Q3 2022 Tripadvisor Inc Earnings Call
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Good morning, and thank you for standing by and welcome to the Tripadvisor Conference call. At this time, all participants are in a listen only mode.
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I would now like to hand, the conference over to your speaker today Angela White. Please go ahead.
Thanks Corey.
Everyone and welcome to the Tripadvisor third quarter 2022 financial results call. Joining me today are Matt Goldberg, President and CEO art, Tennyson, outgoing CFO and Mike Noonan, who joined us as incoming CFO effective October 31 2022.
Last night after market close we distributed and filed our earnings release and made available our shareholder letter on our Investor Relations website and the release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measure discussed on this call.
Also on our Investor Relations website, you'll find supplemental financial information, which also includes reconciliations of certain non-GAAP financial measures discussed on this call as well as other metrics.
Before we begin I'd like to remind you that this call may contain estimates and other forward looking statements that represent management's view as of today November eight 2020 to Tripadvisor disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to our earnings release as well as our filings with the SEC for information concerning factors that could cause actual.
Our results to differ materially from those forward looking statements with that I'll turn the call over to Matt.
Angela and good morning to everyone joining the call.
Angela mentioned on the call with me today are Ernie Tennyson, outgoing CFO and Mike Noonan, who started just over a week ago.
In mid October we announced the CFO transition and I'm pleased to have both Ernst and Mike on this call.
I want to start by welcoming Mike to his first earnings call today with Tripadvisor. Many of our listeners know Mike already and understand why we are so excited to have him as a member of our leadership team given his strong track record and deep industry experience. This is an exciting time to join Tripadvisor and we have no doubt he'll hit the ground running.
I also want to recognize Ernst and thank him for his steady leadership as a steward of capital trusted colleague role model and friend, we're excited for him as he thinks about his next chapter and grateful for his commitment to a seamless hand over to Mike.
Now to the quarter, we were pleased to publish the results shared in last night's release and shareholder letter we exceeded expectations. In Q3 was also the first quarter that we surpassed 2019 levels on a consolidated revenue basis at 107% accelerating from 99% last quarter.
Worth mentioning that this was also our highest quarter of revenue on record at $459 million not by much but a record nonetheless.
We provided a thorough outlay of quarterly results last night, but I'd like to take a moment to cover a few highlights before turning to some bigger picture items.
Each segment of the Tripadvisor business delivered a notable performance in Q3.
First <unk> led the way in revenue growth and recovery rates at 179% of 2019 levels accelerating from 160% last quarter.
This represents a 138% growth year over year, we're excited about the large and growing market opportunity to connect global travelers to memorable experiences. The team is executing effectively with a lean cost structure and we're seeing their efforts bear fruit investor.
Investments in the shift to mobile higher product quality programs for suppliers and marketing are driving higher take rates record new customers and improved repeat rates. As a result, we saw record revenue and gross bookings, which year to date have crossed over the $2 billion Mark.
At the Fork, we continued to see the business recover in Q3 to 103% of 2019 levels, a strong showing particularly with an estimated negative impact of 9% due to currency headwinds.
Targeted investments in our products technology, and marketing are starting to generate the desired results.
We're seeing strong mobile app downloads and unique visitors on an aggregate basis that compare favorably to other global players.
We believe we are building loyalty and better lifetime value economics, with our customers with increasing numbers of direct bookings through the app and from repeat customers.
Finally in our core Tripadvisor segment, we also executed a strong quarter with sequential improvement and recovery to 88% of 2019 up from 84% last quarter.
Our branded hotels business reached 95% of 2019 levels up from 89% last quarter driven by continued recovery in our hotel meta where hotel auction as we call it in the past.
We believe this is a clear sign that demand for travel remains healthy and that we are driving value for our customers and our partners, which we will continue to reinforce.
The tripadvisor experiences in dining revenue stream was a notable standout recovering 125% of 2019 levels up from 117% last quarter as we continue to build relationships with travelers looking for more than hotels.
In our hotel <unk> and media offerings, which have largely mirrored trends in hotel marketing and shifts in the advertising market. We've recovered at 79% and 80% of 2019 levels, respectively, and our teams continue to lean in to the opportunity to serve our partners even more effectively.
Across the board, we had a strong quarter performance and I really want to thank the teams for maintaining focus and delivering strong results.
Next I'd like to take the opportunity to share some thoughts on my first 100 days in the role.
On my first call in August I mentioned, some key reasons I joined Tripadvisor, including the company's enduring assets that I believe will set the path for the future a.
A few that I mentioned, we're a far reaching brand built on trust.
A diverse set of assets across our segments, a large global audience, making meaningful content contributions a wealth of data to leverage across the group.
<unk> and colleagues and culture steeped in our purpose of connecting people to experience is worth sharing.
Now here on my second call I can confirm my initial belief that these assets provide a strong foundation from which to re imagine our future.
Had the chance to travel to many of our offices discuss opportunities with our teams compare observations with other thought leaders in the travel industry and talk to customers and partners. What is abundantly clear is that we play a critical role in an attractive travel ecosystem with numerous paths for growth in this dynamic and fast moving.
