Tripadvisor Inc

NASDAQ:TRIP

Earnings Call Analysis

Tripadvisor's Q3 Results Beat Expectations

Tripadvisor Group reported a revenue increase of 16% to $533 million in Q3, with soaring Viator revenue by 41%. Adjusted EBITDA was $127 million, 24% of revenue, showing strong fiscal discipline. Viator reached $1.1 billion in gross bookings, and TheFork nearly broke even. The company is focusing on growth through experiences, moving towards sustainable growth and profitability. They aim for full-year profitability in 2024, with ongoing improvement in unit economics and TheFork striving for year-end break-even profitability.

Demand and Supply Strength: A Positive Signal for Investors

The company has recently observed robust contributions from repeat diners, predominantly engaging through their efficient and profitable app. The supply side shows improving restaurant cohort performance in both volume and value terms. Remarkably, there is progression in operational efficiencies which indicates that the company is effectively scaling its business.

Financial Highlights: Robust Q3 Performance and Encouraging Projections

Q3 results surpassed expectations with a consolidated revenue of $533 million, marking a growth of 16% year-over-year. This robust top-line growth is complemented by a 24% Adjusted EBITDA margin. Segment-wise, Tripadvisor Core presented a slight 2% growth while Viator posted an impressive 41% revenue growth with promising adjusted EBITDA figures. TheFork also showed a strong 20% revenue uptick, proving the company’s competitive edge across its divisions.

Operational Efficiency and Restructuring: Building a Strong Fiscal Foundation

Operational discipline has led to stable or reduced people costs as a percent of revenue, and initiatives have been implemented to relocate functions to cost-effective locations, generating substantial annualized savings. This diligent approach to cost management, including a restructuring expense of $18 million, is a strategic effort to strengthen the company's foundations and drive future profitability.

Revenue and Margin Outlook: Identifying Paths for Growth

Looking into Q4, the company anticipates consolidated revenue growth in the mid-single digits and an improved adjusted EBITDA margin by 400-500 basis points year-over-year. For the full year 2023, revenue growth is projected in the high teens with an EBITDA margin of around 18%. Fiscal 2024 is expected to see EBITDA dollar growth outpacing revenue, thanks to full-year profitability contributions from Viator and TheFork and strategic investment balancing at Tripadvisor Core.

Investment Strategy: Viator's Trajectory and Tripadvisor Core Dynamics

With the majority of the market still transacting offline, Viator’s strategy is on investing to build scale and improve unit economics to secure a full-year profitability in 2024. On the other hand, Tripadvisor Core is tailoring its investments towards long-term growth, weighing the benefits from recent cost savings against potential strategic expenditures. Efforts include building awareness about the viability of online experiences and maintaining a prudent, ROI-driven approach to paid channels.

Cash Flow and Capital Allocation: Balancing Investments with Shareholder Returns

Despite a minor deficit in free cash flow for Q3, due to seasonal fluctuations, the company remains committed to maintaining a robust balance sheet. The Board has authorized a new $250 million repurchase program, reflecting confidence in the company's financial position and a commitment to delivering shareholder value.

Customer and Product Strategy: Leveraging Technology for Enhanced Service

The company is innovating through targeted investments in product enhancements, especially in the app and post-booking experiences that drive better conversion rates. The use of AI and data analytics is also being heightened to deliver augmented customer service and advance the effectiveness of pricing and marketing strategies, thereby reinforcing the company’s position in the competitive travel sector.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Tripadvisor Third Quarter 2023 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 speaker for today, Angela White, VP of Investor Relations. Angela, please go ahead.

[Angela White, executive]

Thank you, Felicia. Good morning, everyone, and welcome to Tripadvisor's Third Quarter 2023 Financial Results Call. Joining me today are Matt Goldberg, President and CEO; and Mike Noonan, CFO. Last night, after the market closed, 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 view as of today, November 7, 2023. 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.

[Matthew Goldberg, executive]

Thanks, Angela, and good morning to everyone joining us today. For the third quarter, on a consolidated basis, Tripadvisor Group delivered revenue of $533 million, reflecting growth of 16% year-over-year. Viator achieved another solid quarter of outperformance with 41% revenue growth versus last year and Tripadvisor Core also performed better than expected.

