Tripadvisor, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing also presents unaudited fourth-quarter results. Tripadvisor operates a global portfolio of online travel brands, including TripAdvisor, Viator, Lafourchette, FlipKey and others. Its primary revenue source is travel advertising, supplemented by subscription, transaction and content-licensing revenue.
Business Context and Key Developments
- TripAdvisor-branded sites reached more than 315 million monthly unique visitors, with more than 200 million reviews and opinions covering over 4.5 million places.
- Mobile and tablet monthly unique visitors increased more than 60% year over year to approximately 140 million; approximately 50% of TripAdvisor traffic came from mobile devices.
- The company introduced Instant Booking and personalized hotel recommendations, and expanded its hotel metasearch offering.
- 2014 acquisitions included Viator, Lafourchette, Vacation Home Rentals, Tripbod, MyTable, Restopolis and Iens. The acquisitions contributed approximately $43 million of 2014 revenue and required $331 million of cash, net of cash acquired.
- Management changed the reportable segment structure in the fourth quarter to Hotel and Other. Prior periods were reclassified for comparability.
Financial Results
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $1,246 million | $945 million | +32% |
| Operating income | $340 million | $294 million | +16% |
| Net income attributable to Tripadvisor | $226 million | $205 million | +10% |
| Diluted EPS | $1.55 | $1.41 | +10% |
| Adjusted EBITDA | $468 million | $379 million | +23% |
| Cash flow from operations | $387 million | $349 million | +11% |
| Capital expenditures | $81 million | $55 million | +47% |
Margins: Operating margin was approximately 27.3%, net margin approximately 18.1%, and Adjusted EBITDA margin approximately 37.6%. Adjusted EBITDA is a non-GAAP measure that excludes, among other items, stock-based compensation, depreciation, amortization, interest, taxes and certain non-recurring expenses.
Revenue Mix and Segment Performance
| Revenue source | 2014 | 2013 | Change |
|---|---|---|---|
| Click-based advertising | $870 million | $696 million | +25% |
| Display-based advertising | $140 million | $119 million | +18% |
| Subscription, transaction and other | $236 million | $130 million | +82% |
- Hotel: Revenue of $1,135 million, up 26%; Adjusted EBITDA of $472 million, up 23%, with a 42% Adjusted EBITDA margin versus 43% in 2013.
- Other: Revenue of $111 million, up 141%; Adjusted EBITDA was negative $4 million compared with negative $5 million in 2013. The segment includes Attractions, Restaurants and Vacation Rentals and remained loss-making as management invested in growth.
- Unique hotel shoppers increased 17%, while revenue per hotel shopper increased 7%. Display impressions sold increased 19%, but pricing declined 1%.
- International revenue represented 52% of total revenue, compared with 51% in 2013.
Cash, Debt and Liquidity
- Cash, cash equivalents and short- and long-term marketable securities totaled $594 million at December 31, 2014, compared with $670 million at year-end 2013. Cash and cash equivalents alone were $455 million.
- Operating cash flow of $387 million funded capital expenditures, acquisitions and debt repayments. Investing cash use was $234 million, primarily reflecting acquisitions and capital expenditures.
- Term loan principal totaled $300 million, consisting of $40 million current and $260 million long term. The term loan matures in December 2016 and bears variable interest.
- The $200 million revolving credit facility had no outstanding borrowings; $199 million was available after $1 million of letters of credit.
- Chinese credit facilities had $38 million outstanding at year-end, and approximately $12 million of additional availability.
- Management stated that available cash, operating cash flow and credit facilities should be sufficient for at least the next twelve months, including planned investments, debt obligations, acquisitions, lease commitments and share repurchases.
- Working capital was $366 million, compared with $387 million in 2013. Total assets were $1.96 billion and total liabilities were $834 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated to 32% from 24% in 2013, led by higher hotel traffic and stronger subscription, transaction and other revenue.
- Operating income grew 16%, slower than revenue growth, as selling and marketing expense increased 36%, technology and content expense increased 31%, and total costs and expenses increased 39%.
- Net income growth was 10%, partly constrained by higher taxes and a $9 million net foreign-exchange and other loss versus no reported net loss in 2013.
- Stock-based compensation increased to $63 million from $49 million, and amortization of intangible assets increased to $18 million from $6 million, primarily due to acquisitions.
- Cash used for acquisitions increased substantially, while 2014 included no share repurchases compared with $145 million in 2013. The company had $105 million remaining under its authorized repurchase program.
- Goodwill increased to $734 million from $502 million and acquired intangible assets, net, increased to $214 million from $52 million. No goodwill or indefinite-lived intangible impairment was recorded.
- Accumulated other comprehensive loss was $31 million, primarily from foreign-currency translation adjustments.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal numerical revenue or earnings guidance. Management expects continued investment in mobile, international expansion, personalization, Instant Booking, Vacation Rentals, Restaurants and Attractions.
- Mobile users monetize at materially lower rates than desktop users, creating potential pressure on revenue per hotel shopper and margins as mobile usage increases.
- Revenue concentration is significant: Expedia and Priceline, including subsidiaries, each represented more than 10% of revenue and together represented 46% of 2014 revenue. Expedia represented 15% of year-end accounts receivable.
- Major risks include search-engine algorithm changes, competition from Google, large online travel agencies and other platforms, dependence on advertising budgets, cybersecurity and privacy requirements, international operations, foreign-exchange volatility and regulatory changes.
- LTRIP beneficially owned approximately 56.6% of voting power through its Class B shares, giving it effective control over most stockholder matters. Tripadvisor relies on the NASDAQ controlled-company governance exemption.
- The company has a $143 million future minimum commitment for its new Needham, Massachusetts headquarters and expects approximately $25 million to $30 million of additional leasehold-improvement spending, primarily in the first six months of 2015.
- Unrecognized tax benefits, including interest, totaled approximately $68 million. The company is subject to federal, state and foreign tax audits and generally intends to reinvest $630 million of foreign subsidiary earnings outside the United States.
- Management reported no material pending legal proceedings, no off-balance-sheet arrangements, effective disclosure controls and effective internal control over financial reporting. The controls assessment excluded Lafourchette and Viator, which represented approximately 3% of 2014 revenue.
Investor Verification Checklist
- Verify whether hotel shopper growth and revenue per shopper remain sustainable as mobile traffic expands and SEO-driven growth normalizes.
- Monitor Expedia and Priceline concentration, contract terms, bidding behavior and any changes in partner relationships.
- Assess the integration, revenue growth and profitability trajectory of Viator, Lafourchette and the other 2014 acquisitions.
- Reconcile Adjusted EBITDA with GAAP operating income and cash flow, particularly the effects of $63 million of stock-based compensation and $81 million of capital expenditures.
- Review the 2016 term-loan maturity, variable interest-rate exposure, financial covenants and refinancing requirements.
- Evaluate the $143 million headquarters lease, potential financing-obligation accounting and planned $25 million to $30 million of leasehold improvements.
- Track foreign-exchange exposure, the $31 million accumulated translation loss and the tax consequences of repatriating foreign cash.
- Consider the implications of LTRIP’s majority voting control, related-party status and the company’s use of controlled-company governance exemptions.