<unk> environment.
As a starting point, we believe that people are increasingly seeking ways to reconnect with the world, making the most of their precious time and resources as they prioritize meaningful experiences above material consumption.
Our goal is to connect people to experiences worth sharing which is paramount after years of isolation during the pandemic and the perception of increasingly disconnected and divided world.
Tripadvisor group represents a family of brands with a shared mission to be the world's most trusted source for travel and experiences. We can deliver this across brand tripadvisor the world's largest travel guidance platform via tour, the leading marketplace for in destination Bookable experiences the Fork Europe's Lee.
<unk> online dining reservation platform and cruise critic the largest cruise committee in the community in the World.
Our opportunity is to build on our relationship of trust one of our most precious assets and one that we will continue to reinforce and enhance.
We are well positioned to capture the secular shift in consumer demand from physical goods to experiences, which we expect to fuel the future of leisure travel.
I also recognize that we have not always executed on our ambition as effectively as possible or made the most of all our assets and capabilities.
While the business has bounced back well from the pandemic there are opportunities to reinforce our relevance and create even more value for travelers experience seekers diners and our partners.
This leads me to an area of focus where I spent much of my time in the last few months kicking off work to align the company around a clear set of strategic priorities, starting with the core Tripadvisor brand.
While it's too early to share specifics what I can say is that we're taking the time to re imagine the unique role we play in travel.
There, we can address consumer pain points and how we can further differentiate ourselves on our future path.
Together with our talented employees, who are subject matter experts, we've embarked on a structured process to evaluate our business take effect based data driven view and set the path for a clear and compelling strategy.
And our team is energized by the opportunity.
My mission is to make sure we continue to evolve so that we can serve travelers diners and experience seekers for decades to come and this means that the traveler experience will be at the center of everything we do.
We will lean into the strengths for which we're known reinforce our value proposition and identify new ways to drive sustainable growth as we do so we will seek to build enduring relationships with travelers leverage our data to better understand and address their needs and create a highly engaging experience for the.
<unk> and our partners.
Before I turn the call over to Mike and Ernst I want to reiterate how excited I am to be here, how pleased I am with the quarters results and how much I am looking forward to continuing the work on setting our priorities and sharing more with you on that in the future.
As we close out the year and look forward to 2023, we've heard a lot about high interest rates questions about consumer spending the rising cost of goods and services recessionary pressures across the globe and the impact all of this will have on travel however from our vantage point, it's too early to point to indicators that would tell us one way or.
The other where things will land next year.
Travel remains robust and our internal Dec data suggests that a majority of travelers plan to travel the same or more over the coming months and many are even willing to spend more.
We've also observed that cost and affordability is becoming more important when planning a trip and consumers are likely to be more diligent as they research a trip and decide what to book.
This may create opportunity for us as we seek to address consumer preferences, and we also acknowledge that as financial situations shift the consumer may adjust.
Regardless of near or medium term external macro conditions, we have conviction about the resilience of our portfolio of brands, our positioning as a trusted source for travel and experiences is an enduring long term opportunity and I'm excited at the work we're doing to ensure that Tripadvisor group.
<unk> continues to play a vital role in our industry for years to come now I'd like to turn the call over to Mike to say a few words.
Thanks, Matt and good morning, everyone.
I am very pleased to be here and joined the call.
I've known Tripadvisor for a good number of years and as a company have long respected and followed.
It's been clear that the opportunity in travel and experiences continues to evolve and innovate and I am excited to be part of this innovation at Tripadvisor.
I'm, particularly looking forward to joining at this juncture.
Working to establish our strategic priorities and solidify our near and long term planning.
It's very early days for me and I will certainly take advantage of the transition period Ernst as providing.
But I'm also looking forward to providing the team with a fresh perspective, and leveraging my background and experience.
Matt talked about the work we've been doing to set strategic priorities regarding 2023.
Given where we are in our planning cycle and importantly in setting our strategic goals.
It's premature at this time to provide thoughts on our outlook for 2023.
However, we believe we have an opportunity to lean into a large and growing travel and experiences market.
In light of this opportunity, we will assess areas of investment.
Opportunities to reallocate capital.
As well as look for ways to continue to drive operating efficiencies.
We will continue to do so with a disciplined.
<unk> driven approach.
I'm looking forward to catching up with everyone over the coming weeks.
Now to earn to cover the results.
Thanks, Mike and good morning, everyone, we had a great quarter exceeding expectations and reaching $459 million in revenue, which was a 51% increase over last year and reaching 107% of 2019, while currency was an estimated 5% headwind to growth versus 2019.
Adjusted EBITDA also exceeded expectations at $115 million or 25% of revenue.
Free cash flow was $46 million, reflecting typical seasonality and we had about $1 1 billion of cash and cash equivalents.
In addition, both year on year and compared to 2019, our fixed and discretionary costs as a percentage of revenue have come down resulting in adjusted EBITDA margins in the Tripadvisor core segment at pre pandemic levels.
We were also pleased to see viator deliver its first profitable quarter since the pandemic started and at levels that exceeded those in 2019.
And I know that <unk> segment, EBITDA is above 2019 for year to date as well.
