment.
Financial performance and key metrics
| Metric | Q2 2013 | Q2 2012 | Change | Six months 2013 | Six months 2012 |
|---|---|---|---|---|---|
| Total revenue | $246.9 million | $197.1 million | 25% | $476.9 million | $380.9 million |
| Operating income | $94.1 million | $83.7 million | 12% | $182.4 million | $157.1 million |
| Net income attributable to Tripadvisor | $67.0 million | $53.0 million | 26% | $129.3 million | $101.1 million |
| Diluted EPS | $0.46 | $0.37 | 24% | $0.89 | $0.73 |
| Adjusted EBITDA | $112.8 million | $96.9 million | 16% | $222.2 million | $181.1 million |
| Operating margin | 38.1% | 42.4% | Down 430 bps | 38.3% | 41.2% |
| Net margin | 27.1% | 26.9% | Up 20 bps | 27.1% | 26.6% |
Six-month revenue consisted of approximately $362 million from click-based advertising, $56 million from display advertising and $59 million from subscription, transaction and other revenue. Click-based advertising represented 74% of Q2 revenue and 76% of six-month revenue.
- Hotel shoppers increased 41% year over year in both Q2 and the first six months.
- Revenue per hotel shopper declined 16% in Q2 and 13% for the six-month period, primarily because of the transition to hotel metasearch, lower smartphone monetization and growth in lower-monetizing international markets.
- Display impressions increased 32% in Q2 and 24% for the first six months, while pricing declined 11% and 8%, respectively.
- Subscription, transaction and other revenue increased 68% in Q2 and 60% for the first six months, primarily due to Business Listings growth.
- International revenue represented 49% of total revenue in both reported 2013 periods. APAC revenue grew 55% in Q2 and 57% for the first six months.
Cash flow, liquidity and capital structure
| Six-month cash flow metric | 2013 | 2012 |
|---|---|---|
| Cash provided by operating activities | $133.3 million | $91.5 million |
| Cash used in investing activities | $(256.4) million | $(6.2) million |
| Cash provided by/(used in) financing activities | $(42.6) million | $212.4 million |
| Ending cash and cash equivalents | $200.1 million | $478.2 million |
- Cash, cash equivalents and marketable securities totaled approximately $616.0 million at June 30, 2013, compared with $585.7 million at December 31, 2012.
- Cash declined primarily because the company invested $202 million net in marketable securities, paid $31.6 million for acquisitions, repurchased $34.1 million of common stock and made debt repayments.
- Total debt was approximately $384.6 million, consisting of $360.0 million under the term loan and $24.6 million of Chinese credit facilities. No revolving credit facility borrowings were outstanding.
- The term loan requires $20.0 million of remaining 2013 principal payments, $40.0 million in 2014, $40.0 million in 2015 and $260.0 million in 2016.
- Management stated that liquidity, expected operating cash flow and available credit were sufficient for at least the next 12 months, subject to continued cash generation and access to capital.
Material changes versus the prior comparable period
- Revenue increased 25% in both Q2 and the first six months, but operating income grew more slowly because selling and marketing, technology and content, and general and administrative expenses increased 29%, 48% and 40%, respectively, in Q2.
- Technology and content expense increased primarily from additional personnel, international expansion, mobile development and hotel metasearch investment. Stock-based compensation increased to $10.2 million in Q2 and $23.8 million for the first six months.
- The effective tax rate decreased to 25.5% in Q2 and 25.8% for the first six months, from 30.7% and 31.5%, respectively, primarily because of increased foreign earnings and a prior-year international restructuring.
- Expedia-related revenue was $54.3 million in Q2 and $114.8 million for the first six months, representing 22.0% and 24.1% of total revenue. The Q2 amount declined 3% year over year, while the six-month amount increased 7%.
- The company completed five acquisitions for $31.6 million of cash consideration, including Jetsetter, CruiseWise, Niumba, GateGuru and TinyPost. Preliminary purchase accounting recorded $34.1 million of goodwill and $16.9 million of identifiable intangible assets.
- Tripadvisor repurchased 675,000 shares for $42.4 million during the first six months and had $207.6 million remaining under its $250 million authorization.
Guidance, outlook, risks and unusual items
- The filing does not provide formal revenue or earnings guidance. Management expected the lower user-conversion trend associated with hotel metasearch to continue and negatively affect revenue growth through the balance of 2013.
- Management identified mobile, social, international expansion, metasearch, Vacation Rentals, Business Listings and acquisitions as key growth areas. Smartphone and tablet monthly unique visitors increased 216% year over year to 79 million in Q2, but smartphone monetization was less than 20% of desktop monetization during the six months.
- Travel advertising is seasonal; the third quarter is historically strongest and the fourth quarter weakest. Economic weakness, particularly in Europe, may affect travel spending and advertising demand.
- Key risks include intense competition from search companies and online travel agencies, dependence on click-based advertising and advertiser pricing, lower mobile monetization, international and China operating losses, foreign exchange exposure, and reliance on Expedia-related revenue.
- Tripadvisor entered into a 15-year, seven-month lease for a new approximately 280,000-square-foot headquarters. Future minimum payments under the lease were $143.5 million, beginning in November 2015; total operating lease commitments were approximately $170.6 million.
- Management believed it was in compliance with debt covenants. Legal proceedings were described as ordinary-course matters, but management noted that unknown or threatened claims could adversely affect the company.
Important facts for investors to verify
- Whether metasearch improves long-term conversion and pricing enough to offset lower lead volumes.
- Trends in hotel shoppers, revenue per hotel shopper, mobile monetization and advertiser CPC pricing.
- The sustainability of expense growth, particularly technology, content, selling and marketing, and stock-based compensation.
- Expedia-related revenue concentration and the terms of continuing commercial agreements.
- Cash deployment into marketable securities, acquisitions, share repurchases and required debt repayments.
- Compliance with debt covenants and the ability to refinance or repay the large 2016 term-loan maturity.
- The financial impact of the new headquarters lease and anticipated leasehold improvements.