Tripadvisor, Inc. (TRIP) Earnings Call Transcript & Summary

All right. We'll get started with the next one. It's my pleasure to have the team from TripAdvisor with me on stage, Matt Goldberg, CEO; Mike Noonan, CFO. Thanks for coming to the conference.

Thanks for having us.

So maybe just to get started to lay the foundation. Maybe just talk about some of the key themes coming out of Q2 earnings across the various segments of the business. And and what you're seeing from the current kind of demand environment out there?

Yes. So in Q2, we were really excited that each one of our segments delivered profitability for the first time in the history of the company because we have some growth businesses that had not been profitable. We've taken them to profitability. Over the last 18 months, as we initiated our strategy at TripAdvisor, we've been diversifying what that business looks like and really focusing on being a cross-category engagement monetization play shifting from sort of the arbitrage economics to more engagement economics. And you can see that playing out through the way that we set up our teams, the product improvements that we've made and some of the KPIs that we are delivering, where it's coming along nicely, and we're really pleased with how we're progressing against our journey. Of course, that is diversifying away from the traditional dependence on legacy businesses like Meta. But across the portfolio, we're also diversifying. And so really excited about the experiences category, which, as you know, is a very big TAM. We are a large and competitive player in that space. We think we have a really good chance over the long haul to win in that space. And Viator is very focused on its unit economics and investing in marketing and product and supply to ensure that we play a role as the leader in the category. I think the combination of Viator, which is deep supply connected with TripAdvisor, the largest demand generation platform in travel is a very exciting position. And then, of course, the fork, we don't talk about it that much, but it used to burn a lot. And we focused on unit economics, and we brought that business into profitability as of Q4 last year. We've announced that it's going to be profitable this year. And it's still delivering a beautiful double-digit growth rate. So you've got double-digit growth rates coming out of Viator and the fork. And ultimately, those two businesses delivered $20 million incremental EBITDA to the portfolio over the year prior. So we're excited about how each part of the portfolio is progressing against its strategy. Now on the demand side, demand for travel is healthy. We have not seen trading down. We have not seen booking windows narrowing in a meaningful way. We've seen a very healthy traveler with strong intent. One of the things we're really excited about is that they seem to be putting the experiences category at the center of their budget as they plan their travel. So when we talk to travelers and we look at what they're doing in the fall, 84% say that they're going to put the experiences at the heart of that budget. 2/3 say they're going to book multiple experience as they go. That's up from last Q2 last year, and so experiences is getting stronger and stronger. But I would say the traveler is intent on getting out there. There may be a little bit of a bifurcation between the upper end and mid and lower-end travelers, but they're not cutting back on their travel. They are defending that discretionary spend because there's this huge shift to a desire to go out and experience the world, and we intend to help them do it.

Great. Well, that's a great place to maybe dive in more on brand trip. You talked about the strategic priorities and reorienting the platform. Maybe just talk more specifically about those strategic priorities? And what are some of the signs that you're looking for to gauge success on the execution of the strategy?

Sure. A lot of people think of TripAdvisor Group as brand TripAdvisor and people think of brand TripAdvisor as travel metasearch or price comparison. And there was a time 10 years ago where that was largely true. We have diversified, but we're on a diversification journey where rather than think about the headline top-of-funnel traffic that's coming on to our site, one size fits all product and moving it off of our site so that we can take the spread in that arbitrage economics model, we are shifting our focus to engagement economics. And it starts with products. So we have initiated a lot of product change and design. If you look at our app, it doesn't look anything like the way I've looked 18 months ago. We've put generative AI at the heart of the trip planning experience. We're doing prompt engineering to get people to come in and think about what they want to do. We are delivering an itinerary that they are typically excited about. We're seeing some really interesting improvements in KPIs like where we've launched our product changes. We've seen MAU stabilization and growth in North America, where most of the product work is happening. We've seen -- but as importantly as the MAU, which is still top of funnel, we are seeing growth and improvement quarter-by-quarter in our membership base. In our direct traffic and those who are trip planning with us. And all of that flows through into ARPU improvements because at the end of the day, CPC ARPUs are low, transactional ARPUs are more interesting. We have proven that the traveler wants to come and book with us in experiences and now we're extending it into other categories. So last quarter, we quietly launched hotel booking in the app. And we're really excited about what we're seeing there because we're seeing that travelers who come and book a hotel in our app are members. So they're logged in. We know a lot about them. We can super-serve them. They are more likely to come back and repeat. They are more likely to spend more with us, they're more likely to leave a review. They are certainly times more likely to book an experience. So there's this interesting cross-category booking opportunity that we think are in a really good position to deliver on. So the strategy is showing up in our KPIs and the next stage is, of course, to scale that. We start to think about how we market to them. I know we'll talk about that. And then we start to see how it flows out into our financials.

