TripAdvisor, Inc. Form 10-Q Summary
Business Context and Reporting Period
TripAdvisor is an online travel platform offering user-generated content, price comparison, advertising, reservations and booking services across Hotel and Non-Hotel segments. The Non-Hotel segment includes Experiences, Restaurants and Rentals. This unaudited filing covers the three and six months ended June 30, 2018, compared with the corresponding 2017 periods.
- Monthly unique visitors were 456 million in the second quarter; the platform included approximately 661 million reviews and opinions covering approximately 7.7 million places.
- The company had approximately 3,250 employees at June 30, 2018.
- Management stated that results are seasonally strongest in the second and third quarters.
Financial Performance and Position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $433 million | $424 million | $811 million | $796 million |
| Operating income | $49 million | $46 million | $71 million | $73 million |
| Net income | $32 million | $27 million | $36 million | $40 million |
| Diluted EPS | $0.23 | $0.19 | $0.26 | $0.28 |
| Adjusted EBITDA | $109 million | $101 million | $189 million | $174 million |
| Cash flow from operations | Not separately provided | Not separately provided | $360 million | $355 million |
- Q2 revenue increased 2%; six-month revenue increased 2%.
- Q2 operating margin was approximately 11.3%, versus 10.8% in the prior-year quarter. Six-month operating margin was approximately 8.8%, versus 9.2%.
- Q2 net margin was approximately 7.4%, versus 6.4%. Six-month net margin was approximately 4.4%, versus 5.0%.
- Q2 Adjusted EBITDA margin was approximately 25.2%, versus 23.8%. Six-month Adjusted EBITDA margin was approximately 23.3%, versus 21.9%.
- At June 30, 2018, cash and cash equivalents were $666 million, and marketable securities totaled $14 million. Total assets were $2.304 billion and stockholders’ equity was $1.347 billion.
- There was no outstanding debt under the company’s principal $1.2 billion revolving credit facility or its Chinese credit facilities. Approximately $1.2 billion of capacity remained under the principal facility and approximately $41 million under the Chinese facilities; $3 million of letters of credit were outstanding.
- Six-month capital expenditures were $31 million, acquisitions and other investments were $23 million, and net cash used in financing activities was $353 million.
Material Changes Versus the Prior Comparable Period
- Hotel revenue declined 4% to $313 million in Q2 and to $612 million for the first six months. Hotel click-based and transaction revenue declined 7% in Q2 and 8% year to date, primarily because revenue per hotel shopper decreased 6% and 9%, respectively.
- Hotel Adjusted EBITDA increased 6% in Q2 and 3% year to date, as lower direct online traffic-acquisition spending more than offset lower Hotel revenue.
- Non-Hotel revenue increased 22% in Q2 and 28% year to date, driven primarily by Experiences and Restaurants. Non-Hotel Adjusted EBITDA increased 18% in Q2 and by $10 million year to date.
- Display-based advertising and subscription revenue increased 8% in both Q2 and the first six months, partly offsetting weakness in click-based and transaction revenue.
- Selling and marketing expense declined 5% in both periods as online acquisition spending decreased, while technology and content expense increased 6% in Q2 and 10% year to date. General and administrative expense increased 21% in both periods.
- Stock-based compensation increased to $31 million in Q2 and $61 million year to date, compared with $28 million and $47 million, respectively.
- The company repurchased 2.6 million shares for $100 million during the first six months and had $150 million remaining under its $250 million authorization at June 30, 2018.
- Cash remained approximately flat from year-end after $360 million of operating cash flow, $353 million of financing outflows and $9 million of foreign-exchange impact.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide a clear quantitative revenue or earnings guidance range. Management expects 2018 capital expenditures to be comparable to 2017 levels and believes available liquidity will fund foreseeable needs for at least the next twelve months.
- Management is prioritizing long-term user engagement and product improvements over short-term monetization. Hotel shopper growth and revenue per shopper may remain pressured by lower metasearch auction CPCs, reduced paid traffic acquisition, and increasing mobile usage, which monetizes below desktop and tablet traffic.
- Management expects continued growth in Experiences and Restaurants and is transitioning Rentals from a subscription model to a free-to-list model, which may pressure near-term revenue while supporting longer-term growth.
- ASC 606 revenue guidance was adopted on January 1, 2018 using the modified retrospective method. Opening retained earnings increased by $4 million. For Q2, ASC 606 reduced revenue, operating income and net income by approximately $2 million versus the former ASC 605 presentation; for the six-month period, the reductions were $6 million, $6 million and $5 million, respectively.
- The effective tax rate was 23.8% in Q2 and 42.9% year to date. Tax results include effects from the 2017 Tax Act, foreign valuation allowances, share-based compensation and provisional tax accounting. The filing states that additional adjustments may be required.
- IRS proposed transfer-pricing adjustments for 2009 and 2010 could increase worldwide income tax expense by an estimated $10 million to $14 million, excluding interest and penalties. The company disputes the adjustments. Subsequent to quarter-end, the IRS prevailed in the Altera appeals case, and the company stated it would assess the impact on its financial statements.
- Key risks include dependence on advertising partners, particularly Expedia and Booking Holdings; search-engine and mobile-platform dependence; lower mobile monetization; intense competition; foreign-exchange exposure; cybersecurity and privacy regulation, including GDPR; short-term-rental regulation; tax audits; and Liberty TripAdvisor Holdings’ effective voting control.
- The company reported no material changes to commitments and contingencies, no material off-balance-sheet arrangements, and no legal proceedings expected by management to have a material impact, although outcomes remain uncertain.
Important Facts for Investors to Verify
- Whether Hotel click-based revenue and revenue per hotel shopper stabilize as CPCs and mobile traffic trends evolve.
- Whether Non-Hotel growth, particularly Experiences and Restaurants, offsets continued Hotel segment weakness and supports sustainable profitability.
- The eventual effect of the IRS transfer-pricing audit, the Altera decision and remaining 2017 Tax Act accounting estimates.
- The effect of ASC 606 and the expected 2019 lease-accounting adoption on reported results and disclosures.
- The sustainability of operating cash flow after seasonal increases in deferred merchant payables reverse in the second half of the year.
- Future share repurchases, acquisition spending and capital expenditures relative to the company’s $666 million cash balance and available revolver capacity.
- Exposure to major advertising partners, search engines, competitors, foreign currencies, data-security incidents and changing travel, tax and rental regulations.