Tripadvisor Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the TripAdvisor Second Quarter 2024 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Angela White, Vice President of Investor Relations.

Operator

Angela, please go ahead.

Speaker 1

Thank you, Felicia. Good afternoon, and welcome to TripAdvisor's Q2 2024 Financial Results Call. Joining me today are Matt Goldberg, President and CEO and Mike Noonan, CFO. Earlier this afternoon, after market close, we filed and made available our earnings release. In that release, you'll find reconciliations of non GAAP financial measures to the most comparable GAAP measure discussed on this call.

Speaker 1

Before we begin, I'd like to remind you that this call may contain estimates and other forward looking statements that represent management's views as of today, August 6, 2024. 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 results to differ materially from these forward looking statements. With that, I'll turn the call over to Matt.

Speaker 2

Thanks, Angela, and good afternoon, everyone. Our Q2 consolidated results were in line with our expectations, with revenue of $497,000,000 reflecting year over year growth of 1% and adjusted EBITDA growth of 7% to $97,000,000 or 20 percent of revenue. Our results reflect the diversification of our portfolio mix, its different growth profiles and strategies and the increasing contribution to profit mix we're seeing from Viator and the fork. Mike will cover details of financial performance in his section, but first I'll cover our operational progress as we execute our segment strategies. As a reminder, at Brand TripAdvisor, our strategy focuses on driving engagement and delivering world class guidance products to fuel diverse monetization paths.

Speaker 2

At Viator, we're reinforcing our leadership position in experiences by investing in our brand, product and repeat bookings to drive LTV and improved unit economics. Finally, at the fork, we're focused on driving revenue growth with margin improvement by increasing the value we deliver to diners and restaurants as the leader in the European dining market. Let's start with brand TripAdvisor. In Q2, we delivered revenue of 250,000,000 dollars a decline of 10% and adjusted EBITDA of $84,000,000 or 34% of revenue. Our financial performance continues to reflect the transition from our historical reliance on legacy offerings such as Hotel Meta, which has experienced ongoing pressure over time to a more diverse and sustainable model.

Speaker 2

This challenge is well known and the strategy we launched last year addresses it head on. When we offer a more compelling product that better meets travelers' needs across their end to end journey from the first moment of planning through the end of the trip itself, we drive deeper engagement. We get more users coming to us through direct channels like our app. We get them to sign up as members and come back more frequently, giving us valuable data and more opportunities to monetize, which we believe will result in a meaningfully higher average revenue per user over time. We are uniquely positioned to serve these traveler needs, given the durable trust in our brand, the quality of our content, the relevance of our data and the scale of our audience.

Speaker 2

Last year, we set the foundation, building teams around product and data and putting core capabilities in place. This year, we're seeing tangible outcomes from our initiatives. The data is clear. Travelers are responding to the improvements we're making in our product and we're excited about scaling them to drive financial impact. Before I share highlights on key initiatives over the last quarter, let's cover some of the progress we see across a few of the metrics we outlined in our last call that give us confidence we're heading in the right direction.

Speaker 2

First, our overall audience has stabilized after an extended period of decline. Specifically, we've seen sustained and stable monthly active users so far this year. While this metric is not the most important indicator of the depth of engagement, it ensures we retain a broad global audience to drive membership and a deeper relationship over time. It also serves as the top of the funnel for our category marketplaces. It's worth noting that in the U.

Speaker 2

S. Where we launched and scaled many of our initiatives first, we're seeing meaningful year over year growth in MAUs. 2nd, we've seen solid growth in membership. Our monthly active members, which were declining along with our overall MAUs, has returned to growth this year and accelerated from Q1 to Q2, and we expect this trend line to continue driven by our ongoing product efforts. 3rd, we continue to see improvements over the last year in direct engagement, which includes our mobile app, which is one of the clearest signals the travelers are finding value in the changes we're making to the product.