Across both Viator and Tripadvisor Core, the progress in our experiences offering continues to exceed our expectations, reflecting the large opportunity still in front of us in this category.

TheFork made meaningful margin improvement on healthy topline growth, nearly reaching breakeven for the quarter. Consolidated adjusted EBITDA was $127 million or 24% of revenue. These results reflect our continued progress in executing our segment strategies with strong financial and operational discipline.

As a reminder, at Tripadvisor Core, we're focusing on engagement and delivering world-class guidance products to fuel our diverse monetization paths. At Viator, we are reaching our leadership -- we are reinforcing our leadership position in experiences by investing in awareness, enhanced products and repeat bookings to capture more market share.

At TheFork, we're driving revenue growth with significant margin improvement this year by delivering value to both diners and restaurants as the leader in the European dining market.

I'm pleased with what our teams have accomplished in the quarter. We're leaning into the strength of our existing assets while ensuring that we build and innovate for the future.

We're executing more efficiently and effectively across each of our segments, and we continue to solidify our position as the most trusted source for travel and experiences with Tripadvisor leading the way on the launch of the coalition of trusted reviews where we brought together the leading platforms in the online review space to combat fake reviews and set global standards to best serve consumers.

Let's get into each segment. Starting with Tripadvisor Core, where we continue to make steady quarter-by-quarter progress on our strategy. I'm going to highlight a few examples of the proof points we're seeing in our ability to provide world-class travel guidance, use that guidance to drive deeper engagement with travelers and position ourselves to translate that engagement over time into meaningful financial impact.

Our strategy starts with innovating and enhancing our product, reinforcing Tripadvisor as a world-class guidance platform for planning and taking a trip as well as in-destination decision-making. At our last call, we mentioned the promising early feedback from a significant upgrade to trips, our Core trip planning and itinerary product, including a new generative AI-powered itinerary feature. We're still early in the journey and are iterating continuously, but we're seeing compelling results.

During the first 3 months in beta, members who created itineraries, returned at a much higher rate within the first 7 days than members who hadn't created an itinerary, and we have observed that higher return rate continuing for the full month thereafter as well.

Importantly, members who build an itinerary also generate, on average, 3x higher revenue than the average Tripadvisor member, and the average member already monetizes at approximately 10x the rate of nonmembers. We believe the initial data is a good indication of early product market fit and we're on a plan to launch this full trip planning and itinerary product on our mobile app, on iOS and Android this quarter.

Another stated priority is to drive deeper engagement with travelers leveraging our unique content and data at scale. We continue to deliver progress in Q3. Let me share 2 examples. First, we've been leveraging generative AI and machine learning tools to bring together guidance from our community and our editorial team on a set of our most popular destination pages, think New York City, Paris and so on.

Curating fresh, relevant content on these pages is driving over 15% more saves. So travelers are engaging more frequently by adding a desired hotel, restaurant or experience they discovered through our product to the trip they're planning.

Second, we recently rolled out a test across tens of thousands of hotels that uses Gen AI to summarize reviews and deliver clear insights to travelers on key quality attributes as they consider their choices.

Let me give an example. For me, the single most important factor in booking a hotel is that I can get a quiet night sleep. We are now leveraging our data to provide a clear signal about the noise level of a particular hotel, along with other critical qualities we know are important to travelers like atmosphere, service, value and more.

While Gen AI provides the perfect way to summarize content at scale, trust is still at the center of why people come to us. So in this feature, we share the specific underlying reviews from our community of travelers that were used to generate each insight and provide a direct path to go deeper on what matters most to the traveler.

These examples are just a few of the many encouraging proof points that our teams are driving, which gives us conviction in our strategic direction, prioritization and sequencing, but we know this only matters if it translates to financial impact over time, and we're also pleased with the leading indicators we're getting on monetization.

I mentioned before the significantly higher revenue we see among users who create a trip. As these users build an itinerary and engage more deeply, they're exposed to monetizable hotel and experience recommendations and to relevant ads from our partners, all of which we're increasingly integrating directly into this user journey. And the refreshed content on our destination pages is a perfect point in the journey to surface these options to a traveler. We've already observed double-digit increases in experiences revenue on the pages with these content enhancements, and we're just beginning to scale.