Yes. And I do want to talk about the bookable inventory. Before we do, given the importance of driving more app-based logged-in members, how do you think about optimizing the marketing efforts around targeting those types of consumers that will convert to an app-based or Monte member?

Absolutely. So we're -- it used to be that we're so focused on the headline number of how many people come to our site. We are so much more focused on those who are engaging on our site now. And it used to be that our marketing was very bottom funnel. It was totally driven by what did we think we're going to be able to deliver by getting people through that CPC user experience. Now we can start to understand the intent of a traveler, use our data to target those segments very thoughtfully about when they're intending to come in and plan with us. How do we bring them in, how do we move them into the app and increasingly, how do we get them to book with us. The unit economics are significantly better than the meta unit economics. And we think that the product can exist in a complementary way. So what you'll see us do with our marketing is to get much more focused on targeting those users, mid-funnel, social CTV addressable media, and we think that we can connect it to our brand spend and have many more people coming in. Some of them will continue on the meta journey, but a good number of them are basically expressing to us through the behaviors that they want to engage and they ultimately want to book. And then, of course, on top of that, we can deliver a media experience as well.

Got it. You talked about the bookable inventory in TripAdvisor's passed, there have been a few different efforts to drive more bookable engagement. I guess, frame how this is different, why you think this is different and just more about that partnership that you've entered to with hopper?

Well, it's totally different. And we've approached it in a totally different way. And what we've done is we've designed it with the consumer first with the intent to come in and as you are planning your journey. It's not starting from the perspective that an OTA might start with, which is I want to get them to the bottom of the funnel converting as quickly as possible. We're in a position where we can start to think about how do they want to plan their trip, be guided, what destination or experience or a hotel or restaurant are they interested in? We can serve that up and then suggest if you're interested in that book it. So it allows us to think about it very differently, which is very consumer friendly. I think, as importantly, in the past, our efforts, and this is before I arrived, we're not friendly to the ecosystem. They weren't done with the suppliers in mind. We designed this entirely with our supply in mind so that they could think about us as an incremental source of demand. And the signals we are getting when we have conversations with the hotel companies and other categories is that they look at it as an incremental new source, very different than what they see in the OTAs. We are not behaving like a traditional OTA. So I think you will see because it is behind a membership firewall because it is in our app, we'll be able to do many more creative things like look at rewards, look at bringing in closed user group pricing, look at thinking about how we want to engage the suppliers directly in ways that they can grow their business. So we're very excited about the early indicators. We've also, in the past, we tried to build it all ourselves. This time, we partnered and allowed us to get going very quickly. Our partners bring technology, the ability to optimize the funnel and supply and the supply is very good. We've got good availability and pricing. It's going to get better. There are things we haven't announced that are coming that will make that better, and we think we can grow this, and it can be complementary to the meta opportunities because Meta is still relevant for the OTAs in many hotels. But booking in our app as a member is sort of a member-only experience because you're coming to plan and you're going to be rewarded for it and it's going to be -- you can imagine an AI agent that can deliver an itinerary across all categories and immediately make that available. I think we're probably as close to anybody as being able to deliver against that.

Yes. And it wouldn't be a tech conference if we didn't talk about generative AI. You mentioned the trip planning tool. Just talk about what that does for the ecosystem. How you think generative AI may or may not change the traditional travel funnel as we have historically viewed it -- and maybe separate from that, how do you think about utilizing your rich data reviews internally versus we've seen some companies start to license some of that out to the [indiscernible].

