TRIP
#Thank you, <UNK>, and good morning, everyone.
Q4 capped a year of important progress on our long-term growth initiatives, and we've been taking important steps to preserve EBITDA, while also investing for future growth.
Our market opportunity is huge, and we know we still have a lot of work to do.
It is incumbent upon us to execute and unlock this growth potential.
With that, we now open up your call for questions.
<UNK>.
This is <UNK>.
I'll start with the first part of the question and Steve can take the second part.
Our assumptions for next year, 2 important drivers is, one, in the front half of the year, we are not yet lapping the bid-downs that we saw in Q3, and that's going to give additional pressure on growth rates in the front half until we lap that in the second half.
The second important driver is our marketing investments.
As we said in our prepared remarks, we're pulling back in Hotel on our total marketing investments, increased TV, but decrease our online marketing, and that is going to result in additional pressure on the top line growth, but is helping the bottom line because we're cutting marginal unprofitable spend.
So those are the 2 most important drivers and the reason why they work more significantly on the first half of the year than on the second half of the year.
And hi <UNK>, this is Steve.
Our relationships with our biggest customers, our big OTAs, Priceline and Expedia group, I would characterize as excellent.
They like the traffic we send.
They help us identify and qualify even better traffic for them.
We drive a reasonable number of bookings.
It's strong, notwithstanding Priceline or any company's interest in shifting a marketing mix.
So as we look to the future of our Hotel business, we see strengthening relationships with these folks, with our supplier direct channel, with the independent hotels, leaving us in a position of a nice healthy option.
Super, Mike.
Thanks for the question.
Yes, our Non-Hotel business, particularly Attractions, is doing really well.
It's all a function of having a wonderful supply footprint that continues to grow, matching it ---+ getting better and better at matching it with the demand footprint that TripAdvisor prides, plus all the indirect channels that the Viator business unit also chases, be they travel agents or the viator.com set of websites or other third-party relationships.
So not unlike how the Hotel space has had some fantastic growth over the past couple of decades in the form of booking engines, Viator and its supply team have been fantastic at getting attractions bookable online.
And when we acquired them, integrated our demand platform into that, it just fueled the growth that you're seeing and that we expect to see for many more years.
We haven't identified meaningful competitors in the space that are directly competitive to Viator.
It's not to say there aren't handfuls in various countries, but really, the point of competition or the point of growth opportunity is teaching folks that when they're on TripAdvisor, they can book those attractions.
When they're on Viator and all the other vehicles that consumers will use to book, that it's, in many cases, smarter, cheaper, safer to book in advance or book on our mobile device when you're in market rather than walk up to the attraction and hope you can get a ticket or phone it in or rely on a hotel concierge.
So we're tapping into a marketplace that is exploding in terms of going from the traditional offline mechanisms to online.
And we think we're in a great position to capture the increased demand.
In terms of the tax rate and the impact from the recent changes, there are many puts and takes but the most important impact on us in the upcoming year and in the following years is the lowering of the U.S. corporate tax rate from 35% to 21%.
We have a little over half of our revenues in the U.S. and a very sizable component of our profits in the U.S., and so that's going to make an impact.
Our GAAP tax rate, we expect to be in the high 30s.
Despite that, in 2018, we have a couple of GAAP impacts that keep it up in 2018.
One is SBC impacts from our share price and the second one is certain loss in countries that can be used for tax purposes as that allows us.
So high 30s is the GAAP tax that we expect.
We expect a lower non-GAAP tax.
Thank you, <UNK>.
To start with the online marketing, yes, that's a very important driver of what's going on in our auction business, in particular, in Q4 and into 2018.
So we have progressively refined, over the past year, our ability and attribution of the downstream convertibility of traffic.
We've always managed online marketing as a basket to roughly break even.
But as we have better information on attribution and better models, we're basically seeing that some of the spend was not profitable, and so we've become more sophisticated in identifying that and have started in the back half of '17 to eliminate some of that spend, and we'll continue to do that into '18.
Now the impact of that is that it reduces our growth rate from online channels, and this is across search and other online channels.
It reduces our spend.
It reduces our revenue, but it improves our profitability because, by definition, we're taking out the least performing spend here.
And so that's what's been going on in the second half of '17.