All this adds up to more engaged travelers exposed to monetizable products. In experiences, for example, we've already exposed over 30 million more shoppers to bookable products year-to-date than in 2022. Given our position in the traveler journey and our scale, we see opportunities to expand bookable supply into other categories or geographies, driving value for travelers and partners alike.

Turning to Viator. Our position as the global leader in experiences continues to strengthen. We're serving more travelers, partnering with more operators, empowering more experiences storefronts than ever before. We reached $1.1 billion in gross bookings value this quarter. In an attractive category with a total addressable market projected to reach nearly $300 billion in GBV in the next few years, online players like us are set to disproportionately benefit as bookings increase and migrate online.

We're working hard to accelerate this migration, differentiate Viator and drive sustainable results. On the traveler side, our acquisition engine is gaining efficiency. Our brand marketing investments are yielding greater demand from more profitable channels such as brand search, app and direct traffic. And we're successfully turning this new audience into a loyal one. We're doing this in 2 ways: first, by improving the product experience, by easing search, enhancing the app and improving our checkout experience and in hundreds of other large and small ways.

Second, we're making it simple and sensible to come back by providing programs and incentives that drive loyalty. Collectively, these are driving significant improvements to repeat behavior. Our most loyal users are our fastest growing, highest spending and least expensive of all our users.

On top of this compelling traveler experience, we're also reinforcing our supply asset. Viator has the world's largest high-quality online supply of experiences, over 300,000 products from more than 55,000 operators. We've achieved this by being the best partner we can by driving more bookings and delivering demand as seamlessly as possible. Our success here shows up in our high retention rates as well as our operator engagement with suppliers generating meaningfully more business through Viator, the longer they remain on our platform.

We also see it in the adoption of our Accelerate program. More than half of eligible products are now opted into the program with operators choosing to exchange a higher commission for increased exposure across our platform. This has contributed to sustained improvements in take rates and a clear signal of the meaningful value we are providing.

Finally, at TheFork, we continue to make progress on executing our strategy to achieve profitable growth growing topline revenue while reaching an adjusted EBITDA loss of $1 million, a significant improvement over last year. As we build on this performance, we remain on track to deliver on our commitment to exit the year at breakeven profitability. We're achieving these results by leveraging our historical investments on both sides of the marketplace while focusing on operational execution.

On the demand side, we observed strong bookings' contribution from repeat diners, the majority of which engage with us through our app, our most efficient and profitable channel. On the supply side, our restaurant cohort performance exhibited sequential improvements on both volume and value per restaurant. We're also benefiting from operational efficiencies as we lead our teams to higher levels of productivity as the business continues to grow.

Before I pass the call to Mike, I want to reiterate how excited we are about the work we're doing and how proud I am of our team and their focus entering the final stretch of the year. As we look externally, we can't predict how the global economy or geopolitical events may impact the strong activity and travel we've seen for the last year plus. It's normal for us to see immediate movement in destination intent and experienced bookings when disruptions occur, which typically abate in the days or weeks following, whether related to extreme weather, natural disasters or recently the activity in the Middle East.

Overall, however, we continue to see resilient and durable travel intent in our data driven by the enduring trend of consumers prioritizing travel and experiences over other discretionary spend. What we do know is that across the group, we're making tangible progress.

At Tripadvisor Core, we're on track in a multiyear transformation journey, leaning into a future that diversifies our business to deliver new avenues for sustainable growth and profitability as exemplified by our thriving experiences marketplace.

At Viator, we're scaling to lead the Global Experiences category, delivering healthy levels of growth with improving unit economics, which gives us confidence in our ability to realize increased profitability at scale from the strategic investments we've made.

And at TheFork, we're executing in a fragmented market with a compelling value proposition and competitive differentiation. We'll continue to leverage historical investments as we progress this segment to profitable growth in the near term.

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

[Mike Noonan, executive]

Thanks, Matt, and good morning, everyone. I'll start by reviewing Q3 results and provide some color on expectations for Q4 as well as some preliminary thoughts on fiscal 2024. All growth rates for 2023 are relative to the comparable period in 2022, unless otherwise indicated.