Well, and promptly if I don't answer one of those questions as we go. We've said all along that generative AI is a huge opportunity for our company. We have one of the most trusted brands in travel and TripAdvisor stands for that privileged intersection of trust between the hundreds of millions of users that are coming to us each month and the 8-or-so million businesses that want access to those users. So we first lean into that privileged intersection of trust. By the way, in an AI world, trust becomes more important and more valuable. Because it's hard to find sources. You can trust you don't know where information is coming from. There's all kinds of challenges as you go along that journey. So we bring a privileged opportunity. We have the best quality content asset at scale out there in travel, and it continues to get refreshed because these are divergent points of view, they're aggregated together. We can deliver them in a sort of aggregated way, so we can do reviews that are summary reviews of our hotels, our experiences, our restaurants, and we can deliver that in a way that gets more and more users engaged. And if you put all that together, what you have is an opportunity to be very contextual to understand the data of somebody's coming in, what their intent is to be personalized for them to suggest what they might be interested in because of what they did last time around, and you can deliver a solution that I think users really want. I was intrigued that when we did surveys and ask people, this fall, how many of you are going to go out and use an AI tool to plan your travel. About 1 in 5 say they have a little less than 1 in 5. So they have an intent to do that. If you follow up and say, well, which tool you're going to use. A lot of people say, Open AI, Chat GPT. I think it's on everybody's mind. We've all been talking about it around the dinner table. But then if you say, "Well, who else." The next name is TripAdvisor. And that's because we have a highly contextual experience where AI is being used and it's actually leveraging a data set that is highly trusted. So we've got this great opportunity, and I think we've evolved that product over time, and we are seeing the utilization of it increase. We are seeing the ARPU of somebody who's our trip planner, it's 15x the ARPU of the average user on our platform. Our job now is to scale that and to deliver against that. You asked about licensing. We've had just about every AI company come to us and say, we'd like to talk about it. I think we do have a licensing opportunity there. I think we'll be very thoughtful. I don't think we just want to take our content and data and train LLM, I think what we want to do with companies is think about how can we bring our understanding of the traveler to do something unique. If there's an AI sort of top of funnel opportunity, we intend to be there. And I -- what I'm hearing from those companies is that our brand and our providence and our understanding and our data and our content is highly interesting, then you take our supply and you can turn it into a monetization opportunity. Just one other point on AI. I think we're one of the few companies who's actually talked about how we are monetizing against AI because we are seeing that it's driving higher levels of engagement and it's flowing through to economics. So now we have to scale that.

Yes. Great. Well, Mike, we talked about the demand picture, we talked about strategic priorities, some of the things you're investing in. As we think about the back half of the year into '25 and frankly, structurally, how do you think about the margin profile and the free cash flow that the Brand TripAdvisor segment specifically looks?

Yes. So for branch adviser, I think the starting point is there's a strong foundation of margin there already, right? That's point one. And I think we're on this journey of transformation that Matt talked about. I think last year was all about getting the pieces in place, the building box in place, brought a new Head of Product B, new Head of Data, a new Head of Engineering. So brought a lot of talent in the organization. We're excited about this year is about product build and you're seeing the fruits of that. And then next year is really more about scaling into that bill this year. And so margin -- our margin journey, we did call for some pressure in margins in the back half of the year. That's really driven around how we're managing the hotel meta product itself. As we said many times, we are not out there. It's a very competitive market, right, particularly the paid channels to go compete with some very large players in the pay channels. We're not going to stack price contribution margin, right? And so we're managing much more for a contribution margin in that asset as such. We do give up growth dollars. And so some of the margin you're seeing the margin pressure you're seeing is really more from fixed costs because of the lower dollar amounts. And those fixed costs are people. And we took some really tough action last year with costs in brand Tripadvisor. But we said, and we did, we used those to invest in our transformation, which we feel deeply about, hiring those engineers, hiring those data scientists folks. And so that's a piece of the margin pressure you're seeing. There's a piece of systems and data that you're seeing come through that. And to a much small extent, we're seeing us expecting to start to test into some of the marketing campaigns to attract users, right, to attract people into the app, small, and we're going to do it very purposely as we test our way into that. And so I think that's what you're seeing from the margin progression as we move into the second half of 2024. '25, too early to make a call on that. I'm sure you appreciate that. But it goes without saying everything we're doing in our strategy is about growth and margin stability. And we're very excited, as I said, about as we have coming through this year and to testing some of these strategies to do that. and look forward about being more -- give more guidance when the proper time run now.