Speaker 2

In Q2 of this year, direct channel share across all services grew by approximately 4.50 basis points over last year. While this is still a relatively small overall channel, we see meaningful headroom for growth driven by our strategy. Finally, we continue to see deeper engagement translate into better monetization. Historically, we've seen very low average revenue per user given our reliance on low value fly by traffic. It's still early, but the product enhancements we're rolling out are driving meaningfully higher monetization among our highest engaged members and app users whose ARPU is multiple times higher.

Speaker 2

For example, in Q2, we observed that travelers who use trips, our trip planning offering reached ARPU levels roughly 15 times higher than our platform wide average. This higher monetization has been consistent as we've begun to scale our efforts, driven primarily by experiences bookings today, but with real upside as we introduce more in app booking across other categories in the future. The formula is simple. When we keep travelers engaged on our platform, we have more opportunities to monetize not just through clicks, but through higher value transactions as well. Now let's step back from the outcomes for a moment and focus on the work we're doing to drive impact and accelerate the pace of change.

Speaker 2

Here are a few highlights. In Q2, we continued to extend the use of AI to offer more relevant guidance to more travelers. We scaled AI powered review summaries to restaurants and experiences, personalizing the planning experience so you can explore things to do, places to stay and restaurants recommended specifically for you in the app. And we expanded trips internationally to 20 new languages across more than 30 locals. Looking ahead over the next few quarters, we'll continue to introduce new ways for travelers to discover, share and consume guidance and strengthen our free membership value proposition, highlighting all the benefits of joining our community by better recognizing our most engaged members.

Speaker 2

Last quarter, we also launched a large set of upgrades to our mobile app, such as a new home screen and improved navigation that make it easier to explore destinations, plan a trip and book it immediately starting with experiences. We also introduced hotel booking and rewards exclusively in our app where we've seen strong early indicators of customer engagement, including better click through conversion and repeat rates. We were also pleased to see the app users who book hotels spend more on experiences, leave more reviews and create more trips. We're excited about the role hotel and experiences bookings can play in the traveler journey for our deeply engaged logged in members. Moving forward, we'll continue to differentiate the experience in our app with a focus on new features and UX improvements to drive higher conversion rates across our category marketplaces.

Speaker 2

Finally, over the last few months, we conducted a full funnel marketing pilot focused on driving consideration across channels like connected TV and social. This represented a very small portion of our marketing spend in the quarter, the bulk of which continues to be focused on lower funnel channels to support our legacy offerings. But the pilot performed very well and gave us considerable learnings as we evolve our marketing mix over time to reorient our spend to drive lifetime value in support of our engagement led strategy. We're excited by the progress we've made at Brand TripAdvisor and the opportunities ahead. But let me be very clear, our near term financial performance is still heavily reliant on legacy offerings that face well known challenges.

Speaker 2

TripAdvisor is right now a combination of 2 very different business models. 1 is defined by our legacy offerings that are large and profitable and will continue to be an important but less central part of our overall business mix. The other is emerging. It's beginning to drive the outcomes I referenced earlier and will shift our mix over time. It's defined by a deeper and more direct relationship with travelers grounded in membership and the mobile app.

Speaker 2

It gives us the opportunity to monetize not just through clicks, but also transactions and not just once in a single session, but over and over again with less reliance on having to reacquire the customer and paid channels. This gives us a lot of confidence to drive sustainable growth at Brand TripAdvisor as we continue to execute on our strategy. Turning now to Viator, where we delivered revenue of $244,000,000 growing 13% year on year or 14% in constant currency. Gross booking value grew 8% year over year to approximately $1,200,000,000 Adjusted EBITDA was 10,000,000 or 4% of revenue, representing a $12,000,000 year on year improvement. These results reflect our ability to deliver on our stated strategic priorities as we continue to invest across marketing and R and D and make progress driving repeat bookings and unit economics.

