Tripadvisor, Inc. 2013 Form 10-K Summary
Business context and reporting period
Tripadvisor operates a global online travel platform aggregating user reviews and travel information, supported primarily by advertising, with additional subscription, transaction, vacation-rental and content-licensing revenue. The filing covers the fiscal year ended December 31, 2013; fourth-quarter figures are unaudited. The company reports one operating segment.
- More than 260 million monthly unique visitors, 125 million reviews and opinions, and 82 million cumulative mobile-app downloads were reported for 2013.
- Tripadvisor completed six acquisitions, including Jetsetter, Niumba, GateGuru and Oyster, for $34.8 million of cash consideration, net of cash acquired.
- Hotel metasearch was implemented across desktop and tablet platforms, while smartphone and tablet monthly unique visitors increased more than 170% year over year to approximately 87 million.
Financial performance and key metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $944.7 million | $763.0 million | +24% |
| Click-based advertising | $696.0 million | $587.8 million | +18% |
| Display-based advertising | $119.0 million | $94.1 million | +26% |
| Subscription, transaction and other revenue | $129.7 million | $81.0 million | +60% |
| Operating income | $294.6 million | $296.3 million | -1% |
| Net income attributable to Tripadvisor | $205.4 million | $194.1 million | +6% |
| Diluted EPS | $1.41 | $1.37 | +3% |
| Adjusted EBITDA | $378.8 million | $352.5 million | +7% |
| Net cash from operating activities | $349.5 million | $239.1 million | +46% |
- Approximate 2013 margins were 31.2% operating, 21.8% net and 40.1% Adjusted EBITDA, compared with approximately 38.8%, 25.4% and 46.2%, respectively, in 2012.
- Hotel shoppers increased 36%, but revenue per hotel shopper declined 13%, reflecting the transition to hotel metasearch, lower smartphone monetization and growth in lower-monetizing international markets.
- International revenue represented 51% of total revenue, up from 49% in 2012. Asia-Pacific revenue grew 49%, while North America and EMEA each grew 21%.
- Selling and marketing expense increased 38% to $368.4 million; technology and content expense increased 51% to $130.7 million. Stock-based compensation increased to $49.0 million from $30.1 million.
Fourth-quarter 2013
| Metric | Q4 2013 | Q4 2012 | Change |
|---|---|---|---|
| Revenue | $212.7 million | $169.4 million | +26% |
| Operating income | $28.5 million | $47.0 million | -39% |
| Net income attributable to Tripadvisor | $20.3 million | $33.6 million | -40% |
| Diluted EPS | $0.14 | $0.23 | -39% |
Fourth-quarter results reflected the company’s customary seasonal weakness and materially lower operating and net margins despite strong revenue growth.
Cash flow, liquidity and debt
- Cash, cash equivalents and short- and long-term marketable securities totaled $670.7 million at December 31, 2013, including $351.1 million of cash and cash equivalents.
- Working capital was $387.4 million. Approximately $442 million of invested cash was held by international subsidiaries and intended to remain permanently reinvested outside the United States.
- Operating cash flow was $349.5 million. Investing cash flow was negative $196.8 million, including $55.5 million of capital expenditures, $34.8 million of acquisitions and net investment purchases. Financing cash flow was negative $169.7 million, principally due to $145.2 million of share repurchases and $40.0 million of term-loan principal payments.
- Debt included $340.0 million outstanding under a variable-rate term loan due December 2016, consisting of $40.0 million current and $300.0 million long-term debt, plus $28.5 million of short-term Chinese credit facilities. No borrowings were outstanding under the $200 million revolving facility.
- Management stated that available liquidity, operating cash flow and credit capacity were expected to fund operations, capital expenditures, growth initiatives, debt obligations, the new headquarters lease, repurchases and potential acquisitions for at least the next twelve months.
Material changes, outlook and risks
- Revenue growth remained strong, but operating income declined slightly because expenses grew faster than revenue, particularly marketing, technology, content, headcount and stock-based compensation.
- The company expects continued investment in mobile, international markets, metasearch, technology, brand-building, Business Listings and vacation rentals. No quantitative revenue or earnings guidance is provided in the filing.
- Smartphone monetization was less than 20% of desktop hotel-shopper monetization, creating a risk that rapid mobile adoption could dilute revenue per user.
- Expedia and Priceline together represented 47% of 2013 revenue; Expedia alone represented 23%. Most advertising contracts may be terminated at will or on short notice.
- The company faces competition from Google, Bing, Yahoo, online travel agencies, Airbnb, HomeAway and other travel and review platforms, as well as risks from search-algorithm changes, traffic-acquisition costs, fraudulent content, privacy and data-security regulation, foreign exchange and international operations.
- Material commitments included approximately $143.5 million of future minimum payments for the new Needham headquarters, estimated $35 million to $40 million of related leasehold improvements, and $613 million of aggregate contractual obligations in the broader liquidity table.
- Unrecognized tax benefits, including interest and penalties, totaled approximately $38 million. The company also remains subject to tax-sharing obligations with Expedia and potential indemnification obligations relating to the 2011 spin-off.
- The company reported no material pending litigation, no reportable off-balance-sheet arrangements, no goodwill or indefinite-lived intangible impairment, and effective disclosure and internal financial controls. The audit opinion was unqualified.
Important facts for investors to verify
- Whether hotel metasearch can improve conversion and revenue per hotel shopper without further reducing monetization.
- Progress in smartphone advertising monetization relative to desktop and tablet users.
- Revenue concentration and contract status with Expedia, Priceline and other major advertisers.
- Operating-expense growth, especially marketing, technology, content and stock-based compensation, and its effect on margins.
- Term-loan repayment requirements, variable-rate exposure, covenant compliance and the December 2016 maturity.
- Availability and repatriation costs of international cash, including potential U.S. tax effects on permanently reinvested foreign earnings.
- Execution and financial impact of the acquisitions completed in 2013 and the new headquarters lease and construction commitments.