And as we look at '18, and one of the drivers of our statements that we are able to, at least, mitigate the impacts on EBITDA and decrease the decline in EBITDA, '17 to '18 versus '16 to '17, is that we pull back on some of that marketing spend to help the bottom line.
And this is Steve.
With respect to the mobile monetization question, it's definitely still early innings.
We have some nice tailwinds, we believe, from consumers who are getting more and more comfortable booking something as complex as travel on their phone, and that just naturally helps our downstream conversion rate.
We're getting better ---+ the industry, I should say, is getting better at measuring cross-device attribution.
So someone who looks on our site and clicks downstream and then returns later on a desktop to book on a client site, we are getting ---+ we expect to get more credit for that.
And some of our newer products, like sponsored listings, that help hoteliers get into the consideration set for where someone might want to stay or for restaurants.
These are priced the same and work equally well on mobile versus desktop.
So kind of at launch, the product is already monetizing it at the same rate, if you will.
So yes, we're proud of the improved revenue per shopper on the phone.
We would expect that to continue.
Some opinions around the table would say that the highly considered weeklong vacation purchase, while maybe researched on the phone, is still going to be transacted for a while on desktop.
I'm thinking that's happening a lot quicker than some others.
But just internally, we know that all of our development, all of our focus is delivering the best product on the phone with the responsive design that also carries it to the web, but we're building for the phone as our future now.
Yes.
Thanks.
I'll take the first part of the question.
We're investing significantly and we have been investing in '17 in this long-term growth for the Hotel segment.
And we believe that there's ample opportunity for us to return to profitable growth in the Hotel segment.
And the big investments we have been making and continue to make are booked on the product side.
We have been investing in a much improved user experience, as it comes to price comparison for hotels and then additionally have reinforced that with a strong brand marketing campaign.
And so last year, we spent $74 million on TV.
We're going to spend more in 2018.
And those are our long-term investments in changing user perception from predominantly seeing us as a great place to do research, to a great place to do research and price compare and find their best deal on the hotel side.
And so that's a long-term investment that we're making and continue to make and believe will ultimately get us back to profitable growth on the hotel side.
In the near term, we look at our bottom line in the Hotel segment, in particular, in 2016 and 2017, we've seen a meaningful reduction of our EBITDA.
And when looking at some of the levers that we have there, we've turned our eye to online marketing.
I've talked before about how we'd looked at online marketing and the potential there to create some benefit.
That doesn't come at a long-term cost to us ---+ or not at a significant long-term cost to us strategically because a lot of that revenue that we create with this online marketing is short term in nature.
It doesn't have a very large lifetime value component to it.
And so it's a short-term revenue gain that actually has a short-term negative EBITDA impact, as well.
And so, as we mitigate the EBITDA losses in our Hotel business, that's the area of investment that we focus on the most, while continuing to have room for investment in the things that really matter for us strategically long term.
And so between those, then we strike a balance between getting to sustainable growth in the Hotel business over time and making sure we invest in that, while preserving EBITDA and margin in the Hotel business by focusing on some of the more near-term impacts of online marketing.
And <UNK>, this is Steve.
So sort of moving on from that kind of focus on the hotels, I bring in how the new organization and the new President roles that we've created really help drive home.
That President of hotel is chartered ---+ and that whole business unit is chartered with delivering the absolute best hotel shopping experience, making sure the marketing mix is appropriate, as <UNK> talked about, leaning into the TV campaign for the brand shift, for the consumer awareness as a more sustainable long-term EBITDA positive growth trajectory for hotels.
And then I've set up a business unit on our core experience because when we look at the non-hotels, it's really leveraging this incredible demand, the incredible footprint of this TripAdvisor community of travelers that, I have to admit, has been underinvested in relative to our particular shopping channels in the past.
And so we want to deliver a real crisp look in the core experience in terms of a consistent interface across the platform and new vehicles to attract customers to TripAdvisor, which are a stickier part of the journey, so that you're not just shopping for a hotel or just shopping for an attraction, but planning out your entire trip on TripAdvisor because that is a piece of our differentiated experience that really nobody else can touch.
