Tripadvisor, Inc. (TRIP) Q2 2020 Earnings Report, Transcript and Summary

Good morning and welcome to Tripadvisor’s Second Quarter 2020 Earnings Conference Call. As a reminder, today’s conference call is being recorded. At this time, I would like to turn the conference call over to Tripadvisor’s Vice President of Investor Relations, Mr. Will Lyons. Please go ahead.

Thanks, Catherine. Good morning, everyone and welcome to our call. Joining me today is our CEO, Steve Kaufer; and our CFO, Ernst Teunissen. Last night, after market close, we distributed and filed our second quarter 2020 earnings release and made available our shareholder letter on our Investor Relations website located at ir.tripadvisor.com. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Also on our IR site, you will find supplemental financial information, which 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 views as of today, August 7, 2020. 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. And with that, I’ll pass the call to Steve.

Thank you, Will and good morning everyone. Thank you for joining the call. As we saw from our results and described in our shareholder letter that we posted last night, the second quarter was one of historic proportion given the impact of COVID-19 pandemic is having on our business and on the travel industry. Significant year-over-year impacts persist, but we are encouraged by gradually improving trends since April. Monthly unique users on Tripadvisor sites progressed from 33% of last year’s comparable period in April to 67% of last year’s comparable period in July. Revenue improved from 10% of last year’s period in April and May to approximately 30% of last year’s comparable period in July. So, while Q2 was challenging, we have emerged from our industry’s darkest of dates, I remain confident that while it may take time and be uneven along the way, it will eventually slowly return. In the meantime, we are executing well on what we can control, streamlining our operations to preserve cash, leveraging our platforms differentiated strengths, to help customers and redoubling our strategic efforts to address future opportunities and emerge in a strong position on the other side of this pandemic. Now, before I turn the call over to Ernst, I want to again, extend a thank you to all frontline workers and medical professionals, the everyday heroes working in our local grocery stores or delivery services. And to our employees, I’m grateful for your tireless hard work during this difficult period, you have demonstrated both your talent and your resilience. I am pleased with how we have come together to execute on our important initiatives that serve our stakeholders. Ernst?

Thank you, Steve and good morning, everyone. In the face of this unprecedented uncertainty during Q2, we took swift and concerted action to preserve cash and maintain our solid financial position. first, related to expense management, we are tracking in line with the targeted discretionary and workforce-related savings levels that we discussed with you three months ago. I’ll note that these cost savings I’m about to reference do not consider depreciation amortization, restructuring, and related reorganization costs as well as stock-based compensation. So, specifically our expenses were $104 million lower in Q2 compared to Q1. $53 million of this was due to variable cost, which came down roughly in line with revenue and $51 million was from savings from previously announced discretionary and workforce-related cost measures. We expect annualized savings of these more fixed discretionary and workforce related costs will be in excess of $200 million this year versus 2019. Positioning us very well as we entered 2021. The variable costs are expected to be lower this year as well, driven by reduced marketing spend and lower expected revenue, but will go up again, as revenue recovers. We are executing as a leaner and more focused organization now, and we are pursuing our highest business priorities. We believe the steps we’ve taken, positioned the business for better flow through as consumer travel demand returns and our revenue recovers. As for liquidity, we had close to $700 million of cash at the end of June. And in July, we completed a $500 million bond offering. This offering has provided us with long-term debt capital and together with our credit facility, ample liquidity to withstand even prolonged COVID scenarios. We believe our actions to streamline operations, conserve cash and raise long-term debt capital, the business is appropriately capitalized now and positioned for covenant compliance even in the event of a prolonged downturn. Looking ahead, significant year-over-year impacts persist and near-term visibility remains low. that said, we expect revenues – revenue declines will improve and EBITDA loss to narrow meaningfully in Q3 versus Q2. We remain cautious, but we believe we have taken the necessary steps to ensure we can emerge from this pandemic in solid financial as well as strategic shape. With that, we will open it up for your questions.

Thank you. [Operator Instructions] Our first question comes from Deepak Mathivanan with Barclays. Your line is open.

Hey, guys. thanks for taking the question. Steve, I understand that it’s still in early days, but can you talk about how the user behavior is different in the new homepage? What products are getting more traffic and is engagement different to one product versus the other compared to the prior experience? And then the second question is you mentioned in the letter that, the traffic in European markets recovered faster than U.S. obviously, U.S. was early to reopen in many States and many European nations are still in the reopen mode right now. What do you think that traffic recovery was driven to be faster in Europe for you? Is it a function of product mix in Europe, more towards restaurants, attractions? Can you provide a little bit of additional color there? Thank you.