We achieved that with massive revenue growth.
We provided our outlook for Q4 in the shareholder letter, we published last night with some details on some of the puts and takes to the 2019 comparisons.
I want to highlight the following.
Operationally.
Nothing material has changed from Q3 to Q4 in core Tripadvisor. We are seeing the same revenue trends continue from September .
The only material operational change in Q4 as the increased investment in <unk>, which we started in Q3.
For the core if you take out some of the one offs in Q4 2019 as the comparison point growth in Tripadvisor core in October and November and December is like July and September as a percentage of 2019.
In the core we have we've had we have a larger EBITDA margin step down from Q3 to Q4 than we had in 2019 for reasons of the cost profile in Q3, and Q4 of 2019 not material increases in spending this year.
There are obviously, many puts and takes regarding comparisons three years ago that we understand it makes it challenging to compare quarter to quarter performance versus prior periods.
We are excited to be investing in <unk> in Q4, while keeping combined Q3, and Q4 EBITDA to be approximately breakeven.
We are investing not only because of the strong topline performance. This year, but also the underlying customer economics have moved very favorable.
Before I close out the prepared remarks, I want to take this opportunity to say that's been a pleasure working with all of you over the last seven years.
I believe Tripadvisor is an amazing brand an amazing company and will always hold a special place for me and I will continue to watch this progress mitral.
<unk> transition ended the year at year end and I feel very good Patrick on the Baton to Mike.
With that I'll turn the call over to the operator and begin Q&A.
Thank you very much at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced please stand by while we compile the Q&A roster.
Okay.
Okay.
Okay.
Our first question comes from Richard Clark at Sanford C. Bernstein, Richard Your line is open.
Thanks, Thanks, Joe Thanks for taking my question I guess to start with the Q4, 10% EBIT dollar guidance, so just to unpack, what youre, saying youre, saying.
The drop off from Q3 to Q4 is just the 2019 season effect, maybe you can just remind us what that seasonal effect is.
And what was the 2019 Q4 margin kind of ex those seasonal effects in 2019, and then thinking ahead to 2023, obviously your margin in Q4 is going to be 17% lower than it was in Q4 2019 should we carry a large chunk about 17.
<unk> percent lower into 2023 orders of large slice of that reverse as we think into next year.
Thank you Richard.
Yes, a few puts and takes and thanks for the question.
Hopefully, we will clarify that too.
Satisfaction.
So.
The first comment is there is always a C.
The decline from Q3 to Q4, and EBITA margin and that is because theres a seasonal decline in revenue from Q3 to Q4, and therefore fixed cost coverage is is unfavorable in Q4. So that's a general trend that's always always happening.
Additional to our consolidate if you compared to 2019. In addition to our consolidated results is of course that the waiting for via <unk>.
Where we are and queuing incurring a loss projected loss in Q4 is much larger than it was in 2019. So you have a mix shift overall, there as well if you go to the core.
And compared to 2019, we had in 2019.
Very limited seasonal step down in EBITDA margin.
From 30% sorry from.
The 34.
Okay.
I apologize from marginal step back from.
39%.
From 40%, 39%, sorry, I was following a little bit from 40%, 39% a very small step back in 2019 in Tripadvisor core and the reason for that was that we had a number of fixed costs in Q3, and Q4 that were different. So we had a step down of about $20 million of Av.
Unique cost from Q3 to Q4, one was television advertising.
Down meaningfully from Q3 to Q4.
And the other one was.
A reversal of a bonus accrual that we did in Q4 2019, and so that made the step down much less pronounced than it would typically have been that was a major impact.
And if you take all those things together the seasonal decline that we're projecting.
Between Q3 and Q4.
As typical.
But for the additional investments, we're making in the <unk> brand.
Okay, and then just how should we think about those effects as we run into 2023.
What is the kind of be the headwind to margins into 2023 from this from the effects youre, giving.
Well so the comparison to 2019, hopefully will be in the rearview mirror as we move into next year and we'll have some more normalized trends.
There is there are just so many puts and takes if you compared to 2019, because the profile of our business was different.
The other different different there wasn't.
In 2019 was.
We had a few businesses that we are no longer consolidated we had our China business, which is the consolidated we had our smarter travel business, which will be discontinued.
We had very different mix between different lines revenue lines and segments and so the comparison to 2019.
It's always going to be very difficult hopefully into next year, we will have a more normalized comparisons to the trends that you've seen in 'twenty two.
Okay. Thanks, Yeah, and I think I would just add that you've got you've got the <unk> investment that's unique to this quarter and that could be a differential as well.
Okay, Okay, that's a one quarter investments gotcha.
Well it started in Q3 and extended into Q4. So it is a Q3 Q4 2022 investments.
Right. Okay. Okay. Thank you.
Thank you please standby for our next question.
Okay.
Our next question comes from E com.
<unk> Securities.
<unk> Your line is open.
Yes, hi, Thank you. Thank you.
Australia Miss you on these calls.
Right.
Tom.
So a couple of questions maybe the first one for me would be just on the branded AD campaign that you didn't go back or can you just maybe talk about the relative size of this campaign and what kind of payback, you're expecting and over what time period.