Great. Let's shift now to Viator. It is the fastest-growing segment of the business. Maybe just frame how you think about, number one, the opportunity and the TAM that you're going after there relative to some other subsegments of travel? And then some of the near-term dynamics that you've called out for Q2 and how you see the back half of the year shaping up?

So I can start, and then if you want to add on. The experiences category is such an exciting category. And to the extent that I got really excited to come in and take over for Steve, our founder, it was really about being able to put experiences at the heart of what we're doing because that's where the traveler is going. It is a TAM that is arguably going to be $350 billion or more. It has very durable tailwinds around the shifting from offline to online. It's a difficult category. There's a lot of difficult things you need to do because it's a very fragmented set of operators. The products are disparate and have different dimensions to them. And so you really have to bring it together. And it's challenging. It's also a competitive category, and we think the competition just suggests that's big and exciting and we like our positioning. It also has this dimension of digital is going to grow faster than off-line and OTAs are going to grow faster than digital as a whole. So where we sit is really good. And I think this durable sort of megatrend of human beings really preserving discretionary expense around experiences and particularly at travel experiences is going to last. I think that is a new normal. So we expect the category to grow faster then travel as a whole. And that is in effect what we're seeing. The team is going after thinking about their marketing plan in a way that is up and down the funnel, building out the brand, making sure people are aware of the category because many more people want to book in this space that don't actually know that the category even exists. So you got to kind of tell them about that. By the way, my belief is that any of our competitors who are spending to talk about the category lifts all boats, so we'll take it. We also are focused on being mid-funnel as well and really thinking about how do we get people coming in and letting the product do the work. We're sending more into our mobile app. Some in this space want to get you downloading the mobile app first. Our view is common book and then we'll get you into our mobile app to repeat. So that's our view of it. And we're seeing both repeats increasing, we are seeing unit economics improving. We're seeing the product do the work to get more repeat going faster. So each cohort successively is getting to multiple repeats faster than the previous cohort did in the future. And we think a lot of that is around our mobile app and our rewards and the way that we are thinking about presenting the largest supply base available anywhere against the multiple pools of demand that we have. And then finally, we are focused on the B2B side of this business, too. We're one of the few that is going after third party. So we've got TripAdvisor as a third party for Viator. It's the largest, but we're also serving Expedia and Booking and Amazon and Uber and thousands of others, including travel agents who we give tools to so that they can book experiences for their travelers. So it's really exciting. I think we have a lot to leverage from the TripAdvisor breadth and demand, the data set that we have. So think about it if you're sitting at Viator and you're a marketer, you understand when somebody is booking a hotel where they're booking it, when they're going to be there, and you can immediately start to think about targeting them with an experience. Similarly, if you're sitting at TripAdvisor, you understand someone who's booking experience and you can target them as well. So we think our data asset is very valuable, and we certainly think leveraging third-party B2B and supply is going to be valuable for us.

Dio you want to add?

It was great answer. I mean, listen, I think there's going to be big businesses coming out of the category. It's a huge space. We have the ambition to be one of them, obviously. I think there's some great macro tailwinds, it's largely offline complicated. It's hard. Those are great things for people that are doing that today. There's some great things you need to us as Matt highlighted, how we interplay brands and provide with Viator is a really powerful group for us. And I think there's so much more optimization we have yet to do at that highlight, particularly in the app. So we're super excited about the opportunity here.

And when you think about like what are some of the levers or big unlocks from here whether that's on the product or app, whether that's on the brand awareness or category awareness or even just like the supply scale, right, and choice and selection in the app. What do you -- how would you rank those? Or what do you see as the big unlocks for the category in Viator specific?

