TRIPADVISOR, INC. The information included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
our unaudited condensed consolidated financial statements and the accompanying
notes included in this Quarterly Report on Form 10-Q, and the consolidated
financial statements and accompanying notes, as well as Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the year ended
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those
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contained in these forward-looking statements for a variety of reasons,
including, but not limited to, those discussed in our Annual Report on Form 10-K
for the year ended
Overview
Tripadvisor operates the world's largest travel guidance platform, connecting a global audience of prospective travelers with travel partners through rich content, price comparison tools, and online reservation and related services for destinations, accommodations, travel activities and experiences, and restaurants. Our mission is to help people around the world plan, book and experience the perfect trip.
In 2000, under our flagship brand Tripadvisor, we launched www.tripadvisor.com
in the
Executive Financial Summary
Tripadvisor operates the world's largest travel guidance platform, as measured by unique users de-duplicated monthly, according to SimilarWeb. As a result, Tripadvisor represents an attractive platform for travel partners - including hotel chains, independent hoteliers, OTAs, destination marketing organizations, experience operators, restaurants, and other travel-related and non-travel related product and service providers - who seek to market and sell their products and services to a global audience. Tripadvisor's platform and product offerings enable consumers to discover, research and price shop a variety of travel products, including hotels, cruises, vacation rentals, flights, cars, tours, travel activities and other experiences, and restaurants; and book a number of these travel experiences either directly on our platform, or on our travel partners' websites or mobile apps.
Segments
In the second quarter of 2022, as part of our continuous review of the business
and in consultation with our new CEO, we evaluated our operations and realigned
the reportable segment information which our CODM regularly assesses to evaluate
performance for operating decision-making purposes, including allocation of
resources. The CODM for the Company is our CEO. The revised segment reporting
structure includes the following reportable segments: (1) Tripadvisor Core; (2)
Our Long-Term Growth Strategy
The global travel market (which excludes dining) is expected to reach
•
offering products that delight travelers by reducing friction throughout the travel planning and trip-taking journey;
•
driving consumer loyalty to our platform through user experience and by offering products and services that increase engagement with our platform and result in membership growth, new and repeat bookings, mobile app engagement and repeat usage;
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driving traveler and diner engagement, bookings, and loyalty on our branded platforms by offering industry-leading choices for online bookable experiences and restaurants in top destinations worldwide;
•
deepening travel partner engagement on our platform by expanding the number of products and services we offer; and
•
leveraging our platform's brand and scale and our unique attributes to expand and grow our offerings such as hotel and restaurant B2B solutions, direct-to-consumer products and services where consumers pay us on a per trip planned or an annual subscription basis and click-based and display-based media advertising.
We expect to enable our growth through investment in:
•
organic investment in marketing and technology (e.g., machine learning) to further improve the experiences we can deliver to consumers and travel partners on our platform; and
•
inorganically by opportunistically pursuing strategic acquisitions.
Business Trends
The online travel industry in which we operate is large and also highly dynamic and competitive. Our overall strategy is to deliver more value to consumers and travel partners in order to generate more monetization on our platform. While we operate with a long-term growth focus, our specific growth objectives and resource allocation strategies can differ in both duration and magnitude within our segments. We describe below these dynamics, as well as the current trends affecting our overall business and reportable segments, key drivers of our financial results, and uncertainties that may impact our ability to execute on our objectives and strategies.
COVID-19
The COVID-19 pandemic caused significant negative impact on the travel, leisure, hospitality, and restaurant industries (collectively, the "travel industry"), and consequently adversely and materially affected our business, results of operations, liquidity and financial condition beginning in early 2020 and throughout that year. Although continuing to materially impact our business during 2021, these trends generally improved, although unevenly at times throughout 2021, with continuous improvement seen during the first six months of 2022. The Company experienced a return to near parity with pre-COVID-19 revenue levels during the second quarter of 2022, given what we believe to be pent-up consumer demand for travel industry related services, as well as continued easing of government travel restrictions.
Traffic trends on our platform, a leading indicator of consumer travel demand,
have improved substantially since the trough of significant declines seen in
March and
We continue to be subject to risks and uncertainties related to the COVID-19 pandemic. Continued widespread vaccine distributions, efficacy against existing variants (e.g., Delta, Omicron, and BA.5) and future variants, if any, of COVID-19, whether there will be resurgences of the virus and subsequent government restrictions, the extent and effectiveness of containment actions taken, and whether consumers' demand for travel and hospitality services continue to be or become negatively impacted remain uncertain. We continue to believe the travel industry, and our financial results, would be adversely and materially affected upon a resurgence of existing COVID-19 variants (e.g., Delta, Omicron, and BA.5) or if new variants emerge which result in reinstated travel bans and/or other government restrictions and mandates, all of which negatively impact consumer demand, sentiment and discretionary spending patterns.