Sure, Deepak. Thanks for the questions. So, to start on the home page, look, we’re – as we’ve talked about our overall message of helping travelers on the considered trip, a trip that really matters to people. We needed to move the focus away from – hey, it’s a hotel price comparison site, or just a review site. To really focus on a little bit of inspiration, a little bit of guides, a little bit of more personality on the site, showcasing all the different things we do. So yes, we did see some shifts from categories away from things like a flight says a small piece, and more towards overall exploring geographies. The nice thing is that we saw an immediate uptick in repeat rate. People that came in on the home page were more likely to come back, because the experience was just better. Category shifts beyond that are probably more related to COVID in terms of the type of trips that people are taking are clearly much more domestic. They tend to be a little shorter duration, and they’re moving away from urban centers and towards the outdoors, the beach, the places, where social distancing is so much easier. And that’s – I think that’s probably less our home page we designed then obviously, the circumstances around us. To your second question, the European markets recovering faster than the U.S., it’s all about safety. Our surveys are showing this when travelers’ feel comfortable that they can go somewhere they will. So, as European markets opened up because caseload, frankly the chance of contracting the virus is so much lower, people are feeling much more comfortable traveling. The U.S. has not been shining in that regard. And so while we had opened up earlier or not locked down as hard, we’re paying the price now in terms of cases on the rise in so many states and that’s put a damp – a meaningful damper on the travel rebound post the initial outbreak. So, no surprise, I think you’ll see a very uneven recovery, different geographies, mostly depending on caseload and where the hotspots emerge.

Got it. Thanks, Steve.

Thank you. Our next question comes from Brad Erickson with Needham and Company. Your line is open.

Hi, thanks. Just a couple from me. So first, relative to the improving traffic levels you gave into July, the revenue declines are obviously, lagging that somewhat. Just curious if that’s a gap you expect to meaningfully narrow as early as say Q3 or Q4. Do you expect those two items to remain pretty far apart for the foreseeable future into next year? And then the second question is just when you think about, call it, medium-term priorities, is the goal to – of the business right now to drive a rebound to revenue as fast as possible or is it getting – going to be siding more with getting back to profitability or a combination thereof? Just talk about your philosophy here in the medium term. Thanks.

Yes. Thank you, Brad. This is Ernst. Good morning. First of all, on the lag between traffic and revenue that you identified. Yes, indeed. we see that people are coming back to our sites to look and investigate travel ahead of the actual conversion, which is down from a year ago and that is quite natural, if you think about it. People start to look around and are waiting to get comfortable to book. And so I think we will – throughout the year, we will see a lag between these two indicators. But traffic is a leading indicator. In fact the people are coming back now and the improvement has been significant since April, May, as Steve said in his opening remarks. That is a good sign and is a leading indicator. How quickly that gap will close is really difficult to say for us. But we’re anticipating that gap will remain for a while. But hey, revenue has improved 10% April, May versus last year and now 30% in July. So, we’re taking that. In terms of the medium-term priorities, of course, we’re focused on making sure we’re ready for a recovery and we’re able to serve consumers as they are getting more willing to travel and book, but we’re also focused on the priorities that we have before when the COVID finally is – it goes away and we want to come out of this crisis stronger than we were before. We’ve highlighted in our prepared remarks and in our Shareholder Letter, there are some areas, where we’re investing, not surprisingly Experiences & Dining, not surprisingly working on our One Tripadvisor experience, working on some new revenue streams that we’ve identified on the – more on the direct-to-consumer side. So, we – the team is fully focused on that, trying to capture both revenue recovery near-term and our long-term opportunities.

Got it. Thanks.

Thank you. Our next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.

Hi, thanks for taking the question. Going back to the kind of traffic revenue recovery gap, are you seeing – are you seeing commercial engagement lag or is it also a function of advertisers being slow to come back and are there anything you can do to kind of steepen the bid curve to get them bidding up again or maybe even using your own booking path to monetize traffic if advertisers aren’t willing to pay what it’s worth? And second one would just be, to the extent you can, if you can give us an update on some of the July trends, on a segment level, anything you can share with us across some of the various segments?

Thanks, Lloyd. This is Steve; I’ll take the first one. So, as the pandemic hit, it’s pretty obvious to everyone that cancellation rates on the downstream bookings that we’re providing to our partners would spike, as people change. So, the recovery of that, where people are now booking and our clients are not sure whether the cancellation is going to happen, naturally causes our clients to be nervous about paying top dollar if – right now on a CPC basis, if in fact, a user is going to cancel. So yes, I’d surmise that it’s rational behavior in this unknown period for CPCs, for what we get paid to lag as bookings recover. We believe as our clients see the trends of consumers staying after they are making the reservation and fulfilling it, actually taking the trip, then they’ll be more confident that the CPCs they pay us, will in fact be turned into profit on their side, at which point CPCs go up in our auction and it comes kind of back to where things were. To the question of – or the sub-question “Hey, could we use our own Instant booking as another way to leverage the auction?” Yes, we’ve been doing that during this pandemic and that enabled us to continue to deliver for our travelers on all the bookings that they want to do, even as some auction players were too hesitant to step back in the auction back in April and may, for instance. Ernst, do you want to take that?

