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
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
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statements; however, these words are not the exclusive means of identifying such
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. These forward-looking statements are inherently subject to
uncertainties, risks and changes in circumstances that are difficult to predict.
We are not under any obligation to, and do not intend to, publicly update or
review any of these forward-looking statements, whether as a result of new
information, future events or otherwise, even if experience or future events
make it clear that any expected results expressed or implied by those
forward-looking statements will not be realized. Please carefully review and
consider the various disclosures made in this report and in our other reports
filed with the
Overview
Tripadvisor is a leading online travel company and our mission is to help people around the world plan, book and experience the perfect trip. We operate a global travel guidance platform that connects the world's largest 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.
Under our flagship brand, Tripadvisor, we launched www.tripadvisor.com in the
Executive Financial Summary
Tripadvisor is the world's largest travel guidance platform, as measured by monthly unique users. As a result, Tripadvisor represents an attractive platform for travel partners - including hotel chains, independent hoteliers, OTAs, destination marketing organizations, 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, flights, cruises, cars, vacation rental properties, tours, travel activities and experiences, and restaurants; and book a number of these travel experiences either directly on our websites or mobile apps, or on our travel partners' websites or mobile apps.
Our Long-Term Growth Strategy
In
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building products that delight travelers by reducing friction throughout the
travel planning and trip-taking journey;
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driving consumer loyalty to our platform by offering products and services that
increase engagement with our platform and result in membership growth, mobile
app engagement and repeat usage;
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investing in technology (e.g., machine learning) to further improve the
experiences we can deliver to consumers and travel partners on our platform;
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deepening travel partner engagement on our platform by expanding the number of
products and services we offer;
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leveraging our platform's unique attributes to expand and grow our offerings
such as hotel business to business ("B2B") services, direct-to-consumer products
and services where consumers pay us on a per trip planned or an annual
subscription basis, both click-based and display-based media advertising, and
experiences and restaurants;
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driving operational efficiencies; and
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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 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, below.
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--------------------------------------------------------------------------------COVID-19
The COVID-19 pandemic has caused a 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 during the three and
nine months ended
Commencing in late
In the fourth quarter of 2020, multiple COVID-19 vaccines were approved for
widespread distribution throughout various parts of the world, including
Traffic trends on our websites, a leading indicator of consumer travel demand,
have improved since the trough of significant declines seen in the second half
of
Our consolidated revenue for the three and nine months ended
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strength in the
Although we cannot predict with certainty the full impact of the COVID-19 pandemic on our future financial results, we currently expect that the pandemic will continue to have a material, negative impact on our fourth quarter 2021 financial results.
In response to the impact of the COVID-19 pandemic, we took several steps to further strengthen our financial position and balance sheet and maintain financial liquidity and flexibility, including, but not limited to, restructuring activities, reducing our ongoing operating expenses and headcount, additional borrowings and issuances of debt, and amendments to our 2015 Credit Facility, all of which are described in more detail below.
Liquidity
During the first quarter of 2020, we borrowed
In
In addition, during
We believe these measures provide us additional flexibility which we believe is important given our continued limited ability to predict our future financial performance due to the uncertainty associated with COVID-19.
Refer to "Note 5: Debt" in the notes to the unaudited condensed consolidated financial statements in Item 1 on this Quarterly Report on Form 10-Q for further detailed information about our 2015 Credit Facility, 2025 Senior Notes, and 2026 Senior Notes.
Cost Reduction Measures
During the first quarter of 2020, the Company instituted a cost reduction initiative to preserve cash flows, including targeted workforce reduction measures largely in the Experiences & Dining segment, in addition to optimizing and reducing brand advertising as the Company pivoted to leverage newer advertising mediums we believe will be more effective than our historically television-focused campaign.
During the latter part of the first quarter of 2020, and in response to the COVID-19 pandemic, the Company instituted additional cost reduction measures, including the elimination of the majority of discretionary spending, business travel and non-critical vendor relationships, brand advertising, as well as the temporary cessation of nearly all new hiring and contingent staff, reduction of targeted employee benefits and the furlough of over 100 employees.
On
? Enacting a workforce reduction eliminating more than 900 employees; ? Furloughing additional employees bringing the total furloughed employees during March andApril 2020 to approximately 850 employees, primarily in our European operations at TheFork; and ? Making targeted reductions of the Company's office lease portfolio, primarily either through subleasing or allowing property leases to expire. 32 --------------------------------------------------------------------------------
The Company incurred total pre-tax restructuring and other related
reorganization costs of approximately
Later in 2020, nearly all of the Company's previously furloughed employees had
returned to their jobs; however, during the fourth quarter of 2020, the Company
again furloughed approximately 400 employees, primarily in our European
operations of TheFork. This action was taken by the Company as a direct result
of the reinstatement of government restrictions related to restaurants in
various countries within
We have continued to maintain a majority of these cost-reductions measures
during the nine months ended
CARES Act and Other Governmental Relief
In
In addition, certain governments have passed legislation to assist businesses
during the COVID-19 pandemic through loans, wage subsidies, wage tax relief or
other financial aid. Some governments have extended or are considering extending
these programs. The Company has participated in several of these programs,
including the CARES Act in the
For additional information on income taxes and/or other benefits recorded by the Company under the CARES Act and other governmental relief programs, refer to "Note 6: Income Taxes" in the notes to our unaudited condensed consolidated financial statements in Item 1 on this Quarterly Report on Form 10-Q.