And then.
Matthew you spoke about maybe.
Some cost and affordability, becoming more important to the travelers can you maybe just.
Elaborate a little bit more on what Youre seeing out there are you seeing people doing more searches or are you seeing.
More price sensitivity.
A little more color there would be helpful. Thank you.
Thanks, Mike I'll take the first part of it.
We've said that for <unk>, we expect to be roughly breakeven on EBITDA between Q3, and Q4, which dimensionalize the loss for you of either in Q4.
Without the brand investment in Q4, we would have been breakeven plus.
Vital for the quarter as well, which gives you a little bit of a sense of.
All of the magnitude.
We started this investment in Q3 already but at a lower at a lower level I just wanted to say a few things about why we're doing this and why were doing this now.
Obviously <unk> been on a spectacular path this year.
As we have been sort of observing the underlying economics underneath.
We are seeing improvements in conversion rate, we have seen improvements in the number of items people book per trip.
<unk> seen improvements in trips per traveler retention rates.
Take up rate and so all of these things multiply two and increasing.
Estimate of lifetime value that we have an improvement of cohorts that we have and.
So that's been very encouraging underneath.
We have.
Nice loyalty and repeat from those users that have used us on viator, but are.
Our awareness among the broader populace is still somewhat limited and so we believe that by sort of targeted and sort of thoughtful and measuring ROI along the way investments that are a little bit more across the funnel. We can take advantage of these underlying improvements that we've taken and reach a broader audience, we're playing to win with <unk>, we think.
We are in excellent position to be the global leader in this exciting category.
We're going to continue to invest in that so.
Some of you may have seen us a little bit more than before on channels like Instagram Facebook Pinterest podcasts Spotify and.
We are excited about that.
Relatively still relatively modest but for us large investment adviser and we're going to really carefully monitor.
What the impact is that we see as we think about the plans for next year.
Yeah, and I would just say before I get into your question about the consumer.
Victor where we are so excited about this asset we think there are lots of ways of leaning in.
And the team is really executing well the category is poised to continue to accelerate and we think market leadership has tremendous value. So it's something that we're just really excited about and I know, we'll be talking a lot about as we go forward.
On the consumer yes.
We're following the consumer very closely and you asked about what we're seeing definitely searches are up across the board searches for hotels experiences and restaurants, but we are seeing in.
In our data that inflationary pressures, while people want to continue spending theyre thinking about how they might adjust their travel plans and so with rising cost of living.
Many more are going to be traveling at shorter length, and maybe they'd planned in the past some are going to think about vacations being much closer to home. If maybe you were thinking about going internationally you might go domestic.
And of course.
They are also thinking about what theyre going to do on that trip.
And what we are seeing is they still want to take the trip.
With a large majority, but that there'll be thoughtful we think there is an advantage there as they think about.
Comparing pricing as they think about making that choice that that sort of ability to guide the consumer through a period of time from real people, who are having real experiences and then at that moment when they want to make that decision helping them make it happen I think as it plays right to our strength so the consumer.
Behavior is very promising by and large but of course some adjustments based on.
Personal financial situations.
Thank you Matt Thank you Ernst.
Okay.
Alright.
Yeah.
Please standby for our next caller.
Okay.
Next up is Lloyd Walmsley from UBS. Your line is open.
Thanks.
You talked a little bit about broadening the brand marketing channels.
I don't think correct me, if I'm wrong on the keeping in PV very broadly.
Last few years, but it has been generally.
Portion of the AD mix at Tripadvisor, how do you guys think about as we think think about maybe the next year or so how do you think about more broadly getting back in the in the TV advertising.
And then I guess strategically are there any.
Any any any things we should contemplate over the next year. It's only been it's still been a pretty short 10 year since you've been here, Matt, but any anything any major overhauls that you guys are thinking about strategically as we get to next year.
That you can help shed light on.
Thanks Lloyd I appreciate the question I am so excited about the strategy work, it's been very energizing both for me and the team that we have engaged.
We are really rallying around the opportunity.
And I think it's something that we.
We all feel there is real upside if we.
I get this right and do it deliberately so I appreciate it.
The time, you've given me given my tenure to really get through that process. We're part of the way through now and we are building conviction about areas to prioritize the goal for the strategy work of course is to ensure we create sustainable value for the group as a portfolio.
And that we make sure that we have a really clear and compelling proposition.
Went through work like that with Viator in the fork in the past and so that's why our current focus is on core tripadvisor and really thinking about how we serve travelers as modern guidance platform and I think there's a lot. We can do to be far more contemporary we have a lot of advantages right and we're going to lean into our heritage We've got a truck.
<unk> brand, we've got a community that really values connecting with us and with each other and of course, we've got our content asset and we know we need to focus on our product.
To really start to utilize our unique data.
Ultimately to drive higher levels of direct traffic and engagement.
That will create multiple opportunities for monetization.
So we're going to balance how we think about reimagining the core product, while continuing to invest in the growth opportunities as we see them.
We recognize that there are headwinds.