Yes. On the second question, the July trends on the more segment level, the areas of the business that are recovering the fastest or ahead in the recovery for us, our restaurant business, TheFork reservation business, which is performed very strongly in the wake of restaurants opening in Europe. And so that’s clearly, the area – an area, where we’re ahead right now. rentals, is another area that has performed relatively strongly compared to, with two others. So, at segment level, obviously, TheFork will hit our Experiences & Dining segment – that will benefit our Experiences & Dining segment. rentals in our other segment. hotels comes behind that and that’s obviously, our HM&P segment. And then experiences, which has seen very good traffic recovery, but not yet the booking recovery that we’ve seen in other parts of the business that will also hit Experiences & Dining. So, within Experiences & Dining, there’s a bit of a two track in terms of recovery with the restaurants ahead and experiences behind.

Okay. Thanks, guys.

Thank you. And our next question comes from Naved Khan with Truist. Your line is open.

Yes. Hi, thanks a lot. Two questions, we’ve been hearing about consumer demand, skewing a much heavier towards alternative lodging during the recovery. How does that affect the recovery in your hotel auctions? And then secondarily, Expedia, it’s all about boosting advertising efficiency and performance channels. How does that factor into auction recovery on your platform?

Thanks, Naved. Sure. So yes, as Ernst was saying alternative lodging or rentals has been faster to recover than hotels. It’s a smaller part of our overall business. So, we were less benefited by that shift. but of course, hotels are on the rebound now and will continue the absolute lion’s share of the lodging market space. So, the question – I’m sorry, the second part of your question was….

Just on Expedia’s change of ad efficiency targets and how that might affect, auction recovery on your platform?

Yes. So, we’ve seen our major OTA clients talk about wanting to be more efficient in their direct marketing spend, for years and years. what we’ve always found is that they’re interested in buying high-quality traffic, traffic that converts on their side and that’s what we’ve been known for. We’ve been doing this for quite a while our partners have never pulled out of our auctions. We’ve been – we have strong relationships with all of them and that’s been a win-win for everyone. We certainly understand our client’s desire to directly win over the consumer to go direct to their site. But at the end of the day, Tripadvisor does so well with a leisure trip, the trip that matters to them that tends to be a higher price point than a) I just need a roadside hotel next to my next business meeting, et cetera. So, the type of traffic that we have is pretty hard to find anywhere else, it’s an auction. So, it requires lots of people to play. Unfortunately, we do have the chains. We do have the – all the major OTAs and most of the second tier and third tier OTAs on the platform as we always have been. So, there’s always some ins and outs there, but I characterize the auction is healthy and currently, responding to the change in cancellation and truly just COVID dynamics.

And maybe, a related question, Steve. So, on the new hotel offering that you can to launch into three, is that display advertising focused? Or is that auction focused? How should we think about it?

We have a larger – and sort of meaningful hotel solutions business, where we’re addressing challenges. We’re helping individual hoteliers and hotel chains reach the eyeballs that are on our site, help them grow their business and we have another product coming that is truly aimed at the million plus lodging leveraging the traffic we have the reputation that we provide for these hotels, their ability to put more heads in beds. So, I wish I’d be more specific, but you’ll learn soon. And again, just think of it as another product in the product line and as we move forward, we look to bundle a bunch of these products together to help hoteliers in more ways.

Thank you, Steve.

in the way we report revenue, it will hit the hotel revenue line, not the display and core X [ph] line.

Got it. Thank, Ernst.

Thank you. Our next question comes from Tom White with D.A. Davidson. Your line is open.

Great. Thanks for taking my question. Maybe a high level one for you, Steve. Now we’re a few more months into the pandemic, just curious whether you think the situation here is going to have any kind of lasting impact on kind of the traditional hotel food chain, if you will? Specifically, curious whether you think larger hotel chains kind of emerge on the other side of this thing in a stronger market position relative to the independents and small chains and how does that impact guys like Tripadvisor? And then, just a quick follow-up on monetization of the auction, I think one of your peers is experimenting with a CPA offering, on top of CPC offering, is that something that you guys have considered and why or why not? Thanks.

