Tripadvisor, Inc. (TRIP) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Tripadvisor Second Quarter 2026 Conference Call. [Operator Instructions] 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, Investor Relations Vice President. Please go ahead, Angela.

Thank you, Felicia. Good morning, and welcome to Tripadvisor's Second Quarter 2026 Financial Results Call. Joining me today are Matt Goldberg, President and CEO; and Mike Noonan, CFO. Earlier this morning, 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 financial measures discussed on this call. 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, 2026. 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.

Thanks, Angela, and good morning, everyone. In Q2, group revenue and adjusted EBITDA were in line with expectations, which we delivered against the fluctuating macro backdrop. Overall performance reflected the underlying strength of our experiences business and our continued focus on simplifying our legacy offerings. During the quarter, we announced our proposed agreement to sell TheFork for $700 million. The transaction unlocks the value we've created at TheFork and is another step in focusing the company on experiences. Net proceeds from the transaction will provide us additional flexibility for our capital allocation choices. We believe American Express will be a natural long-term home for TheFork and an important ongoing strategic partner for TripAdvisor. The transaction continues to progress. We signed a definitive agreement on August 2 and expect to close before year-end. Beyond the sale of TheFork, our portfolio review continues as we explore additional opportunities across the business to catalyze shareholder value. We're focused on enhancing the value of our assets and reshaping the company to deliver on our strategic priorities specifically strengthening our leadership in experiences and simplifying our hotels and other offerings to optimize for profitability. This work is predicated on allocating our resources to the largest opportunities for sustainable growth and profitability, where we have the competitive position to be a global market leader. With that, let's turn to our operating performance, starting with our experiences segment. Across the large majority of our marketplace, bookings growth trended as expected. Performance on our largest owned and operated point of sale, Viator, grew 10% for the quarter, while sustained SEO headwinds in the Tripadvisor point of sale pressured overall segment growth. Bookings for the segment grew 5% overall in the quarter. Our marketplace flywheel continues to support our experiences strategy, and we're making progress against each stage. First, generating higher-quality demand; second, converting that demand more effectively through our storefronts, and third, building stronger, more productive supply. Let's take each in turn. First, demand. We continue to broaden the ways we reach, acquire and reengage customers. As travelers increasingly discover experiences across social and other mid-funnel channels, we're finding attractive new opportunities to diversify beyond paid search. The results are giving us the confidence to scale those investments with encouraging evidence that they can drive both incremental demand and attractive customer acquisition economics. At the same time, search remains a core channel in the experiences category, given the high-intent nature of its leads. We continue to test, learn and optimize across this quickly changing landscape, leveraging our proprietary data and bidding expertise to maximize efficiency. This is driving healthy double-digit growth in our paid channels. Outside of our marketing channels, we're also making good progress with rewards and incentives. What began as a series of targeted experiments is increasingly becoming a scalable lever for acquisition, conversion and repeat engagement across the customer journey. While certain incentives may bring near-term pressure on take rate, the benefit to overall bookings uplift and return engagement drive favorable returns. Second, our storefronts. As travelers reach us, our product work continues to simplify the path to booking, delivering compounding conversion gains. Central to our product strategy is helping travelers make booking decisions more easily and with greater confidence. This quarter, continued improvements to personalization, how we surface and present reviews and more specific availability details are making it easier for travelers to quickly find the right experience and complete a booking. Together, these investments continue to strengthen the booking experience, lift conversion and support our overall items growth, reinforcing our confidence in our product road map and our ability to drive sustainable items growth over time. Finally, our supply. Building the world's best experiences catalog isn't just about adding more products, it's about adding the right products and we're focused on actively expanding supply where we see the greatest opportunity to serve unmet traveler demand. This strategy is paying off. We're seeing it in the performance of the supply we're onboarding in secondary and tertiary destinations. The inventory we target strategically is getting better traction, securing the all-important first booking significantly faster and earning more per product than average. These products are also driving new customer acquisition by attracting a majority of their bookings from first-time customers. This, in turn, supports our category expansion with many new customers booking in categories where we've been less penetrated, such as ticketed attractions and events. And the key enabler of that strategy is making it easier for operators to bring high-quality experiences on to the platform. Continued investments in supplier onboarding and connectivity are reducing listing friction, helping operators get experiences live faster with richer, higher-quality content. Our supply is one of our strongest advantages and we'll continue building on our momentum. The benefits of our supply and product work extend beyond our owned marketplaces. They also strengthen our value proposition to partners, enabling us to power more experiences storefronts across the travel industry and beyond. The attractiveness of our offering supports the healthy growth in our third-party points of sale as we continue to add new distribution partnerships. Now turning to Hotels & Other. This segment remains highly profitable, but is well understood to be challenged by structural changes in our primary SEO channel. Our stated objective remains the same, to simplify the business and drive alignment between revenue trends and costs. Year-to-date, we reduced fixed costs by approximately 16%, and we'll continue to evaluate further opportunities to streamline the business. Strategically, the profitability in this segment allows us to reinvest across our highest priorities, and we'll continue to be disciplined about shifting resources and investment to areas of proven growth, particularly in experiences. Alongside the work we've discussed today, we're also preparing for the changes reshaping how people discover, plan and experience travel. Experimentation is central to that effort. We've made it a core part of how we operate across the business, and we're seeing the results. Our experimentation velocity is increasing and contributing more incremental revenue year-on-year, which we expect to drive compounding impact over time. At the same time, we're ensuring our marketplace is available wherever travelers increasingly discover and plan experiences. Most recently, Viator became the first travel experiences partner for Google Gemini, adding to our growing list of partnerships across the leading AI platforms. We're also seeing encouraging early signs that our long-standing strengths in SEO, together with our trusted high-quality content are translating well into AI-powered travel discovery. While AI-driven traffic remains small today, TripAdvisor and Viator are already among the most visible travel brands in Google's AI overviews. As we continue working with the leading AI platforms, we'll keep learning, adapting and evolving to serve changing traveler behavior. Finally, we're utilizing AI to help us build our products and operate more effectively. This includes scaling our early pilots to improve engineering productivity, automate supply acquisition and customer service workflows and help optimize marketing performance. We're also using AI tools to power our fraud detection for reviews, moderate and curate our content and enable our workforce through productivity tools. We're encouraged by the breadth and impact of practical applications we're seeing in many ways across the company. Before I pass over to Mike, I'd like to leave you with this. While the operating environment remains uncertain, our conviction has never been clearer. We believe experiences is the largest long-term growth opportunity in travel and every decision we're making from where we invest to how we operate is focused on extending our leadership in that category. As Mike will cover in more detail, we're committed to investing behind this opportunity with a long-term lens on growth and margin expansion. With that, I'll turn the call over to Mike.

