Tripadvisor, Inc. Form 10-K Summary
Business Context and Reporting Period
Annual report for the fiscal year ended December 31, 2019, including fourth-quarter results. Tripadvisor operates a global online travel platform covering accommodations, metasearch, experiences, restaurants, rentals, and travel media. Reportable segments are Hotels, Media & Platform and Experiences & Dining; Rentals, Flights/Cruises/Car, SmarterTravel, and Tripadvisor China are reported as Other.
The platform included approximately 859 million reviews and opinions covering 8.6 million places, with 463 million average monthly unique visitors in the third quarter of 2019. Travel activity is seasonal, with results generally strongest in the second and third quarters.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $1.560 billion | $1.615 billion | Down 3% |
| Operating income | $187 million | $183 million | Up 2% |
| Operating margin | 12.0% | 11.3% | Up approximately 0.7 percentage points |
| Net income | $126 million | $113 million | Up 12% |
| Diluted EPS | $0.89 | $0.81 | Up 10% |
| Adjusted EBITDA | $438 million | $422 million | Up 4% |
| Adjusted EBITDA margin | 28.1% | 26.1% | Up approximately 2.0 percentage points |
| Cash flow from operations | $424 million | $405 million | Up 5% |
| Capital expenditures | $83 million | $61 million | Up $22 million |
| Cash, equivalents and short-term securities | $319 million | $670 million | Down $351 million |
| Long-term debt | None | None | No outstanding borrowings |
Fourth-quarter 2019 revenue was $335 million, operating income was $23 million, and net income was $15 million. Fourth-quarter revenue declined from $346 million in the comparable 2018 quarter, while operating income was unchanged.
Segment Performance and Material Changes
- Hotels, Media & Platform: Revenue declined 6% to $939 million. Tripadvisor-branded hotels revenue fell 8% to $779 million, primarily because of reduced SEO traffic and the increasing prominence of competing search-engine hotel products, particularly Google. Mobile traffic also monetized at lower rates. Display and platform revenue increased 5% to $160 million.
- Hotels, Media & Platform profitability: Adjusted EBITDA increased 15% to $378 million, and segment margin expanded from 33% to 40%. Lower SEM, paid traffic acquisition, and television advertising costs more than offset the revenue decline.
- Experiences & Dining: Revenue increased 23% to $456 million, driven by higher bookings, mobile reservations, and expanded bookable supply. Adjusted EBITDA fell 90% to $5 million, and margin declined from 13% to 1%, reflecting increased product, supply, personnel, and marketing investments.
- Other: Revenue declined 32% to $165 million, primarily due to eliminating marginal or unprofitable revenue and reallocating resources. Adjusted EBITDA increased 22% to $55 million.
- Expense structure: Selling and marketing expense declined 14% to $672 million, including advertising expense of $423 million versus $544 million in 2018. Technology and content expense increased 7% to $294 million, while general and administrative expense increased 6% to $187 million.
- Acquisitions and investments: Tripadvisor paid $110 million for SinglePlatform, Bookatable, and Restorando, primarily supporting the Dining strategy. It also contributed China assets to a new entity with Trip.com Group and received a 40% equity interest; the investment was initially recorded at $41 million.
Liquidity, Capital Allocation, and Other Unusual Items
- Operating cash flow was $424 million. Investing cash flow was negative $176 million, primarily due to acquisitions and investments, capital expenditures, and purchases of marketable securities. Financing cash flow was negative $580 million.
- The company paid a special cash dividend of $3.50 per share, approximately $488 million in total, in December 2019. It repurchased 2.1 million shares for approximately $60 million and had approximately $190 million remaining under its repurchase authorization at year-end.
- Tripadvisor had approximately $1.2 billion available under its unsecured revolving credit facility, which matures in May 2022, and $30 million available under a Chinese revolving facility. It was in compliance with debt covenants and had no outstanding borrowings at year-end.
- Contractual obligations included approximately $106 million of finance lease payments, $92 million of operating lease payments, $31 million of remaining Transition Tax liability, and $10 million of purchase obligations. Unrecognized tax benefits, including interest, totaled approximately $167 million and were excluded from the contractual-obligations table.
- The company adopted ASC 842 lease accounting in 2019, recognizing operating and finance lease assets and liabilities. The adoption had no material impact on 2019 operating income or cash flow.
- Effective tax rate was 35.1%, compared with 34.7% in 2018. The 2019 tax provision included a $15 million expense related to the Ninth Circuit decision concerning stock-based compensation in intercompany cost-sharing arrangements and a $3 million estimate for the French digital services tax.
Guidance, Outlook, Management Commentary, and Risks
Management did not provide quantified 2020 revenue or earnings guidance in the filing. Its stated strategy is to deepen consumer and travel-partner engagement, improve membership and mobile usage, expand bookable experiences and restaurants, modernize advertising products, improve traffic quality, and pursue selective acquisitions.
- Management expects continued pressure on SEO-driven hotel revenue, partly because search engines are increasing the prominence of their own travel products.
- Management intends to operate Hotels, Media & Platform for profit while investing in Experiences & Dining for longer-term growth, creating a risk of near-term margin pressure in the latter segment.
- Key business risks include intense competition from Google, Booking, Expedia, Airbnb, and others; dependence on search engines and application marketplaces; lower mobile monetization; reliance on advertising; and concentration among major partners.
- Expedia and Booking together represented approximately 33% of 2019 consolidated revenue, and each accounted for more than 10% individually. Their agreements may be terminable at will or on short notice.
- The company identified Brexit-related regulatory and foreign-exchange uncertainty and disclosed that the 2019 Novel Coronavirus outbreak could negatively affect travel demand, although the magnitude and duration were unclear at the filing date.
- Additional risks include privacy and data-protection regulation, cybersecurity, tax audits, transfer-pricing disputes, foreign-currency exposure, legal proceedings, goodwill impairment, and economic downturns affecting discretionary travel.
- IRS proposed adjustments related to transfer-pricing arrangements for 2009 through 2013 could increase worldwide income tax expense by an estimated $35 million to $40 million, excluding interest and penalties. The company disputes the adjustments.
- Liberty Tripadvisor Holdings controlled approximately 57.9% of voting power through its Class B shares, making Tripadvisor a controlled company and allowing reliance on certain NASDAQ governance exemptions.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Revenue recognition was identified as a critical audit matter because of the number of revenue streams and related information technology systems.
Most Important Facts to Verify
- Whether hotel metasearch, SEO traffic, CPC pricing, and Google competition continue to pressure Hotels, Media & Platform revenue.
- Whether Experiences & Dining investment spending produces sustained booking, revenue, and margin improvement after its 2019 margin decline.
- The resolution and cash impact of IRS transfer-pricing audits, unrecognized tax benefits, and other tax contingencies.
- Post-year-end travel demand effects from COVID-19, Brexit developments, foreign-exchange movements, and broader economic conditions.
- Cash availability after the special dividend, acquisitions, repurchases, lease obligations, and potential future investments.
- The renewal or reduction risk associated with Expedia and Booking, which together contributed approximately one-third of consolidated revenue.
- Future dilution from approximately $280 million of unrecognized stock-based compensation expense for outstanding options and RSUs/MSUs.