Tripadvisor, Inc. Form 10-Q Summary
Business context and reporting period
Tripadvisor is an online travel company providing travel content, price comparison, advertising, reservations and related services across hotels, experiences, restaurants, rentals and other travel categories. The filing covers the quarter and six months ended June 30, 2019, compared with the corresponding 2018 periods. Beginning in 2019, the company reported two operating segments: Hotels, Media & Platform and Experiences & Dining, with prior-period segment data reclassified for comparability.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $422 million, down 3% | $798 million, down 2% |
| Operating income | $66 million, up 35%; 15.6% margin | $96 million, up 35%; 12.0% margin |
| Net income | $34 million, up 6%; 8.1% margin | $60 million, up 67%; 7.5% margin |
| Adjusted EBITDA | $128 million, up 17%; 30.3% margin | $217 million, up 15%; 27.2% margin |
| Diluted EPS | $0.24, versus $0.23 | $0.43, versus $0.26 |
| Cash flow from operations | Not separately provided | $363 million, versus $360 million |
- Hotels, Media & Platform revenue was $254 million in the quarter and $508 million year to date, down 7% and 3%, respectively. Segment Adjusted EBITDA increased 27% to $108 million in the quarter and 31% to $212 million year to date.
- Experiences & Dining revenue increased 28% to $125 million in the quarter and $206 million year to date. Adjusted EBITDA declined to $7 million in the quarter from $16 million and to negative $17 million year to date from positive $12 million, reflecting increased product, supply, personnel and marketing investment.
- Other revenue declined 32% to $43 million in the quarter and 33% to $84 million year to date, primarily due to elimination of marginal or unprofitable revenue and strategic resource reallocation.
- Cash, cash equivalents and short-term marketable securities totaled $966 million at June 30, 2019, including $901 million of cash and cash equivalents and $65 million of short-term securities, versus $670 million at December 31, 2018.
- Total assets were $2.566 billion and total liabilities were $991 million at June 30, 2019. Accounts receivable and contract assets increased to $270 million from $212 million at year-end, while deferred merchant payables increased to $346 million from $164 million.
- The company had no borrowings under its $1.2 billion unsecured revolving credit facility or its Chinese credit facilities. Approximately $1.2 billion of capacity remained available under the principal facility and approximately $40 million under the Chinese facilities. The company was in compliance with its debt covenants.
- Capital expenditures were $38 million year to date, compared with $31 million in 2018. Investing cash outflow was $87 million, while financing cash outflow was $28 million.
Material changes versus the prior comparable period
- Revenue declined modestly, but profitability improved materially because selling and marketing expense decreased 17% in the quarter and 14% year to date, principally from reduced SEM and other paid traffic-acquisition spending.
- Hotels, Media & Platform hotel revenue fell 9% in the quarter and 4% year to date, reflecting fewer hotel shoppers, reduced metasearch auction revenue, foreign exchange effects and search-engine competition. Revenue per hotel shopper increased, partly offsetting lower traffic.
- Experiences & Dining continued to grow rapidly, with revenue up 28% in both reported periods, but margins contracted as management increased investments in product, supply, staffing and marketing.
- Technology and content expense increased 9% in the quarter and 10% year to date, primarily from additional headcount and investment in Experiences & Dining.
- The effective tax rate increased to 50.0% in the quarter from 23.8%, principally because of a $15 million cumulative tax expense related to the Ninth Circuit decision in the Altera stock-based compensation cost-sharing litigation. The year-to-date effective tax rate was 40.6%, versus 42.9%.
- The company adopted ASC 842 lease accounting on January 1, 2019. The adoption added right-of-use assets and lease liabilities and resulted in a $3 million cumulative-effect increase to retained earnings, without a material impact on quarterly operating income or cash flow.
- No shares were repurchased in 2019 through June 30. The company had $150 million remaining under its authorized repurchase program.
Guidance, outlook, commentary and risks
- The filing does not provide specific quantitative full-year revenue, earnings or margin guidance. Management expects seasonally stronger performance in the second and third quarters, although future seasonality could differ because of business mix or economic conditions.
- Management’s strategy is to improve the consumer experience, deepen engagement, expand bookable supply and develop additional media advertising products. Hotels, Media & Platform is operated with a profit focus, while Experiences & Dining is prioritized for longer-term revenue growth rather than near-term margin expansion.
- Management expects continued investment in Experiences & Dining and technology. The company also intends to develop native, video and programmatic advertising opportunities while prioritizing user experience over maximizing short-term advertising impressions.
- Key risks include dependence on search engines and application marketplaces, competition from Google, Expedia, Booking and other travel platforms, mobile monetization challenges, reliance on major advertising partners, foreign exchange volatility, seasonality, privacy and cybersecurity requirements, regulatory and tax changes, and economic weakness affecting discretionary travel spending.
- The IRS has proposed transfer-pricing adjustments for 2009 through 2011 that could increase worldwide income tax expense by an estimated $15 million to $20 million, excluding interest and penalties, if the IRS prevails. The company disagrees with the proposed adjustments.
- The company recorded the $15 million Altera-related tax expense but could recognize a future tax benefit if the Ninth Circuit decision is reversed. The filing states that the ultimate outcome remains uncertain.
- France enacted a 3% digital services tax retroactive to January 1, 2019. The company was assessing the financial impact at the filing date.
- Liberty TripAdvisor Holdings beneficially controlled approximately 57.4% of voting power, creating concentrated voting control and enabling the controlled-company governance exemption under Nasdaq rules.
Important facts for investors to verify
- Whether hotel shopper traffic, SEO performance and metasearch revenue per shopper improve or deteriorate in subsequent quarters.
- Whether Experiences & Dining revenue growth can continue while investments moderate the segment’s losses and restore positive Adjusted EBITDA.
- The sustainability of cost reductions in paid marketing and whether they impair long-term traffic, bookings or brand engagement.
- The outcome and financial exposure from the IRS transfer-pricing audit and the Altera litigation-related tax matter.
- The financial effect of France’s digital services tax and other international tax-law changes.
- Changes in cash balances, deferred merchant payables and working capital as seasonal booking and supplier-payment patterns reverse in the second half of the year.
- Reliance on major advertising partners, search engines and competing travel platforms, including the combined 37% of 2018 revenue attributed to Expedia and Booking.
- Foreign exchange, Brexit-related operating uncertainty, privacy and cybersecurity developments, and other regulatory or legal contingencies.