Thanks, Matt, and good morning. I'll start with a review of our financial performance and then provide more information on July trends and our outlook for Q3. As a reminder, all growth rates are relative to the comparable period in 2025, unless noted otherwise. Before I cover performance, and as we noted in our release this morning, any reference to consolidated results include only the Experiences and Hotels & Other segments presented as continuing operations. TheFork, given the proposed sale announcement on June 15, is considered held for sale under accounting guidelines and is shown as discontinued operations in our P&L statement of cash and cash flows and balance sheet. This morning's release, our Form 10-Q and our commentary on our group revenue and adjusted EBITDA now include only our continuing operations for Experiences and Hotels & Other and also include a recast for quarterly and annual periods. These continuing operations incorporate approximately $4 million in annual cost, roughly $1 million per quarter that were previously allocated to TheFork. These expenses primarily pertain to corporate personnel and insurance. We anticipate recovering the majority of these costs in 2027 through a transition services agreement. Now on to the results for the quarter. Continuing operations revenue and adjusted EBITDA was $442 million and $76 million, respectively, while revenue and adjusted EBITDA from TheFork classified in discontinued operations was $61 million and $11 million, respectively. Relative to our expectations, which includes TheFork, revenue was in line and adjusted EBITDA was above expectations. Turning now to Experiences. We witnessed an uneven recovery in the quarter with improvement in bookings growth from April to May, but then stepped back modestly in June. Domestic U.S. bookings improved throughout the quarter from April lows with Hawaii destination bookings bouncing back to levels we saw early in the year. However, U.S. to Europe bookings softened through the quarter and remained at levels well below what we saw at the beginning of the year. We attribute this in part to persistent macro-related factors, including the continued geopolitical uncertainty and extreme heat conditions in May and June. The number of experiences booked grew 5% in Q2, in line with expectations. Our largest owned and operated point of sale, Viator, delivered 10% growth for the quarter. In our Tripadvisor point of sale, persistent SEO headwinds continue to outweigh performance in other channels. We estimate the impact of the SEO pressure accounted for approximately 5 percentage points of growth headwind to this segment. This drag to growth continues to moderate as SEO becomes a smaller share of overall bookings mix. Gross booking value, or GBV, grew 3% to approximately $1.4 billion. We estimate changes in currency were a tailwind to growth of approximately 1%. SEO pressure accounted for approximately 5 percentage points of headwind to GBV growth. Testing around discounting and a higher mix of lower-priced items on our owned and operated points of sale drove lower average booking value, or ABV, year-over-year, resulting in a lower GBV growth rate relative to the bookings growth rate. Experiences revenue grew 3% or approximately 2% on a constant currency basis. Revenue growth was pressured relative to bookings and GBV growth by an increase in cancellation rates, primarily driven by adverse weather and travel conditions in both the U.S. and Europe throughout May and June. Adjusted EBITDA for the experiences segment was $31 million or 11% of revenue, down 290 basis points. Deleverage was driven by the free/paid channel mix shift across Viator and Tripadvisor points of sale. Lower personnel and other costs partially offset the increased marketing as a percent of revenue. We remain confident in our ability to capture a larger share of the global experiences market. Our product, marketing and supply infrastructure provide the foundation required to scale beyond our mature markets. These capabilities also power our high-growth B2B2C or third-party partner offerings, which reach travelers in noncore geographies and categories still migrating from offline to online booking adoption. Investments in our B2B2C offering, which include improved integration, enhanced account management and greater co-marketing capabilities are yielding significant benefits. We are seeing robust GBV growth from this channel comprising hundreds of merchant partners, thousands of travel agents and other distribution partners. While macro factors have impacted our top line performance this year, we remain confident in the trajectory for durable growth and long-term margin expansion. Our flywheel investments are yielding measurable improvements in direct bookings and unit economics, particularly with our high-intent channels. And our B2B2C offering continues to scale with a favorable margin profile that directly supports overall segment profitability. Turning now to Hotels & Other segment. Q2 revenue was $163 million, a 21% decline and in line with expectations. Strong pricing growth in hotels was more than offset by sustained hotel shopper volume headwinds. Media and advertising revenue declined 12% to $31 million, driven by on-site traffic-related headwinds, which offset growth in off-platform revenue. Adjusted EBITDA in Hotels & Other was $46 million or 28% of revenue, down approximately 100 basis points. Adjusted EBITDA was higher than our expectations, primarily