Thanks, Tom. Two good questions there. So – and this is just kind of personal opinion, I guess. When you look at the growth in alternative lodging rentals at the moment, I think it is an opportunity where a lot of people are trying that alternative for the first time. So there is probably post pandemic a little bit of an accelerated share shift in the lodging category toward some more of the alternative lodging pieces, and Tripadvisor, like everyone else, is looking to kind of grow the selection on our site. I think that’s a bit more on the edges. When you look on the chains versus independents, we’ve spoken with a number of independents, they’re certainly struggling. They tend – whether they’re a franchise owner or a true independent getting demand through these tough times, it’s really tough. And so, when we look a bit further out and say who might not make it through the cycle. Obviously, the chains will, some of the indes may not, and so, that could tilt the balance a bit more towards the chain. As it relates to Tripadvisor, I don’t see any particular impact in that. We serve the – our travelers, the biggest lever for the growth of our overall business is getting more quality travelers to return to our site and figure out where they want to go and it frankly doesn’t matter all that much to us, whether that’s an inde franchise owners or a fully chain-owned property To the question on the auction CPA, we’ve had a variety of different payment mechanisms for many years. So, we call our model a traditional CPC. People pay on the click, but we’ve certainly had CPA and has CPA as an alternative method where it works for the clients and where it works for us. Normally clients prefer CPC, so they can directly control and where they sit in our auction. But in major uncertain times like we saw a month ago, I’d say it’s easing now, but where there is major uncertainty and the client doesn’t want to take the risk of bidding at a CPC level but is happy to pay on a CPA, we can certainly accommodate that and have accommodated that as well. It doesn’t fundamentally change our auction. It just shifts a little bit of the risk around if the cancellation happens, is it on Tripadvisor’s dime or the client’s dime in exchange for a more control over auction placement. I expect that for us and perhaps for others that that will end up flipping back over the next few quarters for clients that are on CPA now to move back to CPC, but we’re modestly indifferent on our end.

Great. Thank you.

Thank you. Our next question comes from Shweta Khajuria with RBC Capital Markets. Your line is open.

Okay, thank you. Steve, what is your view on how differently Tripadvisor will be positioned post-COVID, not really next year, but call it a couple of years from today as some of your current strategic investments come to fruition. So maybe the company is better positioned in terms of product offerings or company’s ability to engage users’ better, maybe improved content or completely something else altogether. But what do you think will be – will likely be the most impactful change related to Tripadvisor’s positioning post-COVID a couple of years from today. Thanks.

Thank you, Shweta, for that question. We’re investing quite a bit right now in changing the way that Tripadvisor both goes to market with our offering, but also how we’re actually serving our travelers. So in our Shareholder Letter, kind of we outlined or at least three of those points are the most sort consumer focused. Our One Tripadvisor vision really talks about how we’re changing, and you can see it on our homepage already, changing how we’re helping travelers plan a much more complete trip, focusing, again on those trips that matter and that’s something unique in the industry. You don’t have – or the other travel sites thinking holistically about what’s going to make a fabulous vacation. So it’s not just the hotel, it’s not just the flight; it’s the things you’re going to do, the places you’re going to eat, the guides, the new experiences you’re going to find, the amazing memories, the opportunities to really experience that destination. And because Tripadvisor has so many of those components already on the site with a ton of photos, ton of content, great forums, wonderful community to help guide you, our opportunity is to bring that together for the traveler in a way that we’ve never done before and would certainly be really difficult for anyone else to try to reach. So aiming for that trip that matters, the vacation that you’re creating the memories for, bringing our concepts together; kind point one. We want you to experience that. We want you to fall in love all over again. Part of that comes in to, as we were known and make most of our money historically on hotels, how do we shift that over to the Experiences category, in particular, on Tripadvisor because it is such a compelling part of making that trip memorable. What’s the amazing thing to do? And so, sure, we might sell some airport transfers and an entry ticket to museum, but what we care about is the story-worthy experiences. What are you going to return from your vacation and really explain to your friends “Wow, Paris was amazing because”, and share that experience that you booked, “Oh, where did you find that experience”, “I’ve booked it on Tripadvisor.” And that’s that word of mouth; that’s that component that we are looking for to grow our Experiences & Dining segment for – or as part of that considered trip. And then third, I’d be remiss if I didn’t touch on our direct-to-consumer paid offering. So, we’re looking at hundreds of millions of travelers we have on our site each and every month even in the middle of the pandemic and we’re thinking to ourselves, what are the other products and services that we can offer directly to them, helping them plan a trip, take a trip, get a different experience, deliver something of value to them. And we’ve launched two already. One was an insurance product in partnership. And so it’s an insurance for the whole year as opposed to just this one trip, something where you’re in a pretty good position to offer. And another is a community of expert trip designer. So as an – almost an agency service for someone that doesn’t want to do it all themselves. It’s a great product to be able to say, I’d like an – I’m going on vacation, I’m going to go on a trip to Hawaii. I’d love to be able to talk to somebody who has been there, who likes the things I like, and it’s a great matchmaking service. You can certainly find more about the product. But just as an example, it’s two services direct-to-consumer, paid offering leveraging the traffic on our site. And as we’ve shared in the Shareholder Letter, it’s the first of a set and what we think is a potentially large opportunity in terms of tapping into the travel audience that is already on our site with the new set of products and services to help them have those magical trips. And so stacking all the way up when we think of emerging from the pandemic, are vaccines available or look out 2022 and say what makes Tripadvisor really differ than the pre-COVID times? Folks on our site are planning a complete trip. We’re helping them at the different stages of the journey. It feels like a more integrated experience. That’s the One Tripadvisor version. Experiences are a lot more prominent, more story worthy, we’re merchandising them, we’re really helping you find what’s perfect for you on this trip and we’re surrounding you with another set of direct-to-consumer or paid services be it trip designers to help you plan, insurance or several more that we’d love to bring to market that help you in one way, shape or form have that perfect trip.