Speaker 2

We continue to deliver value to both sides of our marketplace and sustain our leadership position. On the traveler side, we're making improvements across every part of the product experience. A few of these include checkout flow refinements that drive lower cancellation rates and reductions in payment friction in our reserve now pay later option contributing to uplift in conversion. We're also making progress shifting travelers from web to app, nearly doubling the number of active bookers who log into the app, which is our fastest growing, highest repeating and best converting channel. We're also excited about redoubling our efforts to give travelers the best app to discover, book and enjoy the highest quality experiences wherever they are.

Speaker 2

We continue to extend our reach, balancing performance marketing, affiliate partnerships, brand and promotions to drive more efficient costs as we better target new and repeat customers over the long term. From a brand perspective, we're seeing improvements in consideration, in particular with high value travelers and we've seen almost double the growth in branded search over the last year versus markets where we haven't rolled out creative. On the supply side, we continue to see evidence of the value of our suppliers that our suppliers find in our platform. We offer unmatched access to demand across multiple points of sale including TripAdvisor where experienced shoppers are the largest and fastest growing segment of the audience. And we continue to offer compelling tools and programs to help operators access this demand, grow their bookings and drive their economics.

Speaker 2

This includes our accelerate program where we've seen GBV from participating suppliers increase from last year at the same time that supplier churn remains very low. We're also making improvements to key parts of the operator experience on our platform, including our new supplier onboarding program, which continues to smooth the self-service path and has led to reduction in customer service contact rates and higher customer service satisfaction. At the fork, we continue to drive profitable growth and deliver value to diners and restaurants across Europe, benefiting from sustained operational efficiencies that continue to improve our unit economics. In Q2, revenue was $42,000,000 11% growth year on year or 12% in constant currency. Importantly, adjusted EBITDA was $3,000,000 or 7 percent of revenue, a $7,000,000 improvement over Q2 last year, representing our most profitable quarter ever.

Speaker 2

We're driving marketing efficiency, focusing our investment mix to balance how we acquire new customers and drive repeat reservations at greater scale. We've been pleased with the performance in social channels, which are delivering incremental volumes with strong ROI and repeat rates. In the Forks direct channels, repeat bookings represent a growing share of overall bookings. More than 75% of the Forks booking volume comes through the app and we continue to enhance the user experience in that valuable and growing channel. Homepage additions such as local hotspots, top restaurants by city and special offers as well as an improved ranking algorithm had driven year over year conversion improvements.

Speaker 2

We also continue to drive opportunities to enhance the Forks recognized brand, including exploring new and innovative partnerships to tap into new audiences. We recently piloted a gift card program in one of our key markets partnering with Vodafone to provide its millions of customers an incentive loyalty reward as well as promoting the fork in its media. We think there are more opportunities like this one to pursue in the future. On the restaurant side, our results reflect the value we're providing to over 50,000 restaurants in the FORC network. In the quarter, we drove growth in new restaurant acquisition and stability in active restaurants.

Speaker 2

Importantly, we achieved significant improvement in sales productivity for new restaurant acquisition. We also laid the foundation for sustained B2B revenue growth, which drove double digit subscription revenue that gives us confidence in the runway ahead. Before closing out, I want to reflect on all the progress we're making in each of our segments across TripAdvisor Group as we continue to pursue our shared vision to be the most trusted source for travel and experiences. We're uniquely positioned. Our strategies are aligned and we're doing the hard work quarter by quarter to execute on our plans that will drive the trajectory of our performance.

Speaker 2

Of course, we're also watching closely what's happening externally. Recently, we've all observed mixed signals in the macroeconomic environment as well as ongoing geopolitical tensions. We also see some signs and signals around narrowing international booking windows and moderated pricing. Overall, however, we continue to see healthy travel intent in both our search and survey data that suggests travel remains a priority and experiences continue to be a mainstay at the heart of travel planning. We remain confident about the long term growth opportunity ahead for travel and are focused on the work to fortify our position and create more value for all stakeholders.