There has been a number of things like shift to mobile obviously, our traffic mix. There are geographic differences, where we think we can improve with international focus we can take a much more thoughtful long lifetime value focus on the consumer and our marketing.
We can lean into <unk> and media and really drive those businesses harder and we think about our content asset.
And the way we want it to be far more immersive as we guide travelers and then b with them at that moment, where they want to make their decisions. So I think there is a lot of opportunity I wouldnt want to tell you we're going to overhaul something today.
We think that.
Certainly our core meta business has bounced back it's performing it is showing relevance not only for consumers who come in not only to compare pricing, but also defined that hotel.
And ultimately start to build that experience.
We also think it provides tremendous value for our partners and that's what we're seeing.
Is that high intent traffic continues to be valuable and we think our partners will continue to prioritize us as part of their marketing mix. So we're very excited about leaning into that reinforcing it thinking about how we can.
Just to.
Both mobile and geographic opportunities on.
On the question of our marketing I think that what we've learned with <unk> and to some degree the fork is that when we do really thoughtful marketing whether it be performance marketing or thinking about other promotional marketing and the channels that help us do that as long as we look at that.
<unk> disciplined way and think about what's the purpose where are we trying to reach what's the expected result, and we watch that we're actually delivering those results as we go we can consider all channels and I think that's something we'll consider where Mike and I have talked about this we're going to take a very disciplined approach, but I think you can expect us as we continue to.
Drive our product offering to be able to be wanted to talk about it and really get the benefit for the work that we're planning to do.
Okay. Thanks, and good luck Ernst and congrats Mike good to have you.
On board.
Thanks, a lot.
Okay.
Thank you Stan bond were queuing the Mexico.
Okay.
Okay.
Next up we have Jed Kelly from Oppenheimer <unk> Company your line.
<unk> is open.
Hey, great. Thanks for taking my questions arent as good luck and Mike welcome aboard.
Two questions if I may one.
Can you just talk about investing in <unk> and how youre thinking about some of the competition that Google's recently done with our maps and then my second question any change.
<unk> potentially on locking strategic value with buyer tour once the public markets sort of settle down. Thank you.
Yes, I'll take the first and we will take the second.
This is an exciting area and there will be multiple players.
Trying to get a piece of the experiences business of course.
<unk> active others are active we have competition.
Large market, it's 80% still offline.
A lot of secular growth to be had.
We are playing with enormous breadth of supply that we have aggregated, which is hard to aggregate and we've been aggregating over over time, which will be difficult for others to copy.
And we are growing quickly.
Which is cementing our relationships with suppliers globally and so although there is competition there should be.
Market that is attractive.
We really like our like our chances in and continue to do well.
Yes, Thanks, Jed, it's Matt and I, just wanted to add to what.
Your question about Google.
I've spent a career I think as I said last time and businesses that have to contend with Google.
<unk> done it in such a way that has worked out reasonably well you have to think about what youre going to do that is going to be different than Google and I think we have a lot that we can do that will be different from Google If we focus on our content and our trust in the security that travelers have with us when they.
Think about the decision that theyre going to make the way that we're able to guide with a point of view and leverage the community.
We know that we're ranked above Google Facebook Airbnb booking.
When we track our brand in terms of trust, we know that our community has value we know that are curating content.
And really thinking about a more longitudinal relationship.
To serve consumers at every step along the journey not just at a moment when they are ready to make a particular search I think are all ways that we're thinking about how to do that.
I don't want to suggest that it's easy.
I have a lot of respect for Google and they are an important.
It will play an ecosystem, but we think we can differentiate.
On the question of strategic value at via <unk> part of the work we're doing.
Is two <unk>.
<unk>.
Create value for the whole of the group and that's inclusive of maximizing value provided tour and Thats why I shared with you that we see a lot of growth potential there and want to continue to invest in.
Lifetime value focus.
And think about how we add value to suppliers and it also means that we're going to think about every option we have to drive more recognition for and value in the business and so while the markets make it challenging to have a point of view on that today, we're just going to lean in and focus on driving the market opportunity.
Great. Thank you.
Okay.
Thank you very much please standby for our next question.
Okay.
Our next question comes from James Lee of Mizuho, James Your line is open.
Alright, Thanks for taking my question can you guys comment about maybe future.
What's how does that fit into your strategy going forward and also second question, maybe with the uncertain economy, how should we think about your cost structure and how flexible can navigate in this shopping environment.
<unk>.
Yes.
Thank you James I appreciate the question.
So I think I said in the last call together that.
We thought that the direct to consumer opportunity was an interesting one that we really want to dive into and of course, it's an area that we are deeply exploring as part of our strategy work.
We think we can certainly do better with consumer facing products and services, we haven't yet finalized how tripadvisor plus would fit into that but I think the direct to consumer offering needs to address very clear travel needs.
With tangible benefits.
Consumers value and we need to communicate that clearly to drive a compelling opportunity.
Think with our brand.
Let we have with the trust that we have thinking about a broader membership opportunity is a natural place to develop the relationship further.
And we have to do it in a way that reinforces the entire value proposition. It can't just be a separate proposition.
Just about discounting, which is kind of the starting point for Tripadvisor, plus we need to find ways to recognize and reward loyalty that users come.