Thank you, Steve. That was helpful. If I may, could you please expand on D2C? I did read in the Shareholder Letter either subscription or other direct to consumer paid offerings. So, would this be a subscription product? How do you plan to monetize this offering going forward?

Sure. So, I mean happy to expand a bit. Super early days, of course, but we have a paid insurance product, it’s – I forgot the exact price, call it $130 a year and we’re offering you coverage for all the trips that you take and you can find that on Tripadvisor. We contextually market it, where we think it’s appropriate, and it’s a great product. It’s actually kind of hard to find somewhere else. We didn’t build that one. We’re not getting into the insurance business ourselves, but we’re trying to tap our audience and the consumer is buying it through our site, so direct-to-consumer. More meaningful and more in line with our brand, but again, COVID is not a great time to launch any new product, but we launched anyways, is our Reco product. In this, you go through a process to indicate what type of trip you’re planning to take. We offer a match to a number of different travel agency or travel agents. We call them trip designers that are great at this sort of trip. And we have a monetization mechanism that’s essentially a matchmaking fees. So a consumer will put in their credit card, they’ll buy the connection. The travel agent is at their disposal and it’s a great match. So, again, a bit more on the luxury end but a lot of people don’t want to spend the time that they know they should when they’re going to be go – when they’re taking a couple of thousand dollar vacation and paying $100 or something upfront fee to get that level of expertise to have that magical trip, we’re in a wonderful position to provide that service. You can extrapolate further and say, “Hey, are there guides that Tripadvisor could offer that have specialized information that was so valuable that someone would pay a $20 subscription or a $20 one-time fee for.” You can imagine other programs that could get exclusive seats, exclusive benefits, exclusive something or other that you as a consumer would be willing to pull out your credit card for. So there’s this content angle, there is a discount angle, there is a benefit – exclusive benefit angle, there is a higher end concierge level service while in market. My point is mostly, we have this tremendous audience bigger than any other travel site that are self-qualified by being on our site as being interested in having usually a great trip, a trip that matters to them. How are we – what are the set of services that we can offer that can – that someone who would be delighted to pay for because they’re about to take this trip and it’s going to make it that much more special. We share it now, because we’ve actually launched a couple of products in this category. We’re thinking of it as a category and, of course, we will be sharing more as we launch more.

Very helpful. Thank you, Steve.

Thank you. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Great, thanks for taking my question. Interesting on the direct-to-consumer offerings you’re thinking about. Just a follow-up, I guess, can you kind of cite if you know like what the tradition – what the commissions earned from traditional travel agents has been and is there an opportunity to get more through that transaction with the direct-to-consumer offering? And then my second question is just around the alternative accommodation providers. Seems like they’ve been leading the recovery in travel, is there a way, how do you think about sort of getting them more engaged on your platform, the Vrbos, the Airbnbs? I mean how do you think about that? Thank you.