Speaker 2

With that, I'll turn the call over to Mike.

Speaker 3

Thanks, Matt, and good afternoon, everyone. I'll start by reviewing the quarter and then provide our outlook for the Q3 and the remainder of the year. All growth rates are relative to the comparable period in 2023 unless noted otherwise. 2nd quarter revenue was 497,000,000 dollars reflecting growth of 1%, which was in line with expectations for the quarter. Adjusted EBITDA was $97,000,000 or 20 percent of revenue and 200 basis points higher than last year.

Speaker 3

Adjusted EBITDA was higher than expectations across each of the segments. Turning to segment performance for the 2nd quarter. Brand TripAdvisor delivered revenue of $250,000,000 which was a decline of 10%. Brand TripAdvisor revenue was slightly lower than expectations, primarily due to the performance of Hotel Meta and Experiences in the quarter. Branded hotel revenue was $150,000,000 or a decline of 14%.

Speaker 3

Hotel meta performance reflects the weaker demand trends we observed in April, which did not improve in May or June. Lower paid click volume was driven by weaker demand as well as increased competition in these channels. We continue to manage our paid channels for appropriate returns as reflected by slightly higher year over year contribution margins. Lower free click volume was due in part to the impact of the algorithm update referenced on our last call. Pricing continued to be up year over year, but at a lower rate than prior quarters.

Speaker 3

From a geographic perspective, hotel meta revenue in the U. S. Stepped back meaningfully from Q1 levels, while EMEA and APAC were more in line with Q1 levels. Finally, we experienced modest declines in our hotel B2B offering, a trend we expected as we continue to transition our go to market model to self-service. Media and advertising revenue declined 2% to 41,000,000 dollars Growth in off platform and programmatic revenue was offset by direct revenue and certain campaign timing, which as noted on the last call was positive to the Q1, but negatively impacted the Q2 due to the pull forward of some campaigns into Q1.

Speaker 3

Experiences and dining revenue was $48,000,000 or decline of 4%, primarily due to a more than 20% decline in our restaurants B2B offering. These results were in line with our expectations as we continue the transition to a self-service model. Experience's revenue growth was below expectations, particularly in the paid channels, where we witnessed more normalized category demand combined with the effects of our marketing strategy, which emphasizes profitability at Brand TripAdvisor point of sale. Lastly, other revenue declined 15% to 11,000,000 dollars as we continue to deemphasize our flights, car rental and vacation rental offerings in favor of prioritizing investment in other areas more core to our stated strategy. Adjusted EBITDA in Brand TripAdvisor was $84,000,000 or 34% of revenue reflecting approximately flat margins year over year.

Speaker 3

Lower paid marketing expense as a percent of revenue was partially offset by increases in new LTV based marketing campaigns such as app focused marketing and social media brand campaigns to accelerate our engagement led strategy. It's early, but we like the results that show improved awareness, higher trips creation and increased direct traffic and app downloads. Finally, we also saw modest deleverage coming from headcount increases across engineering, product and data functions that underpin the strategic transformation work we've discussed in prior quarters at Brand TripAdvisor. Turning to Viator. Q2 revenue was $244,000,000 reflecting growth of 13% and 14% in constant currency.

Speaker 3

The pull forward of the Easter holiday into the Q1 was a headwind to Q2 revenue of approximately 100 basis points of growth. Gross booking value or GBV grew 8% to approximately $1,200,000,000 in Q2. GBV at the Viator point of sale grew at rates higher than total GBV, while Brand TripAdvisor point of sale grew below the total GBV rate. Our Q2 GBV sequential growth declines reflect broader demand trends across Viator's channels as well as the deceleration in the branch supervisor point of sale as referenced earlier. We continue to see healthy growth in our paid marketing channels while our direct channels are growing faster.