due to lower-than-anticipated personnel and other fixed costs. Adjusted EBITDA margin deleverage was driven by an ongoing shift in prepaid channel mix and higher technology costs, which more than offset lower personnel costs. Turning briefly to TheFork, which as noted, is no longer a reportable segment and classified as discontinued operations given the proposed sale announcement. Q2 revenue was $61 million, representing 13% growth or 10% in constant currency. Adjusted EBITDA was $11 million or approximately 19% of revenue. Turning to consolidated expenses from continuing operations. Cost of revenue in Q2 was 7% of revenue, lower by approximately 70 basis points. This was primarily driven by a benefit of approximately $2 million related to indirect tax refund. Marketing costs were 49% of revenue, an increase of approximately 500 basis points. This was driven by ongoing pressure from free/paid channel mix, including the aforementioned SEO headwinds impacting Tripadvisor experiences and the H&O segment. Personnel costs were 22% of revenue, lower by approximately 400 basis points, primarily due to lower costs in Hotels & Other and lower share-based compensation or SBC expense. Lower SBC expense was primarily due to forfeitures related to our cost savings program announced in Q4 of 2025 and lower annual grant values beginning in 2026. Absent SBC, personnel costs were approximately 19% of revenue, lower by approximately 200 basis points. Technology costs in Q2 were 5% of revenue, a modest increase of approximately 40 basis points, primarily driven by lower revenue. Technology costs on an absolute dollar basis were largely flat. G&A costs were approximately 3% of revenue, higher by 130 basis points, primarily due to a difficult comparison of lower G&A expense in Q2 of 2025, resulting from a onetime true-up. Now turning to cash and liquidity. In Q2, operating cash flow was $141 million and free cash flow was $130 million. Total cash and cash equivalents at June 30 were approximately $843 million, reflecting the paydown of our convertible notes on April 1, which reduced both cash and total debt by approximately $345 million. In addition, $52 million of cash is included in discontinued operations due to the pending sale of TheFork. Excluding deferred merchant payables of $484 million, our excess cash balance was approximately $359 million, and our total debt was approximately $836 million. Regarding share repurchases, our program remains active with $110 million remaining, but we did not repurchase shares in the public market due to our ongoing portfolio review, which included the sale of TheFork. We remain committed to our share repurchase program, and we will continue to evaluate opportunities for capital return while balancing our capital structure requirements, market conditions and other relevant factors. As we plan for the closing of TheFork transaction, we anticipate approximately $680 million of net proceeds. The sale proceeds will provide us flexibility in our capital allocation choices, prioritizing debt reduction and/or share repurchases. Turning now to July trends and our outlook for Q3. July performance remained uneven, reflecting a mix of factors. Unusual weather in the U.S. and Europe dampened bookings growth and increased cancellations throughout the month. We continue to see weakening overall demand in the U.S. to Europe travel corridor, our largest corridor, and pressure in average booking values, driven primarily from a higher mix of lower-priced experiences. The year-over-year shift in geographic mix impacted take rates pressuring revenue. The combination of these factors will impact the Q3 experiences performance. We expect growth in experiences booked to improve slightly from Q2 despite these headwinds, though GBV growth will face pressure from the aforementioned lower average booking values and currency movement. Higher cancellations and take rate dynamics will further pressure revenue growth relative to GBV growth. Our guidance assumes stability in recent trends. Starting with our Experiences segment for Q3, we expect a flat to modest improvement from Q2 in Experiences booked to approximately 5% to 7% growth. For revenue, we expect declines of 2% at the low end and growth of 1% at the high end, which includes approximately 1 percentage point of currency headwind. We expect Experiences adjusted EBITDA margin of 14% to 17%, which reflects expected revenue pressure this quarter as well as continued free/paid mix shift primarily on the Tripadvisor point of sale. In our Hotels & Other segment for Q3, we expect revenue declines of approximately 20% to 23%. We expect adjusted EBITDA margin of approximately 22% to 25%. Segment expectations result in expectation for Q3 continuing operations revenue declines of 7% to 10% and adjusted EBITDA margin of 17% to 20%. Given the current operating environment, we have adopted a more prudent outlook for the second half of 2026. We expect modest improvement in revenue growth across both segments in Q4, assuming one-off travel disruptions do not recur. Further acceleration remains dependent on a more normalized macro backdrop. We also anticipate a typical seasonal step down in adjusted EBITDA margin as we move from Q3 to Q4. Despite the mixed environment, we remain focused on capturing the long-term opportunity experiences, fueling durable growth through disciplined investment and margin expansion. With that, I'd like to turn the call back over to the operator for Q&A.