Sure. So look the – to your first question, the traditional travel agent, it’s still a big market, there are commissions on all the things they book on behalf of the traveler, their model is moving from a completely free in some cases to an upfront fee in other cases. We’re reasonably agnostic on the revenue model. We just know that, as in whether we charge an upfront fee to do this matchmaking service, which is our current model or whether we’re, through another mechanism, tapping into a piece of the commission. The trip designer or the travel agent is doing the hard work of really figuring out what the traveler wants. We simply recognized that we have, among our pre-COVID. We have 400 million unique users a month on the site. Some small percentage, but it’s still going to be a big number of those people would really be much better served and would love to be well served by a trip designer. So, how can we help our traveler by presenting the best trip designers and then whether it’s a finder’s fee or a piece of the commission, there is a big transaction that’s going to happen, we’ll have kind of earned a piece of it by making the connection. The trip designer is going to be both recommending obviously hotels that are amazing on Tripadvisor, but also bookable experiences on Tripadvisor, because that’s what those types of considered trips want to do or not, we would be requiring a trip designer to book through us, but why wouldn’t they, because we have fabulous supply. So again, it drives back to how the Tripadvisor offering focusing on that considered trip whether to do-it-yourself person on our website building out an itinerary, booking things independently or a hand off to an agent, who is going through those same steps for them. It’s a nice way for us to capture a bigger portion of the market, rather than someone who potentially is using Tripadvisor and then contacts an agent offline, in which case we lose all credit for those bookings and lose all influence in terms of helping to guide them to the best experiences that are offered on trip, and the best restaurants that are offered on trip. To your second question on rentals. We do think that alternative accommodations in general was an important category, is an important category, and will continue to grow as a category that is important to our travelers. So, we will not be building up our own supply. We will not be focused on trying to engage as what you could say as yet another vacation rental player in the space, but rather be partnering with other firms that already have established relationship so that we can focus on what we do best, which is bring a tremendous audience looking for accommodations. And our secret sauce or our magic in the equation or value add is to help understand when a traveler would be better served by an alternative accommodation instead of a traditional hotel and make sure that is what’s presented. So think of it as, how can trip – we think of it as how can Tripadvisor have the best supply in that category without investing more of being in the supply business, and therefore, leveraging our demand for which we still have a ton of and we expect to be back in – we are back in growth mode now as we’re recovering from the pandemic.

Thank you.

Thank you. Our next question comes from Brian Fitzgerald with Wells Fargo. Your line is open.

Thanks guys. Steve, wanted to try this out on you. Generally when consumers travel closer to home, and we think you tend to see shorter durations, less expensive accommodations versus when they travel farther, is that a valid point? Like are you seeing things change near term with more local travel coming back first, replacing bigger international trips? Are the consumers trading up versus what you would ordinarily see in the shorter trips in terms of duration or property class? Anything you could tell us about the propensity to spend would be helpful.

Sure. I can offer just sort of – a couple of nuggets. Absolutely the trips are closer to home, international border is shut. So, you have some countries where we’re actually seeing year-on-year the same or even more domestic travel than before. I don’t know that that’s a long-term trend versus “Hey, I can’t take that international trip so I am staying within my country.” The trips, in general, are shorter. So, you’re right there and when we look at ADRs versus a year ago, they have dropped at least the stay on trip – sorry not technically – what I’m referring to is not technically average daily rate, but the amount that the user is looking to spend on our site is down versus a year ago and so that – ADRs could be up, but the trip stay could be shorter. I don’t have that level of detail on my fingertips, but the overall spend on the part of the traveler is down year-on-year.

And then, are they willing to spend more on – just sleeve-for-sleeve inventory comparison, are they – are you seeing them – the price elasticity, are they willing to spend more for vacation rental in a rural area this year versus that same place last year?

Good question. I don’t have an answer to that. I do know we are seeing more vacation rentals in those rural locations being booked than previous year. Again, no surprise there, as people look for space and try to avoid the big cities, but I can’t give you a data point on the price point. I just don’t know.

Yes. Okay, thank you.

And it’s tough to know how that’s going to play out. But it could be indeed, as you were sort of speculating that budgets could shift in a different way spending domestically but spending more domestically. There’s one thing that I wanted to point out, which I think is going to be obvious to most of you. One impact is, people are taking trips by car more than they did before and take few flights. I just wanted to point out that we at Tripadvisor have never been really dependent on flight revenue. So that particular trend is not impacting us as much. We made about 2% of our revenue last year was impacted by flights. So it’s a pretty small slice of it, as I piece that part of the shift, people taking fewer flights is not impacting us that much.

Thanks, Steve. Thank you, Ernst.

Thank you. Our next question comes from Heath Terry with Goldman Sachs. Your line is open.

Great, thank you very much. Steve, as you – as you look at the opportunity on the other side, on the supplier side, obviously trip is almost equally, if not more important to suppliers like hotels, tour operators as you are to your consumers that use you to plan their trips. As you are evolving the offering and creating these new offerings for people who are planning their trips, anything that you’re looking to do or any opportunities that you see in this environment to deepen your relationships with suppliers directly, create more direct revenue opportunities with those suppliers, either through new offerings, new technologies, investments in those areas that that you want to see made?