Speaker 3

As Matt referenced, we're pleased with the progress we're making in growing our app channel as it is the fastest growing channel and we believe we still have a lot of optimization opportunities ahead of us. We are still seeing strong growth in repeat users and this growth has been consistent quarter over quarter. Importantly, our repeat users come with lower marketing costs. Viator adjusted EBITDA was $10,000,000 or 4% of revenue in the quarter. The year over year margin leverage of approximately 500 basis points was driven primarily by lower sales and marketing as a percent of revenue as a result of a more favorable free versus paid channel mix.

Speaker 3

People costs as a percent of revenue were approximately flat year over year despite continued investment in our product experience, especially in the app and growing supply in our marketplace. At the fork, revenue grew 11% as reported and 12% in constant currency terms $42,000,000 Top line results were driven by balanced growth in both pricing and booking volume. The pull forward of Easter holiday into Q1 of this year resulted in a headwind to Q2 revenue of approximately 200 basis points of growth. Adjusted EBITDA at the fork was $3,000,000 or 7 percent of revenue, an improvement of 18 percentage points from Q2 of last year. Lower people cost as a percent of revenue was the primary driver of the year over year leverage.

Speaker 3

Now turning to consolidated expenses for the quarter. Cost of revenue was 9% of revenue, an increase of 100 basis points due primarily to higher cloud costs across Brand TripAdvisor and Viator, higher transaction fees at Viator and higher media production costs at Brand TripAdvisor. Sales and marketing was 53% of revenue and was lower by approximately 200 basis points due to lower people and performance marketing costs at Brandtruvivior. Technology and content costs were 15% of revenue, approximately 100 basis points higher primarily due to higher PIPA costs at Brandtruvivor and Viator. G and A expense as a percent of revenue increased by nearly 200 basis points, which was due to several items.

Speaker 3

We incurred a one time expense in the quarter of approximately 4,000,000 dollars related to the recently enacted Canadian digital service tax, which required retrospective application to the past periods. And expense of approximately $3,000,000 related to a previously granted one time share based compensation award to a former senior executive and approximately $2,000,000 in costs related to the special committee process. G and A as a percent of revenue for the quarter would have been approximately flat year over year without these expenses. Now to cash and liquidity. Operating cash flow was $53,000,000 and free cash flow was $37,000,000 A key driver of the year over year decline $141,000,000 in cash outflows related to the previously disclosed 2014 to 2016 IRS transfer pricing settlement versus last year's outflow of approximately $113,000,000 related to the 2,009 to 20 11 IRS transfer pricing settlement.

Speaker 3

As part of this year's settlement, we expect to receive a refund of approximately $25,000,000 to $35,000,000 in Q3 or Q4, which would bring the total expected settlement to approximately $110,000,000 Other drivers of the year over year decline were changes in other working capital including lower deferred merchant payables. We ended the quarter with nearly $1,200,000,000 of cash and cash equivalents, an increase of 109,000,000 dollars from December 31, 2023. During the quarter, we repurchased approximately 1,400,000 shares at an average price of $18.28 per share, spending approximately $25,000,000 We have approximately $200,000,000 remaining in our current authorization. Finally, subsequent to the quarter end on July 8, we closed on a term loan B facility in the amount of $500,000,000 at SOFR plus 2.75 proceeds were used to redeem the $500,000,000 high yield notes that were due on July 15, 2025. Turning to our outlook for the Q3, which incorporates trends we saw in the business through July.

Speaker 3

In Hotel Meta, we continue to see demand headwinds in July and our outlook assumes that we see a continuation of these trends for the remainder of the quarter. Also, given what we're seeing in the normalization of pricing trends across the hotel category, we are assuming a softening of pricing relative to the last few quarters. For experiences across the group, our outlook assumes continued normalization of demand reflecting the overall travel market, although still benefiting from higher growth relative to other travel categories given the secular opportunities. Incorporating this outlook for the Q3, we expect consolidated revenue growth to be approximately flat to a few points down year over year. At Brand TripAdvisor, we expect increasing year over year declines from Q2 levels driven by the more volatile macro demand picture in Hotel Meta.

