TripAdvisor, Inc. Form 10-Q Summary
Business Context and Reporting Period
TripAdvisor operates a global online travel research and advertising platform, including TripAdvisor-branded websites in the United States and 36 other countries, plus 20 additional travel brands. Revenue is derived primarily from click-based and display advertising, with additional subscription, transaction, vacation-rental, business-listing and content-licensing revenue. The filing covers the unaudited three months ended March 31, 2014, compared with the three months ended March 31, 2013.
- Approximately 260 million average monthly unique visitors during the quarter.
- More than 150 million reviews and opinions, covering over 810,000 hotels and accommodations, approximately 600,000 vacation rentals, 2.2 million restaurants and 420,000 attractions.
- One operating and reportable segment.
Financial Performance and Liquidity
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $281 million | $230 million | 22% |
| Operating income | $96 million | $88 million | 9% |
| Net income | $68 million | $62 million | 10% |
| Diluted EPS | $0.47 | $0.43 | 9% |
| Adjusted EBITDA | $122 million | $109 million | 12% |
| Operating cash flow | $109 million | $44 million | 148% |
- Approximate operating margin was 34.2%, compared with 38.3% in the prior-year quarter; approximate net margin was 24.2%, compared with 27.0%.
- Revenue mix: click-based advertising $207 million, up 16%; display advertising $32 million, up 28%; subscription, transaction and other revenue $42 million, up 62%.
- International revenue was $135 million, or 48% of reported revenue based on the geographic table, and increased 25%; the filing separately states that international revenue represented 51% of total revenue, reflecting a different internal classification.
- Cash, cash equivalents and marketable securities totaled $745 million at March 31, 2014, including $319 million of cash and cash equivalents, $142 million of short-term securities and $284 million of long-term securities.
- Total borrowings were $361 million: $330 million under the term loan and $31 million under Chinese credit facilities. No revolving credit facility borrowings were outstanding.
- Capital expenditures were $20 million, and net cash used in investing activities was $127 million, primarily reflecting purchases of marketable securities.
- Cash declined by $32 million during the quarter to $319 million. Management stated that available liquidity, expected operating cash flow and credit facilities should fund working capital, capital expenditures, growth initiatives, debt obligations, lease obligations, share repurchases and potential acquisitions for at least the next twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by higher hotel shopper activity, improved revenue per hotel shopper, increased display impressions, and growth in Business Listings and Vacation Rentals.
- Hotel shoppers increased 14%, versus 37% growth in Q1 2013. Revenue per hotel shopper increased 1%, compared with a 10% decline in Q1 2013.
- Display impressions sold increased 30%, while pricing declined 1%.
- Total costs and expenses increased 30%, outpacing revenue growth. Selling and marketing increased 28%, technology and content increased 31%, and depreciation increased 67%.
- Operating margin declined because investments in international expansion, mobile, technology, personnel, traffic acquisition and website development grew faster than revenue.
- Operating cash flow improved substantially, primarily because of working-capital movements, including higher deferred merchant payables and deferred revenue.
- Property and equipment increased to $114 million from $82 million, including construction in progress for the planned Needham, Massachusetts headquarters.
- The company did not repurchase shares during the quarter; $105 million remained under the authorized $250 million repurchase program.
Guidance, Outlook, Risks and Unusual Items
- The filing provides no quantitative revenue, earnings or margin guidance. Management expects continued investment in international markets, mobile, social initiatives, Business Listings and Vacation Rentals.
- Mobile average monthly unique visitors increased 83% year over year to 115 million. Smartphone monetization was less than 20% of desktop hotel-shopper monetization, creating both a growth opportunity and a near-term monetization risk.
- TripAdvisor began rolling out Instant Booking through iOS and Android applications in April 2014.
- Key risks include increasing competition from search companies and online travel agencies, dependence on click-based advertising, unpredictable traffic and hotel-shopper trends, lower mobile and emerging-market monetization, foreign exchange exposure, seasonality, and dependence on advertisers’ return-on-investment decisions.
- The company stated that it was in compliance with debt covenants. Term-loan principal payments remaining after March 31, 2014 were $30 million in 2014, $40 million in 2015 and $260 million in 2016.
- The company is subject to IRS, state and foreign tax audits, including an IRS audit for 2009 and 2010; no material assessments had resulted as of March 31, 2014.
- Ordinary-course litigation includes intellectual-property, defamation and other claims. Management did not identify any pending matter likely to exceed the SEC’s materiality threshold, while noting that unknown claims could adversely affect results.
- In early May 2014, TripAdvisor entered an exclusivity agreement to acquire La Fourchette, a French and Spanish online restaurant-reservation platform. Closing remained subject to conditions.
- Liberty Interactive held approximately 56.7% of voting power through its Class B shares, although it held approximately 21.7% of common equity assuming conversion.
Important Facts for Investors to Verify
- Whether continued revenue growth can offset rising selling, technology and international-investment costs and stabilize operating margins.
- Whether hotel-shopper growth, revenue per shopper and click-based advertising remain sustainable after the prior year’s unusually strong SEO-driven growth.
- Progress in mobile monetization and the financial impact of Instant Booking.
- The timing and funding of the La Fourchette acquisition and any subsequent integration costs.
- Term-loan repayment requirements through the December 2016 maturity and compliance with leverage and interest-coverage covenants.
- The availability and tax implications of cash held by international subsidiaries, including approximately $485 million of cash and securities held internationally and approximately $520 million of indefinitely reinvested foreign earnings.
- Potential outcomes of tax audits, ordinary-course litigation and commitments related to the new corporate headquarters lease.