Now on to Q3. We delivered results that exceeded our expectations for the quarter. Consolidated revenue was $533 million, reflecting growth of 16% or 13% on a constant currency basis. Adjusted EBITDA of $127 million or 24% of revenue was approximately 150 basis points better than the range we provided last quarter.

Turning to the segment performance for the third quarter. Tripadvisor Core delivered revenue of $290 million, which represented a 2% growth for the quarter. Branded Hotels revenue of $181 million declined 4%, an improvement from last quarter's decline of 7%. Within Branded Hotels, we saw mid-single-digit declines in hotel meta and high single-digit growth in our hotel B2B business.

We were pleased with the stability of the hotel meta in Q3, in particular, coming out of the volatility we observed in Q2. Healthier trends emerge in July and carried forward to the rest of the quarter. The performance in the quarter as compared to our outlook was largely driven by sustained pricing strength with volume broadly in line with our expectations across both free and paid channels.

Geographically, Europe performed better than our expectations, though on a year-over-year basis, it still lags the U.S., which continues to benefit from sustained pricing strength. We continued to see strong pricing growth globally, while volumes lagged last year's levels. While pricing is heavily impacted by the overall health of the travel market, we believe the pricing trends we have witnessed this year are also a direct result of product decisions that we have made on the platform.

Some of the changes that we implemented have reduced volume but delivered higher quality clicks for our partners, which we believe has contributed to the strong pricing trend this year. We were pleased with the performance of our free channels within hotel meta as the share of hotel meta revenue coming from free channels remained stable year-over-year.

We continue to manage paid channels for profitability by maintaining consistent ROAS' targets. While this puts pressure on hotel meta revenue growth, we believe maintaining profitability in paid channels is prudent as we continue to execute on our transformation at Tripadvisor Core.

Display and Platform revenue grew 15% to $38 million. We're proud of the growth we were able to drive amidst some more modest growth in the broader Travel Media category, in particular, traditional display advertising. This performance is due in part to the collaboration in creative and content we are doing with endemic and non-endemic partners.

Experience & Dining revenue grew 22% to $55 million, with Experiences revenue growing nearly 30%. We're very pleased with this performance, in particular, with how the teams have managed to continuously improve conversion rates across channels and services, while more effectively managing profitability in the paid channels. Revenue from other offerings declined 11% to $16 million due to continued deemphasis of flights, car rental and vacation rental categories, which offset revenue growth in crews of 13%.

Tripadvisor Core adjusted EBITDA was $111 million or 38% of revenue, above our expectations and approximately 100 basis points lower than the same period a year ago. The modest deleverage was a result of revenue mix shift between hotel meta and Experiences.

Although hotel meta's revenue is a smaller share of total segment revenue, its contribution margin has remained stable year-over-year.

Turning to Viator. Revenue was $245 million, reflecting growth of 41% or 39% on a constant currency basis, which was meaningfully higher than our expectations. Gross booking value was approximately $1.1 billion, reflecting growth of approximately 33%. Growth in gross bookings value was primarily driven by volume growth and to a lesser extent, pricing. We observed strong growth in destination bookings outside of the U.S.

Adjusted EBITDA at Viator was $17 million or 7% of revenue, which is flat year-over-year. While we achieved leverage in performance marketing this quarter, it was offset by an increase in brand spend. I want to reiterate what Matt said earlier about how Viator continues to deliver an enhanced value proposition to both travelers and operators.

It's a large opportunity, and our strategy is focused on investing to build scale and a strong competitive position in the Experiences category. Our investment in traveler acquisition continues to translate into attractive and improving repeat behavior that's now delivering meaningful financial impact that we see carrying over to deliver full year profitability in 2024.

As we've discussed, the online addressable market for Experiences still has low awareness. Just 25% of the nearly $250 billion market transacts online today, but continues to migrate quickly. Given these dynamics, new travelers typically discover Viator through paid online acquisition channels, such as search engine marketing. Given the value of scale and the reach that these channels offer, we have been investing significantly to acquire new customer cohorts that are new, not only to Viator, but often new to the category itself.