And so when we look at that, it's yet another way to build an experience that is unique to TripAdvisor, that monetizes across several different channels, be it flights or hotels or rentals or restaurants or attractions, leans perhaps a little bit more to media when you look across the segments, and you have 1 to 2 of our newest media products in the past 6 months.
One is a replacement for Restaurants and a similar product for hotels.
And that, again, all compliments on having the best-in-class shopping experience for each of the verticals.
And so Attractions is certainly growing super fast with, as I mentioned before, lots of headroom.
So tying that into our demand footprint is where we see high growth for TripAdvisor in the future on a very differentiated playing field.
<UNK>, this is Steve.
Thanks for the question.
I'll take the first one, then <UNK> the second.
So we do run the kind of traffic acquisition teams for Attractions and Hotels separately.
So when we talk about, as <UNK> said, to elaborate on the change in that marketing mix, it's really all about hotels.
So Attraction continues to secure traffic through all available channels, both buying traffic onto the TripAdvisor point of sale as well as the various TripAdvisor domestic and international points of sale as well as the various domestic and international Viator points of sale.
So full steam ahead there.
No pullback at all on the Attractions side.
And with regards to your second part of your question, <UNK>, we have started to pull back on the marketing in Q3 and in Q4 and are continuing to do that in Q1 and then throughout the rest of the year.
And year-over-year impact will be felt in every quarter, but, of course, is going to be felt more in the front half of the year because we started to pull back already in Q3 and 4 of '17.
And we see this as a reset that will continue throughout '18, setting us up well for '19 thereafter.
Sure.
This is Steve.
Thank you, <UNK>, for the question.
I'll take the first one, <UNK> the second.
We have seen stability in auction.
We remind folks it's always volatile month to month.
And it's rare that we've kind of called anything out, other than that kind of onetime Q3 bid-down that we saw that clearly had a material effect.
So with the caveat of, yes, there's always a some ups and downs, I would say the term is stabilized, not shift in any particular direction since Q3.
And on the direct spend, it's a minority that we have identified as unprofitable, but it's a sizable enough minority for it to matter and really be a real lever that we have for EBITDA mitigation.
And so we have identified that and we'll continue to evaluate as we go forward.
It's a dynamic in the sense that to the extent that we are able to improve our monetization revenue per shopper, that also helps the return, obviously, of the paid spend and, therefore, some of the spend that we have identified currently as unprofitable becomes profitable.
But right now, we saw meaningful minority of spend that we're able to address.
Yes.
Thanks, <UNK>.
We have not quantified this ---+ we've stated that we expect a decline.
We've not quantified the magnitude of the expected decline.
We are pulling back on marketing, as I described before.
And we are investing in television.
We believe that the visibility that we have on EBITDA is a little better than on revenue, especially because of that dynamic that I was describing of the actual monetization that we'll find has a leverage effect on how much we can spend on marketing.
And so the variability on our revenue line is a little bit larger than on EBITDA line.
So we've chosen to give better visibility on overall EBITDA and said we would be approximately flat for the year on consolidated EBITDA.
And on revenue, expect to be down, but haven't quantified that.
As we progress in the year, we may or may not clarify that view.
Yes.
Average take rates are healthy.
There is variability in them, but they can be as good or sometimes better than the Hotel business.
So it's a very ---+ from a profitability perspective, from both the gross margin as well as a contribution margin perspective, a very healthy business.
And the growth is continuing very nicely in our Attractions business.
We saw a sort of a quarter-on-quarter deceleration of revenue growth in Non-Hotel in Q4.
That was not driven by Attractions.
Attractions has continued to grow from Q3 to Q4 very consistently.
We had a few more one-off impacts on our Restaurant business and our rentals business that we don't expect to continue into '18.
And for the whole Non-Hotel segment, of which Attractions is about half now, we expect very similar growth as we've seen in '16 and '17 for ---+ in '16, we saw a 27% growth.
In '17, we saw 24% growth in that Non-Hotel segment.
And we expect continued performance there with Attractions clearly a strong performer in that portfolio.
We haven't ---+ this is Steve.
We haven't done that breakout, but I do encourage you to remember that there's the Viator point-of-sale and all of the international components.
There's all of the third-party distribution agreements that Viator had before we bought them and have expanded since.
There's the travel agent channel that, again, sell through Viator, and TripAdvisor is a channel.
