Tripadvisor, Inc. 2015 Form 10-K Summary
Business context and reporting period
Tripadvisor, Inc. operates a global portfolio of online travel brands, led by TripAdvisor. Its platforms aggregate user reviews and travel content and support price comparison and booking for hotels, vacation rentals, flights, attractions, activities and restaurants. The filing covers the fiscal year ended December 31, 2015; the requested 2015 Q4 information is included in the annual filing’s unaudited quarterly data.
- 350 million average monthly unique visitors and 320 million reviews and opinions at year-end 2015, based on internal data.
- Mobile users represented more than 53% of unique users; mobile applications had 290 million cumulative downloads.
- Reportable segments: Hotel and Other, comprising Attractions, Restaurants and Vacation Rentals.
- Hotel represented 85% of consolidated revenue; Other represented 15%.
Financial performance and key metrics
| Metric | 2015 | 2014 | Change |
|---|
| Revenue | $1,492 million | $1,246 million | +20% |
| Operating income | $232 million | $340 million | -32% |
| Net income | $198 million | $226 million | -12% |
| Diluted EPS | $1.36 | $1.55 | -12% |
| Adjusted EBITDA | $466 million | $468 million | Flat |
| Cash flow from operations | $382 million | $387 million | -1% |
Calculated margins were approximately 15.5% for operating income, 13.3% for net income and 31.2% for Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation, depreciation, amortization, taxes, interest and certain non-recurring expenses.
| Revenue by product | 2015 | Share of revenue | Change |
|---|
| Click-based advertising | $956 million | 64% | +10% |
| Display-based advertising | $159 million | 11% | +14% |
| Subscription, transaction and other | $377 million | 25% | +60% |
- Hotel revenue was $1,263 million, up 11%; Hotel Adjusted EBITDA was $472 million, unchanged, with a 37% margin versus 42% in 2014.
- Other revenue was $229 million, up 106%; Other Adjusted EBITDA was a $6 million loss versus a $4 million loss in 2014.
- Average monthly unique hotel shoppers increased 16%, while revenue per hotel shopper declined 6%.
- International revenue was 50% of total revenue, down from 52% in 2014; foreign exchange reduced reported 2015 revenue by an estimated $92 million.
Cash flow, liquidity and debt
| Balance sheet metric | December 31, 2015 | December 31, 2014 |
|---|
| Cash, cash equivalents and marketable securities | $698 million | $594 million |
| Working capital | $553 million | $356 million |
| Long-term debt | $200 million | $259 million |
| Total stockholders’ equity | $1,412 million | $1,125 million |
- Investing cash outflow was $60 million, including $109 million of capital expenditures, $29 million of acquisitions and $25 million of proceeds from a business sale.
- Financing cash outflow was $153 million, reflecting repayment of the former term loan, repayments under the new revolving facility, Chinese debt repayments and equity-award tax withholdings.
- In June 2015, the Company entered into a five-year, $1 billion unsecured revolving credit facility maturing June 2020. Borrowings were $200 million at year-end, with approximately $798 million of availability.
- The Company had approximately $49 million of additional available borrowing capacity under Chinese credit facilities and was in compliance with debt covenants.
- Management stated that available cash, operating cash flow and credit capacity should fund working capital, capital expenditures, growth initiatives, debt obligations, lease obligations, share repurchases and potential acquisitions for at least the next twelve months.
- No dividends were paid or expected for the foreseeable future. No common-stock repurchases occurred in 2015; $105 million remained under the repurchase authorization.
Material changes versus the prior comparable period
- Revenue growth decelerated from 32% in 2014 to 20% in 2015, primarily because Hotel monetization weakened despite higher traffic.
- Revenue per hotel shopper fell 6% due to pricing pressure, the accelerated instant-booking rollout, mobile mix and Euro weakness.
- Selling and marketing expense rose 38% to $692 million, including higher search and traffic-acquisition spending and $51 million of television advertising.
- General and administrative expense rose 64% to $210 million, primarily because of a $67 million non-cash charitable contribution settled with treasury shares.
- Operating income declined despite revenue growth, while Adjusted EBITDA remained essentially flat.
- Subscription, transaction and other revenue increased substantially, driven by Attractions, Restaurants and Vacation Rentals; these businesses remained collectively unprofitable on an Adjusted EBITDA basis.
- The Company completed three acquisitions for $28 million and recorded a $20 million gain on the sale of a Chinese subsidiary.
- The new headquarters was completed and accounted for as a financing obligation; the related financing obligation was $84 million at year-end.
Outlook, commentary, risks and unusual items
- Management’s strategy emphasizes instant booking, mobile monetization, international expansion, content and community growth, and expansion into attractions, restaurants and vacation rentals.
- Instant booking was rolled out across U.S. and U.K. platforms and was expected to expand into additional international markets in 2016. Management acknowledged that instant booking monetized at a lower rate than metasearch and could shift the timing of revenue recognition under the consumption model.
- Key risks include dependence on Expedia and Priceline, which together represented 46% of 2015 revenue; partner agreements are generally terminable at will or on short notice.
- Other principal risks include search-engine algorithm changes, competition from Google, OTAs and emerging travel platforms, lower mobile monetization, foreign exchange volatility, economic and travel-industry downturns, privacy and cybersecurity incidents, regulatory changes, litigation and tax audits.
- The IRS and other tax authorities were examining multiple periods. The Company disclosed $89 million of unrecognized tax benefits, including interest, and a draft IRS transfer-pricing adjustment for 2009 and 2010; management stated that its position was sustainable and intended to defend it.
- The effective tax rate fell to 17.2% from 29.8%, including a $13 million tax benefit related to the Altera litigation and the impact of jurisdictional earnings and foreign tax rates.
- The Company recorded foreign currency translation losses of $33 million in other comprehensive income and reported a $20 million gain on the Chinese subsidiary sale.
- Quarterly revenue was $309 million in Q4 2015 versus $288 million in Q4 2014. Q4 2015 operating income was a $25 million loss and net income was $3 million, principally reflecting the $67 million non-cash charitable contribution, including a $59 million incremental charge in the quarter.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Investor verification checklist
- Verify whether hotel shopper growth and mobile traffic can offset continued declines in revenue per hotel shopper.
- Track instant-booking adoption, partner coverage, cancellation and consumption-model timing, and monetization relative to metasearch.
- Assess revenue concentration and contract terms involving Expedia, Priceline and other major advertising partners.
- Evaluate whether Attractions, Restaurants and Vacation Rentals can reach profitability without continued disproportionate investment.
- Reconcile GAAP operating income and net income with Adjusted EBITDA, including the effects of stock-based compensation, amortization and the non-cash charitable contribution.
- Monitor foreign exchange exposure, particularly the Euro, and the effect of international revenue translation on reported results.
- Review the $200 million variable-rate debt, credit-facility covenants, lease-related financing obligation and $87 million of unrecognized tax benefits.
- Follow IRS transfer-pricing audits, potential tax assessments and the tax implications of foreign earnings designated as indefinitely reinvested.