Yes, thanks. Thanks for the question. As I alluded to, we are kind of launching a new product this quarter, that is aimed directly at hoteliers primarily targeted at indes or sort of GMs of properties looking to leverage their reputation, their prominence, their ability – their status on Tripadvisor to help turn that into more bookings for them to get – to get more demand. We think our current suite of demand-based products, the ability to buy not only a business advantage subscription with your phone number and URL, but also our sponsor placement offering of being able to be at the top of the – of the hotel list, to be able to pull more traffic, pull more the eyeballs to individual properties is pretty compelling as individual properties seek to move demand around. We have some other, I’ll call it, you know somewhere in between ideas and plans that we feel could be more meaningful for our supply relationships. None at the OTA level, but at the individual property and chain level, but those are a bit further off and of course, we’ll share when they’re closer to coming to fruition. But I only – I’d give you the teaser or I mention it in passing only, because we are quite aware and feel like part of our financial success is dependent upon hoteliers looking to us as a great source of both high-quality leads and incremental demand that they were not otherwise going to see and one of our best assets remains the traffic that we have on our site, the highly-qualified traffic, and our ability to bend the demand curve on behalf of hoteliers if they have a good property that are interested in eyeballs that are on our site. And so yes, we do have more offerings planned in this area.

And just curious if you – I mean, is the end result of that or is the goal there diversifying the revenue side of things, so that Tripadvisor exiting this environment that we’re in right now is sort of less dependent on the OTA partners that you have now and more have – in a position to have sort of a broader, more – hopefully, more stable set of revenue streams coming in?

Yes. I also – yes, what you say is true. I just view it more as we like all companies search for our growth opportunities, what are the assets that are unique to Tripadvisor and having the reputation we have, the number of customers and how do we – the travelers, and how do we best serve them and then – and that’s the trip that matters. It’s bringing together the consolidated view of the traveler to help them plan all the different aspects, which is, from our perspective, going to include matching them with the right experience, with the right restaurant, with the right hotel and therefore, on the supply side, helping those hoteliers experience and restaurant operators get access to those travelers in a way that is essentially ROI positive for them. And so that matchmaking capability at – a stretch to say one-to-one level, but at a level that’s providing measurable incremental benefit to our suppliers. We think it’s a great place for Tripadvisor to go. It doesn’t happen to be the auction, which is dominated by the OTAs, but of course, we love that auction and the more our overall strategy succeeds in terms of bringing more people back to Tripadvisor for the considered trip. the regular auction is going to benefit; the individual hoteliers both bidding for incremental demand in the auction as well as all the other products we offer, as well as our Experiences business. like, it all benefits as more travelers come back, but our focus is much more around the non-auction revenue streams when we think about the supply side of the house.

Great. Thank you, Steve.

Thank you. Our next question comes from Doug Anmuth with JPMorgan. Your line is open.

Good morning. This is Dae Lee on for Doug. Thank you for taking the questions. First one for you Steve. Just looking at your Experiences businesses or Experiences business, how is your supply base holding out given the slower pace of recovery there and what steps are you taking to ensure that you have ample supply once consumers come back to Experiences? And then to maintain your leadership position in this vertical? And then, second one for Ernst, looking at margins, since the pace of recovery, it varies by segment and revenue mix, likely different during the recovery. How should we think about the shape of EBITDA of the company relative to revenue? And then, looking out longer- term, do you think margins can look different compared to pre-COVID-19 levels given the introduction of newer products like B2C and B2B and maybe the revenue mix looking different?

Thanks, Dae. I’ll take the first one. We have – Jeez, the last count was north of 300,000 different products selling in our Experience base. No one individual product was so important or so compelling and if you think about the types of experiences offered, there’s usually multiple choices. So, we have a number of people that provide amazing private tours of Pompeii, for instance. That’s great. Unfortunately, we would predict that some of our current suppliers aren’t going to make it through the pandemic, but it seems to us unlikely that all of the suppliers in a particular category will go out, such that we won’t be able to provide the choice that our travelers are looking for. So at the end of the day, it would be – we feel the pain. It’s terrible if any of our experienced suppliers go out of business. We don’t think many of the bigger established ones will, from the conversations we’ve had. But I’d be surprised if that had a material impact on our business, simply, because we have so much supply already on the platform and there’s so often multiple choices for any individual activity on our site, such that if one is no longer able to participate there is – there is a backup player. So, I think we’re fine in terms of the supply and addressing the demand that our travelers already have on the site.

On the point of margin recovery, Dae, I think the most impactful issue here is, is that we’ve taken out a substantial amount of our fixed and discretionary cost this year, which we don’t plan on bringing back as the revenue recovers. We’re only bringing back in a small way. And we’ve quantified, it’s going to be $200 million-plus of costs – fixed and discretionary costs that we’ve taken out year-over-year by the end of the year. and so that is significant. So as revenue comes back, we will have a leaner cost structure to support that. So that alone – if revenue comes back to the same level, it was in 2019, is going to give us better overall margin in the future. And then within sort of segments and other pieces, I think generally, variable cost anything between sort of revenue and contribution margin is not really going to change that much. We don’t expect longer-term our take rates to be impacted in any meaningful way. So, you have to think about contribution margins at some point getting to the same level. but with a lower fixed cost base and that lowering of fixed cost has happened across all segments. It’s not particular to any segment. So, it should be benefiting all segments. Really longer-term, of course, we have seen that we have had enjoyed high margins in Hotels Media & Platform. We target to continue to have very higher margins there. But then Experiences & Dining, we’ve always run sort of around breakeven and we continue to invest in that – in that business. But if you look out for the longer-term, the years ahead, we would expect that business to become more profitable too. So, if you look longer or look longer out, more profit contribution, we expect, to come from Experiences & Dining as a most important mix shift. But as I said, near-term next year or so, the most impactful thing that we’ve done is taking out a whole lot of fixed costs.