So TripAdvisor is clearly growing the fastest because we're able to tap into this existing demand and control both sides of it.
But I wouldn't want someone to think, at this point, that most of the demand or anything is coming from TripAdvisor.
That would not be accurate.
It is growing the fastest.
And we see, definitely as we look at the future of the Attractions segment, we think the biggest potential is to continue to leverage the large user base we have on the TripAdvisor pages.
And so a big focus, to keep improving that product and make sure we have more bookable products on TripAdvisor, so we can improve that monetization of those users.
On the Hotel side, in particular, as you can imagine, we're very careful with any expense item, not just marketing, but any overhead or any people investment that we make, and we continue to do that.
Clearly, we are matching our ability to grow expenses with our ability to grow revenue.
On the Non-Hotel side, we continue to invest, and we'll see people growth on the Non-Hotel business side.
Thanks, <UNK>.
Good questions.
I'll take the first.
Big picture, we see tremendous growth available to us in the Hotel space.
We haven't been able to deliver anywhere near the expectations that we hold ourselves accountable for in the past couple of years.
We know that, and we've been doing a bunch of things over the past year to address it, to improve our fundamentals, to improve the structure and the way that we're running the company internally.
And of course, it starts with delivering a better product on all fronts.
So we've made nice strides on the fundamentals, like pricing, usability, doing a better job measuring preference, and site performance.
These are all things that may not get a lot of fanfare, but are very meaningful for improving conversion on the site, which is direct revenue and improving user engagement.
So we think that there's still a lot that we can do there, and we have a track record of making those improvements.
I then point you to some of the newer products, media products like TripAdvisor ads, enabling hoteliers to get into the consideration set.
It's almost all incremental revenue and profit for us, so there's potential there that we're excited about.
And the cadence of us releasing these new products, I think, is a good sign internally when we look into the company.
And again, it's both helping the consumer and helping the biz.
And then when we look at our shift of marketing mix, we have many, many years of doing the search engine marketing pieces.
And we kind of know what to expect by way of how it changes the brand and how it builds or doesn't build a lifetime value, whereas TV, the signs that we're seeing are quite encouraging for that longer-term brand-building, changing the perception of TripAdvisor from just reviews to a place where I cannot only read reviews, discover, but also shop.
And that shop action, finding the best price, obviously, is where the money is in the Hotel segment.
Take all of that together and we see that Hotel business getting back into meaningful growth mode over the next few years and that, again, delivers on the bottom line as well, completely separate and very different dynamics in the Non-Hotel space, but we've already talked about that.
In terms of things that are out of control, which is the other part of your question, <UNK>, is clearly what has lessened our control is the marketing strategies of our partners as well as how our competitors choose to behave.
But we believe that we have such a potential with the platform, as Steve was just describing, of making improvements that we can get back to sustainable growth in that Hotel business over time and effectively offset any of the pressures that we can see there.
But, especially in the short term, as we saw in Q3, there are bumps in the road that are out of our control, very clearly.
The best thing we can do and what is in our control, to continue to make sure that we have very high-converting traffic on our sites.
And we believe that, ultimately, will pay off in revenue for us because that's valuable traffic where a large site, valuable traffic for any partner.
And we continue to hone our product and make it better and better.
And so we can stay ahead of the competition or catch up in areas where we have to catch up, which was true on the price comparison side in 2017.
The next part of your question, <UNK>, was around TV.
We are going to invest in new markets, as well, so this is a combination of continuing investment in existing markets.
Last year, in those existing markets, we obviously only spent for a little over half a year.
We started in June, but we have learned a lot.
And we think we can more efficiently spend some of that TV spend in those existing markets as well, and so we'll continue to do that.
We're launching some new markets as well and plan to expand the footprint that we touch in terms of our overall revenue footprint.
We're also launching a new creative in parallel to our existing creative that we have put in place.
And we believe being able to compare those 2 will help us drive forward as well.
We acknowledge that the consensus was higher of how much we're going to spend.
We've looked carefully about what we thought was a good progression.
We see good signs in our television investment.
We see positive signs in terms of the branded metrics that we see, both in terms of appreciation and brand awareness as well as just spiking branded traffic on our sites in those markets where we're on TV.