Underpinning this investment strategy is our success in capturing new demand at scale through all acquisition channels and delighting these customers for the first time and this success is driving attractive growing repeat behavior that we are now seeing drive the leverage as Viator continues to scale. Our traveler cohort performance has consistently improved across every major metric. Higher rates of repeat bookers who are spending more with us and in every subsequent booking returning to us through our most profitable channels, whether it be directly on our site or app or through SEO, branded affiliates or branded search.

The combination of this consistent behavior has resulted in a very -- in a highly valuable base of loyal repeat travelers. Gross booking value from the repeat customer base has been our fastest-growing segment at Viator, where we observed 3.5x growth relative to new customers this quarter.

As we continue to deliver on our value proposition, we expect Viator's traveler cohort mix to continue to shift disproportionately more towards a higher contribution of repeat travelers that engage with Viator more and more directly or through immediately profitable acquisition channels.

So we continue to be encouraged by the strength of Viator's unit economics and the leverage they are driving in the second half of this year that we believe will underpin full year profitability next year.

At TheFork, revenue in Q3 was $42 million, reflecting growth of 20% and 14% on a constant currency basis. Revenue growth was driven by a mix of both volume and pricing growth. Overall, we are focused on continuing to increase monetization of our marketplace with balanced investments in both supply and demand in order to exit the year at adjusted EBITDA breakeven.

Adjusted EBITDA loss of TheFork was $1 million or negative 2% of revenue. Sales and marketing as well as technology and content costs leveraged significantly resulting in 24 percentage points of year-over-year margin improvement, driven by disciplined operating execution.

We are pleased with the progress we are making on profitability and anticipate further momentum in future periods.

Turning now to consolidated expenses. Cost of revenue delivered by approximately 100 basis points, primarily due to the increased weighting of Viator related costs as a percent of consolidated revenue. Viator's costs include credit card processing fees which increased with Viator's transaction volume. We also saw some increases in media-related costs in the Tripadvisor Core segment due to more customized campaigns we ran in the quarter.

Sales and marketing as a percent of revenue was approximately flat year-over-year. People costs as a percent of revenue were lower, Tripadvisor Core and TheFork, offset by higher sales and marketing spend at Viator, primarily due to increased brand spend. Technology and content delevered modestly due to higher people costs at both Viator and Tripadvisor Core, which offset lower cost at TheFork.

G&A expenses levered by about 50 basis points, primarily due to lower people costs at Tripadvisor Core. During the quarter, we had a restructuring expense of approximately $18 million. This included $8 million in Tripadvisor Core related to the cost savings actions we discussed on our last call.

In Viator, this included $3 million related to restructuring efforts to move certain functions to lower-cost locations.

Finally, at TheFork, this included $7 million related to cost savings initiatives actioned during the quarter. As we noted on the last call, the actions impacting Tripadvisor Core expected to result in $35 million annualized cost savings. We now also expect the actions we took at TheFork to drive approximately $10 million in annualized savings.

Timing of the actions we took across the businesses were largely isolated to the third quarter but expect some small incremental restructuring expense to carry over in the coming quarters based on execution timing.

Now on to our cash and liquidity position. Free cash flow in the quarter was a deficit of $2 million. The sequential movement was driven in part by the seasonal outflow in deferred merchant payables during the peak travel season.

During the quarter, we received a tax refund of $49 million associated with the previously disclosed IRS audit settlement. As a reminder, this refund was partially offset by the settlement payment of $113 million made during the second quarter of 2023.

The expected net cash outflow related to the settlement is approximately $60 million to $65 million. Year-over-year, the decline in operating cash flow was due largely to timing of deferred merchant payables and other normal working capital movements.

Finally, as noted in last night's release, during the quarter, the Board of Directors authorized a new repurchase program of $250 million. We plan to execute this program opportunistically subject to financial performance of the business, stock price movements and other external factors.

Turning now to outlook for the fourth quarter. Although we have limited exposure to the Middle East across our brands, we did see volatility increase at the onset of the conflict in October, primarily in Experiences. We saw both an increase in cancellations and a deceleration of new bookings in the region. We also saw some impacts in European countries as travel warnings were implemented.