[Operator Instructions] First question comes from the line of Richard Clarke of Bernstein.

I guess I'll start with one. You're obviously calling out a lot of sort of macro and corridor pressures. But as we've seen your nearest rivals in your 2 segments GetYourGuide saying they did 34% gross booking guide in H1 in North America and Trivago is growing its revenues about 21% in hotels. I appreciate probably a bit of a different profit focus, but now you've got $700 million or $680 million coming in from TheFork. Are there investments you can make in the business that mean you can kind of match some of that peer revenue performance? Or is there anything structural holding back what they're doing compared to what you're reporting?

Yes. Thanks, Richard. It's Mike. I'll take the first part of that or Matt can add on. Listen, I take the question, and thanks for the question. I think just a few points on that -- on the relative growth rate. When you think about North America, I think there's a vastly different size comparison. We are a scale significantly higher than our next largest competitor in North America. We do say that our Viator, our most scaled and mature channel has been growing in the mid-teens. And when you look at the mix impact, we certainly have seen some headwinds coming from the Tripadvisor point of sale. And we're pretty pleased when we look at the overall demand profile and which largely comes through the paid channels and particularly in Viator that we've been maintaining share. So I think there's a bit of just the comparison around the scale point I want to make there. As we think about these investments, and I think you've heard from us pretty consistently where the investments need to be, which is in the flywheel and the demand store supply, and we're investing across all 3 of those. And we are continuing to keep a very long-term focus there. In demand, you've heard us talk a little bit about this quarter, diversifying some of our marketing mix, really moving into other channels away from SEO, and we're starting to accelerate that. We're excited about some of the early regards in that result. In the store, right, which is all about conversion, how we get our teams working faster and faster around conversion, app, all these things we continue to devote to. And you're seeing these investments in the P&L today through our personnel and through technology costs. And then finally, in supply, which we've been pretty consistent in the past couple of quarters about how we talk about our supply advantage, which we do firmly believe that we have today, but how do we improve that? And it's not just the number of supply, but how we bring highest quality supply in that contributes to the first 2 points of the flywheel, which are conversion, and we're matching that demand with the supply. So we -- in some ways, we are very aware there's a lot of macro things happening. We're probably a little more unique in the environment relative to some of our very large-scale competitors in the travel sector, which have large scale and geographic diversity. But we remain very committed for long-term investments around those 3 areas. But Matt.