But we're going to grow this gradually rather than in big lumps.
And so this $100 million to $130 million is a gradual progression from the $74 million that we spent in 2018.
And of course, we'll continue to evaluate that on our way to getting this to breakeven for us.
Yes, <UNK>.
I'll take the first question and I'll ask Steve to answer the second one.
So the Non-Hotel business, we have online marketing spend, particularly in our Attractions and rentals business, to a lesser extent, also in our Restaurant business.
We've run a small TV campaign on the Restaurant business last year.
And we continue to invest in marketing the Non-Hotel segment, particularly on the Attractions side, to make sure that we can continue to capture the growth there.
And on the Vacation Rentals side, we look at rentals as an important category for all of our travelers.
We've added it on the site for quite a few years in almost all of our markets, and we certainly expect that to grow in prominence, as we feature it to more travelers and more places on the site.
So one of the things that we look and say we don't do a good enough job at is presenting rentals in markets where we don't have the right set of hotels or predominantly rental markets.
And right now it's, we admit, too difficult to find on our site.
So short version of the answer is rentals, strategic part of the offering for TripAdvisor, for the accommodation shopper and that will stay that way, but we're not making massive new investments in the rental category, vis-\xe0-vis the other players out there.
Thanks, <UNK>.
Happy to take both questions here.
On the Hotel side, Instant Booking or the ability to actually finish the transaction on TripAdvisor remains part of the product on all platforms in most countries.
We think of it as earning its spot in the meta auction.
So where we have signals that the consumer prefers this, then that's what we will show in the premier position.
Otherwise, it is yet another option.
It's not a strategic thrust for us to grow that channel, as it happens, because a segment of the population like it.
That's wonderful for us.
If not, that's okay.
So we're no longer ---+ as of a while ago, we're not trying to push that forward and we're not investing a ton of resources in that particular path versus a click-off to a supplier or an OTA.
To the second question, Attraction distribution, we are thrilled to sign up as many distribution partners for our Attractions business globally.
We think of it as TripAdvisor is one, albeit very large, distribution channel for the Viator supply platform, but it's only one and they have many others, and we love there to be hundreds more.
So we have separated the concept.
We're not preferencing a TripAdvisor platform.
We love as many different channels to be picking up that, our supply to be as valuable to attraction owners as we can.
And so since we have the demand and demand is growing, it's obviously great for the TripAdvisor traveler, but it's equally great for travelers who are on other sites.
Nothing that we call out, in particular, other than comments that you've heard from others in the industry.
We believe, overall, the market is robust.
And we are working through our transition, but we believe we're operating in a robust online travel environment.
<UNK>, first, on the TV.
So we didn't guide to a number for 2018 before.
We said we would gradually increase is what we said about it.
And as I was saying before is we look at the different campaigns, the impact.
We see good results.
We see what we want to see.
We also believe that we can improve, still.
I said before, we're launching a new creative in parallel.
We've had lot of learnings about improvement opportunities that we have at different markets that we've invested in last year.
And so rather than really expanding much more aggressively in the area of $200 million in 2018, we're going to do this gradually.
And so we're going to earn our way into it.
And if it continues to do well, that means we can increase our plans for 2019.
On the display side, so we saw ---+ as you probably point to sort of an acceleration in that line of our display and subscription in Q4, the display business can sometimes be lumpy with budgets at the end of the year being allocated at the last minute and it doesn't always replicate.
So we saw some of that happening in our Q4 business.
And so I caution against extrapolating the Q4 growth rate into 2018.
Rob, I'll go ahead and start in.
<UNK>be <UNK> could add more.
On the mobile rev per shopper, we have seen that grow.
As I mentioned before, some of it is going to be just the tailwind of people being more comfortable booking, But we've done a lot by way of reducing the friction and improving the user experience on the phone.
To the best of my recollection, the bid-downs that we saw in Q3 were across all devices because our some of our clients had wanted to pull back, for their set of issues, I would say.
So the short version would be, yes, we think our mobile rev per shopper would have been higher had it not been for some of the bid-downs.
For the Core Experience unit, it's very early days in the reorganization, but we are focused internally on building that sort of connective tissue, making sure that the user feels like they're on one TripAdvisor site, experiencing multiple different parts of our value proposition.
