Tripadvisor, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Tripadvisor operates a global travel guidance and online reservation platform covering accommodations, travel activities and experiences, restaurants, and related advertising and booking services. The unaudited report covers the three and nine months ended September 30, 2022, compared with the same periods in 2021. Reportable segments are Tripadvisor Core, Viator, and TheFork.
Management reported continued recovery in travel demand and stated that consolidated third-quarter 2022 revenue exceeded the comparable 2019 level. Average monthly unique users on Tripadvisor-branded websites were approximately 82% of the comparable 2019 level, versus approximately 76% in Q3 2021.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $459 million | $303 million | $1,138 million | $661 million |
| Revenue growth | 51% | — | 72% | — |
| Operating income (loss) | $70 million | $16 million | $113 million | $(103) million |
| Net income (loss) | $25 million | $1 million | $22 million | $(119) million |
| Net income (loss) margin | 5.4% | 0.3% | 1.9% | (18.0)% |
| Adjusted EBITDA | $115 million | $72 million | $252 million | $71 million |
| Adjusted EBITDA margin | 25.1% | 23.8% | 22.1% | 10.7% |
| Operating cash flow | Not separately provided | Not separately provided | $440 million | $43 million |
| Capital expenditures | Not separately provided | Not separately provided | $41 million | $40 million |
Q3 revenue growth was primarily driven by travel recovery, easing restrictions, increased hotel auction activity, and strong Viator experiences demand. Foreign currency movements negatively affected consolidated revenue by an estimated $34 million in Q3 and $62 million for the first nine months.
Segment performance
| Segment | Q3 2022 revenue | Q3 growth | Q3 Adjusted EBITDA | 9M 2022 revenue | 9M growth |
|---|---|---|---|---|---|
| Tripadvisor Core | $284 million | 34% | $112 million | $749 million | 49% |
| Viator | $174 million | 138% | $12 million | $366 million | 193% |
| TheFork | $35 million | 17% | $(9) million | $93 million | 69% |
- Tripadvisor Core hotel revenue increased 31% in Q3 and 47% for the first nine months, primarily from hotel auction revenue.
- Tripadvisor experiences and dining revenue increased 96% in Q3 and 98% for the first nine months, primarily from experiences.
- Viator revenue reached approximately 179% of the comparable 2019 Q3 level, reflecting strong demand for tours and activities.
- TheFork revenue slightly exceeded the comparable 2019 Q3 level, but the segment remained unprofitable as the company increased marketing and technology investment.
Margins, expenses, and material changes
- Total costs and expenses increased 36% in Q3 and 34% for the first nine months, versus revenue growth of 51% and 72%, respectively.
- Selling and marketing expense increased 58% in Q3 and 72% for the first nine months. The principal driver was higher search-engine marketing, paid traffic acquisition, and other marketing investment in Tripadvisor Core and Viator.
- Technology and content expense increased 6% in Q3 but only 1% for the first nine months. As a percentage of revenue, it declined to 12.0% in Q3 from 17.2%.
- Depreciation and amortization declined 15% in Q3 and 14% for the first nine months, primarily due to completion of amortization on certain acquired intangibles and capitalized website development costs.
- Stock-based compensation was $22 million in Q3 and $65 million for the first nine months, compared with $29 million and $89 million, respectively, in the prior-year periods.
- The effective tax rate was 59.7% in Q3 and 73.5% for the first nine months, compared with 66.7% and 13.8% in the comparable 2021 periods.
Cash flow, liquidity, and debt
- Cash and cash equivalents were $1.066 billion at September 30, 2022, up from $723 million at December 31, 2021.
- Operating cash flow was $440 million for the first nine months, compared with $43 million in 2021. The increase reflected improved earnings, working-capital changes, a $64 million CARES Act tax refund, and higher deferred merchant payables associated with increased bookings.
- Capital expenditures were $41 million, and net cash used in investing activities was $37 million.
- Long-term debt had a carrying value of $836 million, consisting of $500 million principal of 7.0% 2025 Senior Notes and $345 million principal of 0.25% convertible 2026 Senior Notes.
- The company had no borrowings under its $500 million revolving Credit Facility and approximately $496 million of available borrowing capacity, net of issued standby letters of credit.
- The company remained in the Credit Facility leverage-covenant holiday and reported compliance with applicable covenants. The facility matures May 12, 2024.
- The company stated that available cash and cash equivalents should fund foreseeable working capital, capital expenditures, growth initiatives, debt and interest obligations, leases, and other commitments for at least the next twelve months.
Guidance, outlook, risks, contingencies, and unusual items
- No specific quantitative revenue or earnings guidance is provided in the filing.
- Management expects to continue investing in marketing, technology, machine learning, consumer engagement, Viator growth, TheFork payment capabilities, and potentially strategic acquisitions.
- COVID-19 remains a material uncertainty. New variants, renewed travel restrictions, cancellations, lower discretionary spending, or weaker travel demand could materially affect revenue, liquidity, working capital, and financial results.
- Other identified risks include inflation, recessionary conditions, geopolitical conflict including the Russia-Ukraine conflict, foreign-currency volatility, increased competition, regulatory and data-privacy matters, and reliance on major travel partners.
- Expedia and Booking Holdings each represented at least 10% of 2021 consolidated revenue and together represented approximately 34% of 2021 revenue, creating customer-concentration risk.
- IRS transfer-pricing proposed adjustments could increase worldwide income tax expense by an estimated $90 million to $100 million, exclusive of significant interest and deferred-tax effects, if the IRS prevails. HMRC proposed adjustments could increase tax expense by an estimated $25 million to $35 million, also excluding interest and potential U.S. transition-tax effects. Tripadvisor disputes these matters.
- Unrecognized tax benefits were $205 million and accrued tax interest was $46 million at September 30, 2022.
- The company recognized $12 million of non-income-tax government assistance during the first nine months of 2022, including approximately $11 million benefiting TheFork in Q2.
- There were no material changes to commitments and contingencies, no material changes in risk factors from the 2021 Form 10-K, and no share repurchases during the quarter. The repurchase program had $75 million remaining authorization but was restricted by debt agreements.
- Liberty Tripadvisor Holdings beneficially controlled approximately 57% of voting power through its Class B ownership, although it held approximately 13% of outstanding common stock on an as-converted basis.
Most important facts for investors to verify
- Whether the post-pandemic travel recovery and Q3 revenue above 2019 levels persist amid recession, inflation, currency pressure, and potential COVID-19 resurgences.
- Whether higher marketing investment, particularly in Tripadvisor Core and Viator, produces sustainable incremental revenue and profitability.
- Viator’s path from rapid revenue growth and improved Q3 profitability to sustained positive full-year earnings and cash flow.
- TheFork’s ability to reduce recurring Adjusted EBITDA losses while funding product, payment, and customer-acquisition investments.
- The timing and potential cash impact of the IRS and HMRC transfer-pricing disputes, including interest and related tax effects.
- Debt maturities, convertible-note dilution of approximately 4.7 million shares at the initial conversion rate, and the company’s ability to maintain Credit Facility covenant compliance.
- The quality and sustainability of operating cash flow, including the effects of seasonal deferred merchant payables and the nonrecurring $64 million CARES Act tax refund.