And we need to make sure that when we think about membership it can be easy to engage.
Certainly it could be tiered there ought to be a way to think about membership where it's not just about.
The consumer necessarily paying for something but rather if you remember we can learn more about you and engage with you and monetize in multiple different ways. So the work that we're doing we are reviewing and rethinking.
Part of the strategic work I've outlined we're going to share more when we discuss our strategy in more detail.
In terms of the cost structure I would point out that compared to 2019.
We have shifted our cost structure to less fixed cost and more variable cost, which would help in any.
Scenario going forward.
We've taken out fixed cost during the pandemic.
Added some back but not a lot.
And.
And brands like <unk>, we're currently operating with less fixed cost even with the enhanced scale then we had in.
In 2019, which has allowed us to make all these investments in marketing and still be profitable last last quarter. So thats been good going forward.
We have leverage there of course.
Theres always an opportunity to to see how we can organize differently.
And create levers.
And so there is flexibility in that too.
Great. Thank you.
Thank you very much standby for our next question.
Okay.
Okay.
Yeah.
Next up is Mario Lu from Barclays. Mario Your line is open.
Great. Thanks for taking my question have a couple on Tripadvisor core.
It looks like the guide, but down for Q versus 2019.
It's mostly timing related with tough comps.
The Hyatt TV ads and <unk> 19.
I know, it's still early but should we expect.
Triangle segment to then rebounds in <unk> 'twenty three all else equal.
You are right to point out that there is some comp issues compared to.
<unk> Q4 2019.
So, although we see a step down in performance of 2019 from Q3 to Q4.
They are one off items in Q4, 2019 that we can point to.
That.
If you isolate for those actually in <unk>.
September to October October November December is very smooth in terms of in terms of recovery.
Had a.
Very strong summer, particularly in our core meta business.
In August was even stronger than July and September .
We were on average for the quarter in our meta business at 100% of 2019.
August was.
Substantially higher and within that the U S did really well in August .
It took a step back in September but that was not weakness in September that was the strength that we saw in August September and July were quite similar and then if you normalize for these these one off items in Q4 2019.
The path versus the 2019 has been very consistent September to October to November .
<unk>.
Yeah, and I would just add that.
For me, putting fresh eyes on the topline growth in meta.
Steady recovery every quarter, thus far in 2022, just suggest to me the continued relevance of that product.
Of course, we recognize that the landscape has changed but I think we can reinforce the relevance of the product and the way that we think about targeting consumers and understanding them better and creating user journeys on core tripadvisor that meet their particular need whether it's for an accommodation shopping experience where they're looking.
To start planning higher in the funnel.
There are opportunities to look at it.
Increasing our effectiveness geographically.
With mobile I, just think that there is a way to develop an opportunity that just reinforces that so to me that again goes to the point of enduring and a really good foundation.
Great. Thank you, but just a follow up in terms of trips.
And the positioning within the travel ecosystem.
Otas.
Generally our mapping out their loyalty program.
And it sounds like they are prioritizing more direct traffic to their mobile app.
I guess, how does that translate into trips positioning long term any any puts and takes to consider here.
Yes, so we know that there is a.
Continued demand for the product and of course it.
Our product.
Really fits well with our strengths of being trusted and guidance and the reviews and we continue to believe that partners find value in this offering as one of their.
Channels because of the high intent nature of the traffic and in fact, that's what we're seeing.
In the dynamic and so we'll continue to work to identify the ways to deliver the best product and service to those partners.
And no doubt Otas have always wanted to focus on more direct traffic.
Yes.
That's nothing new and they'll continue to do that I don't think that means that we will lose the opportunity to continue to be a part of their mix.
Alright, thank you.
Okay.
Thank you Stan bus mix question.
Next up we have Brian Fitzgerald with WNS.
Thanks, guys from Wells Fargo, Congrats and best of luck and Mike Welcome I wanted to follow up on.
<unk> question actually and when you look at what you are seeing im trying to parse apart maybe if youre seeing.
Any trends with respect to business travelers if youre looking for two to three nights in the middle of the week Youre pricing elastic it's likely.
Medium business.
Searched for travel are you seeing anything.
Like that that would indicate business travel is starting to pick up as well.
As a brand.
Tend to skew more to the consumer use case, rather than the business use case undoubtedly that we have business travelers small business travelers in our mix but.
Not the signal that you are.
You are after.
What we do know is that some portion of travelers are going to travel.
At shorter length than maybe they had previously planned I don't know that Thats, a direct indicator of business.
But certainly I think that as we start to think about liberating the potential of our data.
We'll start to think of.
Far more.
Segmentation oriented way and really understand.
Who's coming to our site.
In ways that I think will create value for us both across the business as it stands now and ways to identify a commercial opportunities in the future.
Got it makes sense and thanks, Matt.
Okay.
Thank you standby for our next question.
It is coming from John .
Coloccini from Jefferies stay, but John your line is open.
Hi, This is Chris who check in for John Thanks for taking my question can you just give us any more color on actual consumer behavior trends that youre seeing.