Although uncertainty remains, we have generally seen continuous, albeit uneven, improvement in the travel market throughout 2021, and during the first half of 2022, given what we believe to be continued pent-up consumer demand for travel industry related services.
Tripadvisor Core Segment
Our Tripadvisor Core segment is comprised of: (1) Tripadvisor-branded hotels - consisting of hotel auction revenue, primarily click-based advertising revenue, and hotel B2B revenue, which includes primarily subscription-based advertising and hotel sponsored placements revenue; (2) Tripadvisor-branded display and platform revenue - primarily consisting of display-based advertising
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revenue; (3) Tripadvisor experiences and dining revenue - consisting of
intercompany (intersegment) revenue related to affiliate marketing commissions
earned primarily from experience bookings, and to a lesser extent, restaurant
reservation bookings on Tripadvisor-branded websites and mobile apps, fulfilled
by
Our overall strategic objective in our Tripadvisor Core segment is to drive revenue and profits while delivering compelling services to consumers and driving a holistic user experience, increased customer engagement and monetization, as well as offering travel partners a diverse set of advertising opportunities on the Tripadvisor platform.
For consumers, we test and implement product enhancements that deliver a more engaging and comprehensive hotel shopping experience. This includes providing rich, immersive content - reviews, photos, videos and ratings, among other contributions, increasing the number of travel partners and properties as well as the available hotel supply on our platform. We believe providing consumers tools to discover, research, price shop and book a comprehensive selection of accommodations helps increase brand awareness and brand loyalty and, over time, can result in deeper consumer engagement, more qualified leads delivered to travel partners and greater monetization on our platform.
We seek to monetize our influence through hotel-related product improvements, supply and marketing efforts and customer advertising opportunities. Historically, we have generated a significant amount of hotel shoppers from search engines, such as Google. A hotel shopper is a visitor to our platform that views either a listing of hotels in a city or a specific hotel page. Our key ongoing objective related to traffic acquisition is to attract or acquire hotel shoppers at or above our desired marketing return on investment targets. Over the long-term, we are focused on driving a greater percentage of our traffic from direct traffic sources rather than search engines, which comes with little to no traffic acquisition costs.
As noted in the "COVID-19" discussion above, easing of travel restrictions
across the world and an increase in consumer travel demand drove improved
financial results during the first half of 2022, as Tripadvisor Core revenue
increased by 49% and 60% during the three and six months ended
While slower to recover than Tripadvisor-branded hotels revenue, our display and
platform revenue increased by 42% and 58% during the three and six months ended
Our Tripadvisor experiences and dining revenue increased by 119% and 100% during
the three and six months ended
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growing travel demand recovery driven by the easing of government restrictions
and increasing consumer travel demand. In addition, and by means of also showing
a comparison to a pre-COVID-19 timeframe, Tripadvisor experiences and dining
revenue for the three months ended
Similar to our other business units, financial results in Other revenue, also
improved during the three and six months ended
Over the long-term, we believe that improving our offerings to deepen consumer engagement on our platform will enable us to more effectively monetize our influence. For example, in Tripadvisor-branded display and platform revenue, we enable travel partners to amplify their brand, generate brand impressions, and potentially drive qualified leads and bookings for their businesses. We continue to work on initiatives to better leverage our audience, content, data, travel influence and platform breadth to open up new media advertising opportunities through a more modern, high-powered advertising suite spanning native, video and programmatic solutions. Our platform is open to advertising from travel endemic and non-travel endemic partners, including industries such as entertainment, spirits, and finance. On the consumer side, we are focused on making Tripadvisor membership more valuable for consumers. As an example, during 2021, we launched Tripadvisor Plus, an annual subscription-based membership that offers financial incentives, benefits and perks to members who book hotels and experiences on our platform.
These efforts demonstrate our continued focus on increasing the quality of customer engagement on our platform, including driving membership growth, increasing personalization, and innovating our mobile app experience. We believe delivering - and improving upon - a great experience for users will encourage more users to use our services more frequently, increase member growth and member engagement, and drive loyalty to our brand and services. In turn, we believe this makes our platform more attractive for travel partners, and can result in increased monetization over time for us and our travel partners.