We're excited about it.
We see a better impact on membership.
We've also been working hard on some of the foundational layers.
We're rolling out some of our new map functionality has just been kind of rolling out, which, if you're experiencing it, you're on a test slice.
And I think you'd agree that it's actually much better than it has been.
And that's going to play out over the course of the year as we delight users in more aspects of the overall shopping experience.
I tease you with ---+ there's some new features coming over the course of the year that aren't particular to the hotel shopping versus the attraction shopping versus the flight shopping, but are really more focused around enabling folks to plan and have a better trip and enjoy the travel experience.
And those will be rolling out in plan, in design, in development now and rolling out over the course of the year as kind of output coming from this particular business unit.
It's another highlight, just to follow up on <UNK>'s earlier question about what is in our control and what is not in our control.
Clearly, what we are doing is investing in revenue sources outside of the core auction, where more of those elements outside of our control are present, as we all know.
And so this core experience is one example of that.
Non-Hotel investment is another example of that.
And Steve was talking about some of these new ad products that we offer to hotels, as well.
And so these are all categories of where we believe real potential diversification away from reliance on the core auction uncontrollable dynamics.
Thanks.
Good question on the unpacking of what's going on, on the online marketing side.
And I think it's a bit of all of those things, but a couple of things to say about that.
First is our approach had been to spend to approximately breakeven, on average, across the portfolio.
And we have different ---+ as in any portfolio, of course, different levels of profitability and some more profitable and some less profitable, as a starting point.
So we have taken a more disciplined look at that.
The second thing that has happened is we have improved our attribution models, and so we have been able to have better insight into the downstream conversion of some of the traffic that we provide.
Of course, we operate a model in which we get paid on a per-click basis, but then the downstream conversion of that traffic is actually very important for future behavior in the auction.
We've become smarter about that attribution across devices, attribution across channels.
And so that has given us some new insight into what, we believe, are more or less profitable channels.
And then there's, indeed, the impact of as your revenue per shopper moves, some channels that were profitable before become less profitable.
And so all of those have allowed us to take a harder look and draw a different line of the performance we want to achieve across all channels.
And this is Steve.
On the kind of loyalty rates and other things that other partners currently do that we don't, we think it's, in the scheme of things, a relatively small effect, if any.
There's always been a certain preference among some to book supplier direct.
And we have those suppliers, almost all of them, in our auction today.
So if you are a loyal Marriott user, that's wonderful.
You come to TripAdvisor, make sure you're getting a good price, click on the Marriott link and book and get your points and/or your better pricing, your loyalty rates.
We also have a subscription product that takes advantage of that instinct to book direct.
And again, we get paid a little differently, but we still get paid for when a traveler has that brand direct preference.
So it's not really in our wheelhouse to opine on whether those programs are gaining traction or not, but we don't think it's going to have a material impact on our business, even if they did.
Yes.
On the monetization, so we keep improving that monetization gap as, again this quarter, we accelerated RPS on the phone.
And we see definitely more upside there and more opportunity to narrow.
How far we can really narrow it over time is a question, and Steve addressed it before, of what is going to be ultimately the behavior of our users for the higher-end travel booking.
And therefore, it's always going to skew more to desktop.
But we believe we can continue on this path of narrowing it.
It may never completely close, but we are on a path to narrow it.
In terms of capital allocation, yes, we have a sufficient funding capacity.
We have both cash, and since tax reform, that cash is more freely usable across the globe for us than before.
And we have a sizable credit facility in place, so we have the funds.
We look at 2 ways of capital allocation beyond investment in operations.
One is M&A.
We continue to keep an active radar on M&A.
We've been less active on the M&A front in 2017 compared to previous years, but we continue to look at great opportunities to help us grow and enhance our strategy.
And then buyback has been a consistent area of investment.
We invested $250 million in 2017 and we've just received another approval for $250 million from our board.
And so we're actively continuing to look at that as one of the options we have for capital allocation.
Well, I want to thank everyone.
I thank all TripAdvisor employees around the globe.
Sorry that we're having some technical difficulty at the end of the call here with all of you on the line.
I wish we could take a couple more questions.
But in any event, we look forward to talking with and catching up with you next quarter.
Thanks again, everyone.