The third maybe a little bit into the fourth quarter. Here are you seeing any signs of a trade down or shorter trip duration, yet and is that kind of any different across the key geographies. Thank you.
No, yes, I mean, we.
We had a bit of color on the consumer we have a lot of confidence in the consumer.
We haven't seen anything change no signs of trading down.
I think we referenced.
Europe has been different in the U S, but beyond that the consumer has been strong.
Okay. Thanks, so much.
Okay.
Okay.
Stan.
Yes.
Yes.
Our next question comes from Ron Josey of Citi.
Ron.
Great. Thanks for taking the question and Ernst Congrats and Mike Welcome and Matt Welcome again.
I wanted to ask maybe a little bit more about viator.
And specifically about the resiliency flash consumer appetite of experiences in dining versus travel overall and just wondering if things as macro progresses and do you think we could see an acceleration in this mix shift towards <unk> or if you see continued macro pressures understood is still early and then I think in the letter you talked about improving user experience.
To that site or just can you talk to us a little bit more about how the user experience is evolving here in terms of the products and services. Thank you.
Yes, I'll take the first part and ask Matt to two.
To add as well.
We've seen very very strong growth obviously in <unk>.
Viator point of sale, but also the tripadvisor point of sale and experiences.
And we believe that as our good execution, but it's also the just the secular trend in the market.
Theres two secular trends at play as one is.
A general shift from people wanting to experience rather than.
Got it.
Just go for the hotel or just go for the flight.
A general trend from things to experiences which is clear.
Clear signs in the economy, and that's a benefit for us.
Other big sort of secular trend as this is one of the last verticals within travel to.
To really move online.
I've said this before about 80% is still offline and we are at the forefront on bringing this industry online and aggregating supply and in some ways.
The playbook is a bit like what hotels were four.
For the the early Otas and so we're going after that.
And then the enablement of mobile.
<unk> is really an important secular trends as well as we've really seen in our business. We're now over half our bookings on <unk>.
<unk> mobile.
<unk>.
That was.
Maybe a third in 2019, and so you see the acceleration of mobile and that means it has opened up new use cases, we saw in the past and <unk>. We saw the predominant use case was someone before they went on a trip tried to planning activities now we increasingly see that happening.
On mobile and in destination.
And that is allow.
Allowing us for.
Ah repeat rates, even within the trip so maybe someone booked before they went on the trip and then we can cross sell while they are in the trip and so.
<unk> spent a lot of our.
Our user experience development over the last two years is honing the app, making the app more attractive, making the app more performance.
And.
Really being more thoughtful and better at what do we present two two.
To a traveler at what point in time, how do we think about the first booking the second booking to third booking on the same trip on subsequent trips and so that's where we've been focusing our development and that has led to the improvement that I was citing in terms of conversion in terms of number of trips in terms of really across the across the spectrum.
Yes. It was a good answer the other thing I would add is I think the work. The team is doing has been really sharp not only on the consumer side driving some of these trends that Ernst just.
Described but also on the supplier side I mean, they are really focused on growing the value of supplier offerings through the product and thinking about opportunities.
Around engagement with suppliers and co marketing with suppliers and that's delivering.
Delivering value.
Both the supplier and benefits on take rate.
We will continue to look for opportunities to accelerate the team is always thinking about what else we can do there.
There is an opportunity to leverage data across the group that would be really beneficial for <unk> given the.
Vast amount of data we have across the various brands and Theyre also we can think differently about the relationship between viator and Tripadvisor and that's something we're really excited to think about because the two together that give them a very distinct advantage.
In the marketplace and so.
There's a lot of opportunity here and it's one that again I think we get excited about for years to come.
Okay.
Alright.
Okay.
And our next question comes from Deepak <unk> at Wolfe Research Deepak Your line is open.
Great Hey, guys. Thanks for taking the question so Matt maybe I wanted to ask another kind of Big picture question are related to the prior one.
Traffic is still at healthy levels, and recovering and all of that but if you look at kind of consumer behavior for travel research, particularly among younger demographics that is increasingly shifting towards services like Instagram and picked up partly due to the nature of our content and the level of interactive nuts, and all that stuff. How are you thinking about defending and.
Potentially enhancing the value prop of Tripadvisor score business for this changing consumer behavior and overall.
Over the long term and then second question is for on going back to your EBITDA margin comment on the core hotel business.
Near mid Thirty's this year compared to the sort of high <unk> in 2019, and you've obviously made a lot of cost savings during the pandemic I know there are certain one time things in 2019, but this business carries very high incremental margins, how should we think about sort of like the margin trends for this segment in 'twenty three and beyond thank you so much.
<unk>.
Yes. Thank you for the question Deepak and of course again coming out of the media space and doing it for so long I've, obviously had a chance to.
Experienced consumer shifts to lots of different kinds of platforms going all the way back to that search and social and much more immersive content set so when I think about Instagram and tic Toc and the inspiration that they can deliver their absolutely platforms that make a lot of sensor also platforms that we can.
Experiment with and think about how what's our role in that world.
Balances, what we do on our platform and off our platform, but I think.
One of the areas that we can lean into is in our content and when you think about combining our content with our data and what we can learn about a traveler, we have a pretty powerful asset and we can both improve the content experience and think about different formats.