We provide an online marketplace that allows travelers to research and book
tours, activities and attractions in popular travel destinations across the
globe through our stand-alone
Our
This segment was negatively and materially impacted at varying levels by a significant reduction in consumer demand due to the COVID-19 pandemic beginning in the first quarter of 2020 and throughout that year, which had reduced consumer willingness to research, purchase, and consume travel activities. This negative impact was driven by a wide variety of government-instituted actions and restrictions around the globe aimed at limiting the spread of the virus, all of which have impacted consumer access to experience offerings.
We began to see improvement in our
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lifetime of a customer. From a geographical perspective, we continued to see
strong revenue growth in the
We continue to execute on new initiatives to delight and engage new and repeat
travelers. For example, we recently improved our site navigation,
recommendations, sort orders, and quality of our bookable products. We also
created new traveler payment offerings and traveler support improvements, as new
customer acquisition remains a key growth opportunity during the growing travel
recovery. We also remain focused on improving the traveler experience by
enhancing the performance and capabilities of
TheFork Segment
We provide information and services for consumers to research and book restaurant reservations through our stand-alone TheFork business in our dedicated online restaurant reservations platform, TheFork. TheFork is primarily European based, with operations in all major European markets. We primarily generate transaction fees (or per seated diner fees) that are paid by our restaurant customers for diners seated primarily from bookings through TheFork's online reservation system.
TheFork segment contributes to and complements the comprehensive user experience we deliver, which we believe helps to increase awareness and loyalty to our products, which in turn drives more bookings to our restaurant partners and generates greater revenue and increased profitability on our restaurant reservations platform. Given the significant market opportunities in this large category, we expect to continue to invest in building this offering, including online traffic acquisition, in building out TheFork brand, in order to drive consumer engagement, bookings for our restaurant partners, obtain additional restaurant supply, and revenue growth for the long-term. Furthermore, we are actively investing in, including additional personnel, to support increased payment options and technology integration in our TheFork app to allow users to increase engagement beyond booking and into payment offerings such as TheFork PAY.
This segment was negatively and materially impacted at varying levels by a significant reduction in consumer demand due to the COVID-19 pandemic beginning in the first quarter of 2020. This negative impact has also been driven by a wide variety of government-instituted actions and restrictions around the globe aimed at limiting the spread of the virus, all of which have impacted consumer access to restaurants.
During the first quarter of 2021, restaurants in most of the European countries
in which TheFork operates were ordered to remain closed. In TheFork segment, we
saw a notable recovery beginning in
Employees
As of
Seasonality
Consumers' travel expenditures have historically followed a seasonal pattern. Correspondingly, travel partners' advertising investments, and therefore our revenue and operating profits, have also historically followed a seasonal pattern. Our financial performance tends to be seasonally highest in the second and third quarters of a given year, which includes the seasonal peak in consumer demand, including traveler hotel and rental stays, and travel activities and experiences taken, compared to the first and fourth quarters, which represent seasonal low points. During the first half of the year, experience and rentals bookings typically exceed the amount of completed experiences and rental stays, resulting in higher cash flow related to working capital, while during the second half of the year, particularly in the third quarter, this pattern reverses and cash flows from these transactions are typically negative.
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--------------------------------------------------------------------------------Other factors may also impact typical seasonal fluctuations, which include further significant shifts in our business mix or adverse economic conditions that could result in future seasonal patterns that are different from historical trends. For example, although consumer travel demand was materially lower than historic levels due to the impact of COVID-19 on our business during 2020, these trends generally improved, albeit unevenly, during 2021, resulting in increased revenues, and working capital and operating cash flow more akin to typical historical seasonality trends, which has continued during the first half of 2022. However, it is difficult to predict the seasonality for the upcoming quarters, given the sustained uncertainty related to the continued macroeconomic impact of the COVID-19 pandemic and whether there are resurgences, or if new variants emerge, and the pace of continued recovery in our key markets.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that management use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with GAAP. Preparation of the consolidated financial statements and accompanying notes requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. Management bases its estimates on historical experience, when applicable and other assumptions that it believes are reasonable under the circumstances. Actual results may differ from estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:
•
It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and/or • Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our Annual Report on Form 10-K for the fiscal year ended
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