Speaker 3

At Viator, we expect revenue growth to moderately step back from Q2 levels driven by macro demand trends and continued point of sale mix pressure as we just discussed. At the fork, we expect growth in line with Q2 growth. For Q3, we expect consolidated adjusted EBITDA margins to be down year over year by approximately 350 basis points to 4.50 basis points. Year over year margin improvement at Viator and The Fork will be offset by year over year deleverage at Brand TripAdvisor of approximately 8 to 10 percentage points. The deleverage at Brand TripAdvisor is due to a combination of the lower revenue expectation and planned spend in the areas of headcount and LTV based marketing experimentation in support of our future growth initiatives.

Speaker 3

Given our outlook for Q3, we now expect full year consolidated revenue growth of low single digits, which is at the low end of our previous range. We also expect consolidated adjusted EBITDA margins deleverage of approximately 100 to 200 basis points. For the full year, we expect revenue declines in Brand TripAdvisor of mid to high single digits and margins down year over year by approximately 400 basis points, which is down slightly from our last update. This outlook assumes that we see revenue declines in our hotel matter offering moderating in the 4th quarter. For Viator, we assume modest acceleration of growth versus Q3 in the Q4 as we lap an easier comp due to the start of the Mideast conflict.

Speaker 3

Our expectation for improved profitability versus last year remains unchanged and we continue to realize increased operating deficiencies in the business. This easier comp will also benefit experiences revenue growth at Brand TripAdvisor. At the fork, our revenue expectations remain unchanged and we still expect a significant year over year improvement in adjusted EBITDA for the year. With that, I'd like to turn the call back over to the operator to begin Q and A.

Operator

Thank you. One moment while we compile the Q and A roster. The first question comes from the line of Ben Miller of Goldman Sachs. Ben, please go ahead.

Speaker 4

Thanks for taking the question. I guess just given the importance of driving more app based and logged in members, I wanted to touch on just your own marketing efforts and any color you can share on how you're optimizing your marketing efforts around targeting those users that have a high likelihood converting to being a logged in member as opposed to casting a wide kind of top of funnel met there? Thanks.

Speaker 3

Yes. Hey, Ben, it's Mike. I'll start and Mac can chime in. So, it's a great question. It's essential to really the work we're doing around at Branch Advisor.

Speaker 3

As we said, so much of this has been product led transformation and we're really excited about what's developing in the app, both with the hotels category, but obviously with experiences in combination with our trip planning tool, which we've been investing heavily behind. I think there's a lot of marketing strategies, which we do employ. A lot of it is around when we have a massive upper we have a massive top of the funnel with our Advanced TripAdvisor. When we see users that are activating across, the surfaces, there are a lot of different things we can do to stimulate or inspire or, incentivize certain behaviors to download the app and get them to start interacting in the app. And so that's one strategy we certainly will be employing.

Speaker 3

And then there's a lot of just you think about just different marketing campaigns around how you're targeting users, whether it be an app downloads, whether you are incentivizing certain people to a behavior, again, with an incentive that we will be looking at exploring. I've been doing for some time.

Speaker 2

Yes. Ben, I just want to add, it's Matt. Our marketing at TripAdvisor has traditionally been same session. It's been about basically bringing people in and taking advantage of the fly by traffic. We can shift from same session to LTV based bidding.

Speaker 2

We've got data now that we can use to target. We've been very lower funnel and as we move mid to upper funnel, we can get a lot of learnings that we've had in what we've done at Viator and the 4th frankly about how we can leverage that data to drive people into membership and the app where they engage and we can let the product do the work. And I think that the early movement in the metrics that we shared gives us a lot of confidence that we've got a good plan ahead for that.

Operator

The next question comes from the line of Naved Khan of B. Riley Securities. Naved, please go ahead.