Yes. No, I think you handled it well. We do see meaningful opportunity ahead. I think sometimes these averages belie what's going on underneath and some of the strength that is there that we see. But certainly, there's an opportunity to go to new source markets internationally and drive category diversification because where we play are not the largest or the highest growing source geos or categories, and we have a real opportunity to go after that. We intend to. But there's a lot of good things happening underneath. We're seeing really good growth from retained and reactivated users. We're seeing improving repeat rates. We're seeing our booker cohorts coming through lower-cost channels. We're seeing some of the items booked in key areas looking really good, conversion improving. So we see a lot of opportunity to lean into, and we will invest prudently behind all of that.

The next question comes from the line of Naved Khan of B. Riley.

Just a couple of questions from me. Maybe just on Viator first. Just talk about what kind of retention rate and repeat rates you're seeing from the Viator cohorts that you have acquired. If I look at the sort of the marketing spend as a percent of revenue, it was up significantly. Is that a part of the mix between 3P versus Viator point of sale? Or is there something else going on? And then also maybe touch on the price sensitivity, which you may or may not be seeing from the consumer. Other OTAs have talked about how consumer is resilient. And I'm wondering if any sort of price considerations are showing up in your bookings for Viator?

Naved, it's Mike. I'll try to hit those. So I think you hit -- you kind of answered it in your last part on question around marketing mix as a percent of revenue. I think we look at marketing as a percent of GBV. And I think year-over-year, that did increase about 1 point from like 11.3% to 12.4%. So it's a little bit more consistent than looking at on a revenue basis. But even there, some of that very modest deleverage is just due to the prepaid mix and particularly SEO on Tripadvisor. Importantly, when we think about marketing efficiency, which I think is part of your question, when we look at our SEM costs versus the GBV we drive from SEM, that has remained flat year-over-year. And we really have had a very consistent approach as to thinking about our ROAS targets on both channels. So that has remained pretty consistent. And there really has been no deterioration on the cohorts we see. We continue to see repeat rates that have been pretty consistent. And as we've said, as those cohorts build, those repeat cohorts carry a very different margin profile and are a key part of our thesis around long-term margin expansion, which have not changed. And in terms of the price sensitivity, we did call that out. We have seen average booking value under -- to come down under pressure a bit. are really across geos, products. And so we see a higher mix of this lower-priced items or bookings come into the mix, which we do believe is a bit of a macro signal because it has started around the time at the end of Q1, we saw a little bit happening and then into Q2 more fulsomely. And again, it's baked into our Q3 guidance, which we'll see if that's proved to be conservative or not, but we do believe that is a key input and is macro -- reflective of macro.

The next question comes from the line of Lloyd Walmsley of Mizuho.

Can you give us an update on where your exposure is today to SEO at this point, maybe by segment or point of sale, so we get a sense of the, I guess, the forward risk? And then separately, on the AI side, can you just give us an update on your sort of your native AI product and sort of where you are there, what engagement looks like? And then the opportunity maybe to work with AI labs, either for more licensing revenue or more closely on a product? Anything you could say or update us on that would be great.

Great. Lloyd, I'll hit the first one, Matt can hit the second. So we called out a little bit more explicitly in our prepared remarks on SE exposure for Experiences. And we did say that from a segment perspective, there's about 5 points of headwind on the units growth, experiences book growth, right? So around 5 to 10 -- going from reported 5% would be up to around 9% or 10%. That is almost entirely driven by TripAdvisor. There is some very small SE exposure in Viator, but really, really a very modest and as we said, we will continue to think that would work its way down. We expect that to be less pressure as we move next year. For H&O, it is different. Our hotels business, which was really built on the back of SEO, we continue to work through that. We continue to think about our customer experience, how we get a great customer experience and how we give a very high intent click and that's very valuable to our advertisers, which we have been focused on and is the driving force around a lot of our product work. We do think, over time, we will work through that, but it is -- continues to be a channel that has still some size, although it has diminished greatly over the last several years.