Great. Thanks for the color, both.

Thank you. Our next question comes from Kevin Kopelman with Cowen and Company. Your line is open.

Great. thanks a lot. Most of my questions have been asked, but I did have one follow-up. Could you give any color on your efforts in kind of vacation rental and alternatives, and just a little bit more color on how are you seeing the growth in demand for that category play out on Tripadvisor? Thanks.

Sure. Thanks, Kevin. So, we did – rentals and restaurants are the two categories that have been bouncing back the fastest as people were certainly worried the most about social distancing, I think a month ago, rentals was the clear go-to. That – from our perspective that’s very much pandemic related. We’re stronger in a traditional rental setting as in a stand-alone home in more rural or a beach-type environment. So again, pretty predictable given COVID, but not necessarily a harbinger of long-term change in terms of consumer behavior. So as I mentioned before, we’re mostly interested in expanding our supply through partnership, not through direct outreach to address the traveler demand that we have on our site. Do a better job integrating – this is next year, not immediate, integrating alternative lodging into more of our overall lodging sort. But we’re not particularly taking a pandemic view on it. We’re taking a – this is – it’s been recognized as here to stay a great alternative to a traditional hotel for many years and it’s just part of our overall strategy of addressing or helping travelers find the type of lodging that best suits their need for that trip that matters and we recognize the broad category of alternative lodging absolutely plays an important part in that, and we’ll be there to help our travelers.

Thanks, Steve.

You’re welcome.

Thank you. And our last question comes from James Lee with Mizuho Securities. Your line is open.

Yes. thanks for taking my question. And Steve, I was wondering, can you comment about Trip.com CEO joining your Board and maybe, help us understand what are the implications here, what can Trip.com bring to the table and what can you learn from the company there? Thanks.

Thanks, James. Thank you for the question. We’re thrilled to have a couple of new Board members join us this year. Greg from Certares and Jane from Trip.com Group. If you know them, you know they both bring a wealth of travel industry knowledge from an operational – from a strategic and an operational perspective in very different aspects of the space. Certares, in Greg’s personal experience, is on the business travel and travel agency side with his holdings. Obviously, he knows the overall industry extremely well and Jane operating a top global OTA with interesting global ambitions with their Trip.com as well as their secret points of sale. So, I couldn’t be happier having these two on our Board, kind of in our camps going forward. And on – your question on Jane in particular, we’ve teamed up in our joint venture in China. So, the Trip.com Group can use our brand and tripadvisor.cn to really augment the leadership position that Ctrip already has in the market, focused mostly on outbound travel, where Tripadvisor’s content footprint is extremely strong. And so taking this content, helping other Trip.com Group properties and the Trip.com Group operational excellence, inventory, pricing capabilities, bringing that on to the – or pieces of that on to the Tripadvisor.CN point of sale. That’s why we did the JV and that’s why we think it’s a great opportunity offering us upside exposure to the China outbound market, which we had been missing as part of our story. And then again, as industry experts being on our Board helping to guide us. I love having them on our Board. So truly, one of those kind of win-win with wonderful opportunities appearing on a regular basis.

All right, great. Thank you.

Thanks.

Thank you. And there are no other questions in the queue, I’d like to turn it back to Mr. Steve Kaufer for closing remarks.

Terrific. So, thank you everyone for joining the call. And I just want to reiterate my thanks to all Tripadvisor employees all around the globe. You guys are doing an amazing job. I’m really proud of how you’ve come together in this virtual environment, but still were pursuing our strategic objectives or supporting all of our stakeholders in these challenging times. To our investors, I want to reassure you that we’re working hard not only to recover from this crisis, this moment in time, but really to emerge stronger than before. As I outlined in some of my comments earlier, how does Tripadvisor look different than when we went into – how does it look different than the pre-COVID – the Tripadvisor of pre-COVID times. We always take this approach of maximizing our long-term shareholder value. We’ll get through this. Time and time again, travel has rebounded and travelers have come back. We will continue executing our strategy and ensure Tripadvisor plays an influential role with consumers and partners worldwide in this recovery and beyond. Thanks, everyone and stay safe, please.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.