Speaker 5

Yes. Hi. Thanks a lot. Two questions from me. Maybe just on the increase in the app users, that's great to see.

Speaker 5

But in terms of the P and L effect and when can this be more meaningful in terms of maybe stabilizing the core business or maybe even returning it to growth. How should we be thinking about that transition? Is it like 12 months window, 12 months away or something that's further out? That's one. And then on the share buyback, you still have like authorization of $200,000,000 remaining.

Speaker 5

Given where the stock is, how should we be thinking about the propensity to spend on buybacks versus any other opportunities? Thanks.

Speaker 3

Hey, Naved. Thanks for the questions. Yes, I'll start with the buyback. Yes, so we still have a good amount left in that. We have said consistently our approach has been very programmatic in that.

Speaker 3

I would say this quarter we are very much focused on setting our capital structure as well and understanding true liquidity with the refinance of the high yield. So I think we will always evaluate this and find the best opportunities whether it'd be programmatic or more opportunistic. And certainly, we will engage in those discussions going forward as we think about where the stock may or may be and versus our liquidity profile. Yes.

Speaker 2

And the way to think about what we're seeing in the app, I've said in the past, we our strategy is very much about moving away from the big number at the very top of the funnel, which includes a lot of fly by in and out traffic, frankly, a very low percentage of which clicks through and we monetize. And to think about that sort of the traffic that is actually coming in and wants to use our tools is showing us that they're willing to plan with us, leverage our content, getting the data that comes along with that, moving that into membership, really enhancing the value of the membership and getting more people to use the app. And we're super excited that the early returns on that look very good. Now that direct traffic, that engaged traffic, membership and app, it's a subset of our business today. And we see it as an opportunity to scale it.

Speaker 2

And we think that what we've seen is that we're responding to what travelers really want from us and the engagement metrics are translating through to the monetization that we described, the many multiples more that we can do. So while it's small, it's something we can scale. And when we get marketing and product working together, I think that you will see it become a more meaningful percentage of our overall financial performance.

Speaker 5

Okay. Maybe a quick clarification, if I may. If I would think about by our margin this year, are you still aiming to have some improvement year on year? How should we think about that?

Speaker 3

Yes. Yes, Naved, it's Mike. Definitely, if I wasn't clear about that.

Speaker 2

Yes, we are

Speaker 3

expecting meaningful margin improvement in Viatorque for sure.

Speaker 6

Thank you.

Speaker 2

Yes.

Operator

One moment for your next question. The next question comes from the line of Stephen Ju of UBS. Stephen, please go ahead.

Speaker 7

Hey, good afternoon, guys. This is Jeremy on for Stephen. So you called out improvements in Viator cancellation rates from optimization. How much more room do you think there is across Viator in the business for optimization? And can you maybe walk through some of the areas you're excited about?

Speaker 7

And then my second question is, on hotel booking and rewards, are

Speaker 5

you expecting any sort of

Speaker 7

P and L impact? And would you potentially roll this out to experiences as well? Thank you.

Speaker 2

Yes. Thanks, Jeremy. Look on Viator, there's a lot of changes that happen every quarter to optimize the funnel at Viator. We have changes that will bring down cancellation rates because we've done a better job of serving the consumer with what they expect and gotten them to the right product and giving them a great experience and then they come back and we see improvements. There's a lot that we're doing with personalization to personalize the product sort.

Speaker 2

We're obviously always thinking about optimizing the app. One of the things we're excited about is how we're thinking about post booking logistics and really leveraging consumer data to deliver more personalized and effortless booking experience. Obviously, we're leaning into loyalty and a rewards program that will really drive repeat behavior. We're focused on our suppliers and making sure that they have the best experience, so we have the best supply. And I'm pleased to say that supply continues to grow and we feel really good about the quality work we're doing there as well.

Speaker 2

And then of course, we're leveraging AI to think about the sort, to think about how we augment our customer service and other parts. So we're always looking at opportunities to improve the metrics on that funnel and I think you see it in the way that it delivers. The second part of the question?

