TripAdvisor, Inc. 2017 Form 10-K Summary
Business context and reporting period
TripAdvisor operates a global online travel platform spanning hotel metasearch and advertising, attractions, restaurants, and vacation rentals. The filing covers the fiscal year ended December 31, 2017, with comparative results for 2016 and 2015. The company reported two segments: Hotel and Non-Hotel.
- TripAdvisor reported approximately 455 million average monthly unique visitors at its 2017 seasonal peak, approximately 600 million reviews and opinions, and listings for approximately 7.5 million places.
- Hotel represented 77% of 2017 revenue; Non-Hotel represented 23%.
- Revenue concentration remained significant: Expedia and Priceline together contributed approximately 43% of consolidated revenue, and each individually exceeded 10%.
Financial performance and key metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $1,556 million | $1,480 million | Up 5% |
| Operating income | $124 million | $166 million | Down 25% |
| Operating margin | 8.0% | 11.2% | Down 3.2 percentage points |
| Income before taxes | $110 million | $151 million | Down 27% |
| Net income (loss) | $(19) million | $120 million | Declined to a loss |
| Diluted EPS | $(0.14) | $0.82 | Declined |
| Adjusted EBITDA | $331 million | $352 million | Down 6% |
| Adjusted EBITDA margin | 21.3% | 23.8% | Down 2.5 percentage points |
| Operating cash flow | $238 million | $321 million | Down 26% |
| Capital expenditures | $64 million | $72 million | Down 11% |
- Hotel revenue increased 1% to $1,196 million. Hotel adjusted EBITDA declined 25% to $286 million, and segment margin fell to 24% from 32%.
- Non-Hotel revenue increased 24% to $360 million. Non-Hotel adjusted EBITDA improved to $45 million from a $28 million loss, and segment margin reached 13%.
- TripAdvisor-branded click-based and transaction revenue increased 1% to $756 million. Average monthly hotel shoppers increased 7%, but revenue per hotel shopper declined 7% to $0.43.
- Selling and marketing expense increased 12% to $849 million, including $74 million for the 2017 television campaign. Total advertising expense was approximately $629 million.
- Cash, cash equivalents, and short- and long-term marketable securities totaled $735 million at year-end, compared with $746 million in 2016. Working capital was $621 million.
- Year-end debt totaled $237 million, consisting of $230 million under the 2015 Credit Facility and $7 million under a Chinese credit facility. Approximately $967 million remained available under the 2015 facility, and the company was in compliance with its covenants.
Material changes versus the prior comparable period
- Revenue growth accelerated modestly, driven primarily by the Non-Hotel segment, especially Attractions and Restaurants.
- Hotel monetization weakened: hotel shoppers grew, but lower partner cost-per-click bids, increased mobile usage, product testing, and lower mobile conversion reduced revenue per shopper.
- Profitability declined because of the television campaign and higher online traffic acquisition costs. The company funded part of the television campaign by optimizing online marketing spend.
- Operating cash flow fell by $83 million, primarily because of lower net income and working-capital timing.
- The company repurchased 6.1 million shares for $250 million in 2017 and ended the year with $447 million of treasury stock at cost.
- At December 31, 2017, the company held 9.5 million treasury shares. A new authorization for up to $250 million of repurchases was approved on January 31, 2018.
Guidance, outlook, risks, contingencies, and unusual items
- The filing does not provide formal revenue or earnings guidance. Management expected 2018 capital expenditures to be comparable to 2017 levels and stated that available liquidity and expected operating cash flow should fund foreseeable needs for at least the next twelve months.
- Management’s strategy emphasizes improving the hotel shopping experience, increasing mobile engagement, expanding bookable Attractions and Restaurants supply, improving Vacation Rentals monetization, and balancing brand advertising with performance marketing.
- Mobile traffic is growing faster than desktop and tablet traffic but monetizes at a materially lower rate, creating a continuing revenue-per-shopper headwind.
- The 2017 Tax Act produced $73 million of tax expense: $67 million of provisional Transition Tax and $6 million from deferred-tax remeasurement. The resulting effective tax rate was 117.3%, versus 20.5% in 2016. The tax accounting remained provisional under SAB 118.
- Fourth-quarter 2017 net loss was $84 million, including the $67 million Transition Tax and $6 million deferred-tax remeasurement.
- The company had $123 million of gross unrecognized tax benefits, including accrued interest, and disclosed proposed IRS transfer-pricing adjustments estimated at $10 million to $14 million for 2009 and 2010, excluding interest and penalties.
- Foreign subsidiaries held approximately $882 million of cumulative undistributed earnings at year-end. On February 2, 2018, the company repatriated $325 million and subsequently repaid its remaining 2015 Credit Facility borrowings.
- Key risks include dependence on search engines and application marketplaces, intense competition from OTAs and large technology platforms, reliance on Expedia and Priceline, lower mobile monetization, cybersecurity and privacy exposure, foreign exchange volatility, regulatory changes including GDPR and vacation-rental rules, tax audits, and Liberty TripAdvisor Holdings’ control of approximately 57.5% of voting power.
- Material commitments included approximately $228 million of net property-lease commitments and $34 million of estimated interest and commitment fees on the 2015 Credit Facility. The company also reported an $84 million financing obligation related to its headquarters lease.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective.
Most important facts for investors to verify
- Whether Non-Hotel growth can offset slowing Hotel monetization and declining revenue per hotel shopper.
- The sustainability and return on investment of television and other brand-marketing spending.
- Mobile conversion, CPC bidding trends, and revenue per hotel shopper.
- The final accounting and cash-payment schedule for the 2017 Tax Act, including the Transition Tax.
- Outcomes of the IRS transfer-pricing and other tax audits, including potential interest and penalties.
- The effect of the February 2018 debt repayment and foreign-earnings repatriation on future interest expense, liquidity, and tax costs.
- Revenue concentration and contract termination risk involving Expedia, Priceline, and other major advertising partners.
- Use of the new $250 million share-repurchase authorization and its impact on liquidity and share count.