Hotels, Media & Platform Segment
Our Hotels, Media & Platform segment is comprised of: Tripadvisor-branded hotels revenue and Tripadvisor-branded Display and Platform Revenue.
Tripadvisor-branded hotels revenue primarily includes hotel auction revenue and, to a lesser extent, hotel B2B revenue, which primarily includes subscription-based advertising services that we offer to travel partners and click-based revenue generated from hotel sponsored placement advertising that enables hotels to enhance their visibility on Tripadvisor hotel pages. Tripadvisor-branded Display and Platform Revenue primarily includes impression-based advertising revenue.
Our overall strategic objective in our Hotels, Media & Platform segment is to drive revenue and profits while delivering compelling products to consumers, as well as offering travel partners a diverse set of advertising opportunities.
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 sites 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
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--------------------------------------------------------------------------------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, during the three and nine months
ended
In addition, and by means of also showing a comparison to a pre-COVID-19 timeframe, Tripadvisor-branded display and platform revenue improved, reaching approximately 71% of 2019's comparable period during the third quarter of 2021, in comparison to approximately 58% of 2019's comparable period during the second quarter of 2021, primarily driven by an increase in marketing spend from our advertisers in correlation with increasing consumer travel demand, as discussed above.
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.
Historically, we have limited both the type and number of display-based
advertising opportunities we make available to travel partners, particularly on
mobile phone, which, in turn, has limited display-based advertising revenue
growth. However, 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. We have broadened our
solution to a larger set of advertising travel endemic and non-travel endemic
advertising 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, in
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 products and services more frequently, increase member growth and member engagement, and drive loyalty to our brand, products, and services. In turn, we believe this makes our platform more attractive for travel partners, and can result in increased monetization over time.
Experiences & Dining Segment
Our Experiences & Dining offerings contribute to the comprehensive user experience we deliver, which we believe helps to increase awareness of, loyalty to, and engagement with our products, drive more bookings to Experiences & Dining travel partners and generate greater revenue and increased profitability on our platform. Given the significant market opportunities in these large categories, we expect to continue to invest in building these offerings to drive consumer engagement, bookings and revenue growth for the long-term. Since the first quarter of 2020, this segment's revenue has been negatively and materially impacted at varying levels by a significant reduction in consumer demand due to the COVID-19 pandemic, which has reduced consumer willingness to research, purchase, and consume travel activities. 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 experience
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--------------------------------------------------------------------------------offerings and restaurants. For example, during the first quarter of 2021, restaurants in most of the European countries in which our Dining business operates were ordered to remain closed.
However, during the second and third quarters of 2021, our Experiences & Dining
segment's financial results improved significantly as a result of the growing
travel demand recovery driven by vaccine progress and various government
restrictions being gradually lifted. By means of showing a comparison to a
pre-COVID-19 timeframe, during the third quarter of 2021, our Experiences &
Dining segment's revenue reached approximately 81% of the third quarter of 2019
revenue, up from 54% of the second quarter of 2019 revenue in the second quarter
of 2021. During the third quarter of 2021, our Experiences revenue reached 75%
of the third quarter of 2019 revenue, primarily driven by our
Throughout the pandemic, we have explored new initiatives to delight and engage consumers. For example, we improved our site navigation, recommendations, sort orders, and offered new consumer payment options, as new customer acquisition remains top priority during the growing travel recovery.
Other
Other is a combination of our Rentals, Flights & Car, and Cruise businesses and
is not considered a reportable segment. Similar to our other business units,
financial results in Other also improved during the third quarter of 2021 when
compared to the second quarter of 2021, as a result of increased consumer demand
due to the growing travel demand recovery. In addition to the ongoing impact of
COVID-19 to its businesses, its financial results were also impacted during the
three and nine months ended
Employees
As of
In response to the COVID-19 pandemic, we have in place business continuity programs to ensure that employees are safe and that our teams continue to function effectively where continuing to work remotely.
Seasonality
Consumers' travel expenditures have historically followed a seasonal pattern.
Correspondingly, travel partners' advertising investments, and therefore our
revenue and 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,
traveler hotel and rental stays, and travel activities and experiences taken,
compared to the first and fourth quarters, which represent seasonal low points.
Due to the impact of COVID-19 on our business, which led to unfavorable working
capital trends and material negative operating cash flow during the year ended
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--------------------------------------------------------------------------------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
Significant Accounting Policies and New Accounting Pronouncements
Refer to "Note 2: Significant Accounting Policies" in the notes to our unaudited
condensed consolidated financial statements in Item 1 in this Quarterly Report
on Form 10-Q for an overview of new accounting pronouncements that we have
adopted during the nine months ended
Other than described under "Note 2: Significant Accounting Policies" Item 1 in
this Quarterly Report on Form 10-Q, there have been no significant changes to
our significant accounting policies since
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