Tripadvisor, Inc. 2016 Form 10-K Summary
Business context and reporting period
Tripadvisor operates online travel and media platforms, including TripAdvisor, Viator, TheFork and vacation-rental brands. Its platform aggregates user-generated travel content and provides travel search, advertising, price comparison and booking services. The filing covers the fiscal year ended December 31, 2016; it is not a quarterly filing, although fourth-quarter information is included.
- Reportable segments: Hotel and Non-Hotel.
- Nearly 390 million average monthly unique visitors during the 2016 seasonal peak and approximately 465 million reviews and opinions at year-end.
- Hotel represented 80% of consolidated revenue; Non-Hotel represented 20%.
Financial performance and liquidity
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $1,480 million | $1,492 million | Down 1% |
| Operating income | $166 million | $232 million | Down 28% |
| Net income | $120 million | $198 million | Down 39% |
| Diluted EPS | $0.82 | $1.36 | Down 40% |
| Adjusted EBITDA | $352 million | $466 million | Down 24% |
| Operating cash flow | $321 million | $418 million | Down 23% |
| Capital expenditures | $72 million | $109 million | Down 34% |
- Approximate margins: operating margin 11.2%, net margin 8.1%, and Adjusted EBITDA margin 23.8%.
- Hotel revenue was $1,190 million, down 6%; Non-Hotel revenue was $290 million, up 27%.
- TripAdvisor-branded click-based and transaction revenue declined 10% to $750 million. Display-based and subscription revenue rose 4% to $282 million.
- Average monthly unique hotel shoppers increased 6%, but revenue per hotel shopper declined 15% to approximately $0.46.
- Cash, cash equivalents and short- and long-term marketable securities totaled $746 million at year-end, including $612 million of cash and cash equivalents.
- Total debt was approximately $171 million, consisting of $80 million of short-term debt and $91 million of long-term debt. The company had approximately $906 million of unused capacity under its $1 billion 2015 revolving credit facility.
- Working capital was $527 million and stockholders’ equity was $1.502 billion.
Material changes versus the prior comparable period
- Revenue declined modestly because growth in Non-Hotel businesses did not offset weakness in the Hotel segment.
- Profitability deteriorated substantially as selling and marketing expense increased to $756 million, or 51.1% of revenue, while technology and content expense rose to $243 million.
- Online traffic acquisition costs increased by approximately $79 million, partly offset by the elimination of $51 million of television advertising expense incurred in 2015.
- General and administrative expense fell $67 million, primarily because the $67 million non-cash charitable contribution recorded in 2015 did not recur.
- Instant booking was rolled out globally during the first half of 2016. Management stated that it monetized at a lower rate than metasearch and diluted Hotel revenue growth and revenue per hotel shopper.
- Mobile phone traffic continued to grow faster than desktop and tablet traffic, but mobile users generated lower monetization.
- International revenue declined 9% to $650 million and represented 44% of total revenue versus 48% in 2015, reflecting foreign currency effects and the international instant-booking rollout.
- The company completed five acquisitions for total purchase consideration of $34 million and made $14 million of cost-method investments in privately held companies.
- The company repurchased 2.0 million shares for $105 million during 2016 and authorized a new $250 million repurchase program on January 25, 2017.
Outlook, commentary, risks and unusual items
- Management emphasized improving the end-to-end hotel shopping and booking experience, increasing bookable supply, expanding mobile engagement and growing Attractions, Restaurants and Vacation Rentals.
- No specific quantitative revenue or earnings guidance is provided in the filing.
- Key risks include dependence on advertising and a concentrated partner base: Expedia and Priceline together accounted for 46% of consolidated revenue in 2016.
- Changes to search-engine algorithms, higher traffic-acquisition costs, competition from OTAs and search platforms, and potential partner termination could materially affect traffic and revenue.
- Instant booking carries lower current monetization than metasearch, and consumption-model revenue is recognized when a stay is completed, creating potential timing differences.
- The company faces mobile monetization challenges, foreign-currency exposure, macroeconomic and geopolitical risks, Brexit-related uncertainty, privacy and cybersecurity risks, and evolving regulation of online travel and vacation rentals.
- In January 2017, the IRS proposed transfer-pricing adjustments for 2009 and 2010 that could increase worldwide income tax expense by an estimated $10 million to $14 million, excluding interest and penalties. The company disagrees and intends to contest the adjustments.
- Unrecognized tax benefits, including interest, totaled $108 million at year-end. Foreign earnings of approximately $828 million were considered indefinitely reinvested.
- The company reported no goodwill or indefinite-lived intangible-asset impairment in 2016. The 2016 results included $85 million of stock-based compensation expense.
- LTRIP held approximately 56.4% of voting power through its Class B shares, giving it effective control over most stockholder matters. Tripadvisor relies on the NASDAQ controlled-company exemptions.
- The company has never paid dividends and does not expect to do so for the foreseeable future.
Important facts for investors to verify
- Whether Hotel revenue per shopper and click-based revenue recover after the global instant-booking rollout.
- Whether Non-Hotel revenue growth can continue while the segment remains loss-making on an Adjusted EBITDA basis, at negative $28 million in 2016.
- Trends in mobile monetization, paid traffic-acquisition costs and search-engine traffic dependence.
- The concentration and contractual durability of Expedia and Priceline revenue relationships.
- The outcome of the IRS transfer-pricing audit and any related tax-sharing obligations to Expedia.
- Liquidity, debt maturity and covenant compliance, including the short-term $73 million borrowing under the 2016 Credit Facility.
- The effect of the new $250 million share-repurchase authorization on cash balances, leverage and share count.
- Future accounting effects from adoption of the revenue-recognition and lease standards scheduled for 2018 and later periods.