And really enhance.
The way that we deliver that immersive experience.
And also think about the platform that that brings to bear the best of our guidance to travelers because when you go into some of those other platforms is there is a trust factor now some of it may be your friends and your family, but Theres a trust factor around is that something that I can really rely on and I think our brand stands for trust and I think.
We are uniquely positioned to do just that.
On the margin parts. If you look at Q3 comparison to 2019 and core Tripadvisor. The EBITDA margin was very similar to what we had in Q3.
But it comes together in a different way.
Lower our fixed cost substantially versus Q3 2019, we've seen an increase in in the more variable costs compared to 2019.
The driver of that is that as we are recovering we have seen that the higher margin revenue streams have been slower to come back.
So for instance, if you look at our.
Meta business.
As we've said in Q3, we were at 2019.
<unk> in our meta business, but for pay channels that was above and for free channels that was was below.
And so theres a higher.
There is a lower contribution margin than we had back in 2019 and then if you look at some of the.
High margin revenue streams such as.
Our media business, our display business as well as our hotel <unk> business, they have been slower to recover than our meta auction slower to recover than other revenue streams within.
Our tripadvisor core business like Tripadvisor experiences in Tripadvisor.
Restaurant and B to C and so.
There has been a shift from <unk>.
Fixed cost to variable cost, but the margin we achieved in Q3 as was very similar to 2019. Now then there is a movement to Q4 that we talked about.
But.
The 2019 to 22 in Q3.
Our adviser.
I would just I would just add.
Part of our strategy work we.
Leaning into what do we want to do.
To differentiate ourselves and improve our operational performance in <unk> and media and.
And that's something that we do think some of those self inflicted things in the past around our sales teams and driving higher levels of productivity, but I think we can really drive more solution orientation, I think as I talked about product before when we think about the product and services that we want to provide to deliver performance leveraging.
<unk> engagement and data and productivity as well as with media getting into those formats.
We're experimenting already but we primarily played into display AD category, which we know is declining and so as we focus on the consumer and look to drive more value for partners and advertisers, there's a real opportunity to lead into serving clients there more effectively.
Okay.
We'll now take our final call from Vince Kelly <unk>.
Cleveland Research company standby.
Great. Thank you.
Yes.
Great. Thanks for taking my question I wanted to follow up on the prior comment I suppose.
Full explanation of variable is.
As a percentage of Rev running higher and just curious if you think that overtime.
Variable expenses as a percentage of revenue can kind of get back down to the levels. They were pre COVID-19 or if the mix shift in the business.
Towards more via or what caused that line item to be more inflated than it was.
Pre COVID-19.
First part of the question on variable and then second on fixed you guys did a really nice job taking fixed costs out of the business through the pandemic I think it was little over $200 million and curious how much of that is being added back this year given the <unk> guide and how you think about your ability to leverage on that.
Overtime.
I'll take I'll take.
Those both in turn.
The viator, the viator a mix shift impact.
On the overall margin structure is clearly a factor as we are continuing to grow <unk> and investing in <unk>.
<unk> business has a lower EBITDA margin than our tripadvisor corn with the mix shift that there'll be a change in tripadvisor core.
An important driver for margin improvement going forward, we will be bringing our media business and our <unk> business.
Back to pre pandemic levels and beyond.
And this is what Matt was talking about.
They have been.
Slower to recover.
That is not surprising you see in other media oriented advertising models.
That.
The growth there has been slower, especially around travel and so we feel we feel we are doing.
We are performing in line with the broader media travel media in upper funnel travel spend.
But hotels for instance are not prioritizing where upper funnel spend on media or.
Our <unk> offerings, and so it's slower to recover and that will that will change.
That will change with.
With the overall market coming back to more normal levels. There are levers that we have internally <unk> talked about them. We continue to rebuild the sales force productivity in the sales force, which took a hit and the pandemic.
So theres execution that we can effect there as well.
But those were profitable have been profitable parts of our portfolio and so bringing those back will be will be will be very effective within our meta auction.
We've seen independencia that.
Hi, Cpc's have led us to have the ability to buy more traffic or paid that may normalize to some extent going forward as well.
The second part the fixed costs, we took about from 2019 to 2020 about $200 million of fixed and discretionary costs.
We've added back about a quarter of that mostly through inflationary pressures you can imagine that over the last three years, there's been some wage inflation, but we've been very very prudent in adding it back limited head count.
And.
And limited investment.
In additional discretionary marketing.
Above the line marketing in the <unk> and <unk> described so we have been.
We've been prudent.
And adding that back.
I would just say, it's Mike here I'd say kudos the team for being really prudent in their in their capital allocation and cost structure and it's clearly can be something that we as a team are going to look at going forward.
Being.
My prepared comments.
And we think about 2020 planning being very focused on operating efficiencies and how we can drive.
Value through through those mechanisms as well so I just wanted to chime in on that.
Great. Thank you.
Thank you at this time I would like to turn the call back to Michael for closing remarks.
With that I'd like to thank you all for your time today I look forward to seeing you next time.
Alright.
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