There's a few -- all of the above. There's a few really big unlocks. One is the way that TripAdvisor and Viator work together and the interface between the 2, where we're just getting started. There are opportunities around how we think about marketing, how we think about funnel optimization, how we think about those products, do different jobs, put work together because we know that they're complementary. There are absolutely opportunities around supply we have 300,000 experiences from over 50,000 suppliers. I don't think -- and that's great. It's multiples more than the next closest in the world. I don't think that quantity alone drives the win. I think it's quantity cross with quality, and we are very focused on getting that right. But what that allows us to do is to think about the pools of demand because TripAdvisor brings demand in every region of the world. We have demand in Asia that's not being -- and by the way, many people that are coming and looking for experiences where we're not matching supply. And I think we have the opportunity to go out and drive partnerships. We're already partnering, for example, in a different category. We've done a partnership with Tickets, where we brought them on to the TripAdvisor platform. That's -- it's timed tickets for museums largely. We have seen that in that partnership, that is incremental revenue that does not cannibalize the other categories of experiences. So we can do more category partnership. We can look I think there are a number we can look at dynamic pricing. There's a lot that we can do. I'm excited about our R&D agenda and really thinking about how we make it the best user experience on every single surface. We were probably under-invested in R&D over the last few years as we were growing very rapidly and thinking about acquiring new customers, I think you will see us invest thoughtfully in our R&D agenda that will really drive growth in the future.

Great. And Mike, as we think about the margin profile of the Viator business, how do you view the kind of balance between wanting to execute against the opportunity and drive growth versus the margin profile of the business and some of the things that we talked about around marketing efficiency and repeat rates?

Yes. So we very much, first and foremost, are looking to take opportunity of the opportunity, right, and capture share. And then we've been operating the business that way through, I think, appropriate growth to scale. And so we do have a mind of profitability. And so we're very thoughtful as we think through these growth investments. We do -- we have said that we are expecting Viator to be profitable for the full year. A lot of that is being careful on marketing spend, brand performance, a lot of that though is maturation of cohorts, right? As we've said many times, a key to our growth algorithm, which is acquire new user and get them to repeat. Right? Give me a great experience and getting to repeat. And as they repeat, they have a tendency come back to us less and less than pay channels, right, less dependence in the channel. So as we think about that even this year, given the maturation of some of those older cohorts is really what's helping drive some of that profitability. So listen, we're going to be very opportunistic as we make these choices. Scale is important in this business. Scale is important in 2 sided marketplaces. And so we want to make sure that we are appropriately balancing the two.

Got it. Well, let's give the Fork some log as well. Maybe just talk about how you think about the for strategically within the broader portfolio of assets -- what does that look like from a demand perspective today and some of the things strategically you're doing at the Fork asset?

Well, let me just say, when you talk to travelers and you ask them, what are you going to do when you go on your next holiday dining comes up as the #2 or #3 thing for almost everybody. So dining actually fits nicely with travel. We think that having the leading dining platform in Europe is really interesting because you both have an intra-Europe travel mindset. And you also have a inter-travel mindset. Of course, coming from the U.S., it is a really important opportunity for us. In fact, where live banning is local. I think the travel use case for the Fork is actually relatively higher than some of the other dining platforms. In Europe, you also don't have Yelp, you don't have resi, you don't have OpenTable. So having the European player, I think, is very advantageous to us. I'm really proud of that team. The 3 years before I arrived, they were burning, burning, burning. And I looked at that business and I said, "Wait a minute, this business can deliver profit. They can also deliver profit while growing double digit." And I had some investors who said to me, if you could do that, that would be impressive. And I'd say we're going to do by the end of 2023. Well, guess what, in the fourth quarter 2023, we delivered profitability and we're going to deliver profitability for the full year this year, and we're going to continue to deliver that double-digit growth rate. And the reason is that team got really focused on unit economics. We focused on the markets that matter for us and how they interrelate. We finalized our investments in the past in technology, and we've started to leverage product improvements, both on the B2C and B2B side. And they are doing a lot of work around marketing efficiency and rationalizing the way they were spending on brand, thinking about their performance marketing, leaning into new channels like social, leaning into CTV and really getting improvement. So you see ARPU rising. You see customer acquisition costs lowering. So your LTV to CAC is improving. And they're moving people into their app, more than 75% of the bookings come through the app that is high repeat and it is a high spend traffic. So we're really excited about how they're doing. The demand for that business has been strong and consistent. And we're excited for them to contribute to the portfolio. And I think that's a really important improvement over the last 18 months.