Speaker 3

Yes, on the rewards. Yes, I'll take that, Jeremy. So listen, I think rewards and incentives are a powerful tool for us and really you've seen that across the travel ecosystem. We have built our products with that in mind. And you could say that at both Brand TripAdvisor, what we're doing in the app, you can say that certainly at Viator and even the fork.

Speaker 3

So we think about this across all of our brands. Your question directly of impact on the P and L, I would say we've been very disciplined on our performance marketing spend and ROAS and ROIs. I view this really as another way of thinking about customer acquisition and inquiring stickiness in the customer. And so we have to balance that with other investments around acquisition. You would expect us to do that.

Speaker 3

So it's an area that we are excited about. It's a tool that really can drive engagement, but we'll think about that holistically as we think about overall marketing and investments. And Jeremy, just to

Speaker 2

be clear, you asked if we would roll it out on experiences. It already is rolled out on experiences. You can book experiences on our app. We're adding hotels and there's other category opportunities in the future. So we think this ability to come in and integrate trip planning with booking in the app for logged in members is a real meaningful opportunity for us.

Speaker 2

We're excited to go after it.

Speaker 7

Great. Thank you.

Operator

I am not here we go. We have one more. One moment for your next question. The next question comes from the line of Wei Fang of Mizuho Securities. Wei, please go ahead.

Speaker 6

Thank you for taking my question. Can you just give us a quick update on the Google kind of search policy changes impact? I remember last quarter you guys called out on the Meta business, you already kind of retrieved most of the impact, right? And then overcome that. And then I'm not sure about the experience, just curious if there is anything for the experience side.

Speaker 6

And then secondly, on the FERC, what do you have currently a target like a restaurant count coverage for year end? Thank you.

Speaker 3

Yes. I'll take the first part. Yes, on the Google algo, we caught what we call it last quarter. We did say there was an algorithm change. It was very far reaching and took a long time, right?

Speaker 3

So it was rather disruptive in April into May and partly, it was an impact on our free traffic, impacting our financials for the quarter. That Algo update, our teams do a really good job of reacting to that. And as we said, in the hotel category had clogged back most of those rankings as we came through the quarter, which is true, right? So I think it still had an impact in the quarter. I think much of the other financial impact wasn't of the quarter wasn't directly related to that.

Speaker 3

That was more reflective of that in combination with some

Speaker 2

of the demand trends we saw in both free and paid channels. So I wouldn't our finished performance in Hotel Meta was not all related to that to the Argo change to be very clear. And I would just remind you this is exactly why we put the strategy in place that we put in and that we're focused on these direct relationships with members in our app and translating that engagement to monetization. And I think the combination of our teams responding really well and our strategy is going to serve us well. The second part of your question, we didn't hear.

Speaker 2

So if you had a second part, can you repeat it?

Speaker 6

I was just curious, are you talking additional restaurants that can sign out for the year end? And what would that book will be versus what current number is?

Speaker 2

Yes. So we're really pleased with the progress we're making at the fork. Thank you for asking about it. And we believe the business is on track to deliver growth and profitability this year as we said we would aim to do in our strategy. And we're benefiting from a lot of different things that are driving unit economics and leverage and part of that includes our enhanced sales productivity with restaurants as you described.

Speaker 2

So we've seen both stability in active restaurants and we're growing the count. But more importantly, we're seeing better restaurant ARPU at lower CAC. And so you combine that with the marketing efficiency on the B2C side and the product improvements we're making in the app to drive conversion rates and improve B2B revenue And you've got a and of course, the partnerships that I mentioned, you've got a recipe there where we're seeing profitability improving with a healthy growth rate and we're going to deliver that margin for the full year as we described.

Speaker 6

Sounds good. Thank you very much.

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Earnings Conference Call
Tripadvisor Q2 2024
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