I did want to talk about and address the special committee. Maybe just remind investors what you've said publicly around the special committee from this year? And more importantly, just how you as a management team are thinking about the opportunity to unlock asset value and how you're attacking that?

So we're limited on what we can say about the special committee, but I'll just remind everybody that we have a control shareholder called Liberty TripAdvisor Holdings. They announced through a 13D at the beginning of the year that they were considering a potential transaction. We made 2 statements since then publicly. I'll repeat them. The first one was, okay, well, we're going to set up a special committee of the Board, and they will evaluate on behalf of all shareholders, those potential transactions. The second statement that we made was back in May, which was the special committee didn't see a transaction that would is in the interest of all shareholders, but they were going to continue their work to evaluate alternatives. I think Greg Maffei, who is the Chairman and CEO of Liberty TripAdvisor Holdings, my Chairman, he made a statement he -- I think he was here today. So I don't know whether he paid any comments. I wasn't there. But he made a statement at his last earnings and he was continuing to evaluate alternatives. So that is the state of play. I think that, that whole situation, which is one where it will get addressed one way or the other, people who study these things and understand them understand that, that will happen. We are engaged, but we are not getting distracted. We are totally focused on driving this business. I think it is an overhang on our equity. And I think once it gets resolved, that overhang will be lifted.

Great. And Mike, I mean, when you think about striking the right balance between investing in the core business, you do have a share repurchase program. Just how do you think about balancing those 2 factors from a capital allocation perspective?

Yes. Capital allocation for us, first and foremost, is into our -- into the core operations business and our business is not capital intensive, right? So it's really more about P&L management and making sure that we are -- every dollar we're spending has the highest return to it. I think about capital allocation in a couple of ways. One, we want to really maintain a very strong balance sheet, right? And we do that. We have a little over $1 billion, $1.1 billion-ish of cash. But in that cash, you got to remember, there's a fair amount of deferred merchant bookings in there, which is the upfront cash we get to our customers and their bookings. So if we back that out, I think in June, we had about $750 million is the cash. So we want to make sure we have strong liquidity. We do have an ambition to be a leader and continue to be a leader in the experience of space. I think there are a lot of interesting things out there from an M&A perspective, which we talked about. We've been talking about for some time. We haven't done anything. We have a very high bar when it comes to M&A. So those are really important. We do have an open buyback authorization that we will continue to look at that opportunistically.

Great. Maybe take us home here in the last few minutes. Most companies are in the process of doing their forward planning. As we look out over the next kind of 12 to 24 months, what are you most excited about to execute against operationally within the business?

Yes. So first of all, last year, we had our best year ever in the history by revenue. I'm very focused on moving us to having the best year ever by EBITDA. We're doing that by putting the traveler first and really understanding how they want to engage with us, how they think about experiences and other categories, we are transforming the hotel category, which we're really excited about. We are moving forward on the restaurant category. But most importantly, we are excited about this huge opportunity around experiences. I think that over the last 18 months, we've made a lot of progress. I would say we are well on the journey to transforming the core. I'm really proud that over the last 18 months, we took our two growth businesses to profitability. I think that's really important. The way that our portfolio works as a whole, we'll see increasing profitability coming from our growth assets. So we're really excited about that. And as we get into planning, I would say our teams are highly engaged on what we could be doing differently that is going to materially move the needle. And it's early, but we see a lot of opportunities to drive this into the future. So more to come.

Great. Matt, Mike, thanks so much. I really enjoyed the conversation. Please join me in thanking the team and Tripadvisor for being at the conference.

Thank you.