Cancel rates receded as we exited the month. October performance has been incorporated in our quarterly outlook. For the quarter, we expect the following: consolidated revenue growth of mid-single digits. The primary drivers of our expectations are mid-single-digit declines in Tripadvisor Core and low 20% growth in Viator. We expect TheFork to grow in the low to mid-teens year-over-year.

For adjusted EBITDA, we expect consolidated margins of mid-teens expanding year-over-year by 400 to 500 basis points. By segment, we expect an approximately flat margin in Tripadvisor Core despite expected revenue declines. We expect year-over-year improvement in Viator margin of approximately 350 to 450 basis points, and we expect TheFork to benefit year-over-year from cost improvements and exit breakeven.

For the full year 2023, we now expect revenue growth in the high teens, slightly above the outlook we provided on our last call. For adjusted EBITDA margin, we are slightly increasing our expectations from our last call and now expect consolidated EBITDA margin of approximately 18%. As we begin to think about 2024 on a consolidated basis, we expect to deliver adjusted EBITDA dollar growth that will outpace revenue growth due to the full year contributions from both Viator and TheFork coupled with our approach to balancing investment in core strategy where the savings we found in 2023 allow us more flexibility to support future execution of the strategy.

With that, I'd like to turn the call back over to the operator and begin Q&A.

[Operator]

[Operator Instructions]

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

[Naved Khan, analyst]

Two questions from me. It's great to see the signs of leverage in Viator margins. Just a quick sort of question on how should we think about 2024. So Mike, I think in your prepared commentary, you said you expect to see positive margins. But -- just give us a sense of like the amount of leverage you're willing to kind of drive through that. I understand there's a balance to be played out between growth and margins. So give us your thoughts there.

And then, Matt, maybe on Accelerate 2.0, just tell us what your expectations are. Are you thinking you can drive more adoption through this revised version of Accelerate?

[Mike Noonan, executive]

Great. Thanks, Naved. Just on your question one, regarding kind of 2024 outlook for Viator. So I think it's a little early to put a very specific stake in the ground on growth and margin.

That's what we will be developing over the coming -- finalized another couple of months. I think the point we really want to make was, one, we're excited about the portfolio.

[Technical Difficulty]

Sorry we lost our audio, I think.

[Matthew Goldberg, executive]

Yes. Naved, it's Matt. I can assure you, it wasn't anything you said. It was all -- so yes, you were asking about Accelerate 2.0, and we're really excited because, of course, Accelerate has been a terrific program, which is really conveying clear value as operators opt in for more and more products. More than half of products are opted in at this point. And so what the team has been doing has been really looking at how to expand that program to really boost the operators who are looking for more demand, and this is driving more operators who are willing to participate above the minimum margin and continuing to boost the take rate.

And so we've seen more than a pretty significant double-digit growth and more products coming in. And the weighted average margin boost is increasing and that's really delivering a better take rate. And so we're excited about that, and we're looking to scale that as we go forward.

[Naved Khan, analyst]

Understood. And Mike, I think we lost you kind of midway through the commentary on margins. Just -- can you just recap it?

[Mike Noonan, executive]

Yes. Sorry, Naved, I didn't know we lost you. Yes, my points were a couple of points on your questions on specifics around Viator. So one, it's early to give specifics around growth and margin. That's what we'll be developing over the next -- finalizing in the next couple of months. The main points we want to convey is, one, we are very excited about the portfolio delivering EBITDA growth next year. And that's with all the brands contributing to EBITDA. So that's point one.

Point two was when we think about full year profitability for Viator, it's what we've been talking about for some time. It is the unit economics we've been seeing. It's the repeat behavior developing, giving us confidence that we are moving into that area of profitability for Viator and that's what's exciting for us. On the February call, we'll be giving more guidance around this specifically.

[Operator]

The next question comes from the line of Ben Miller of Goldman Sachs.

[Benjamin Miller, analyst]

Just on Viator, you talked a lot about some of the in-house work you've done to optimize the user experience and customer journey to drive retention and repeat rates. Just curious how much of that is still ahead of you in '24 versus behind you and what that road map looks like. And then on the cost savings in the Core and TheFork, how are you thinking about the flow-through of that versus reinvestments in both segments?

[Matthew Goldberg, executive]

Thanks, Ben. I'll take the first question about Viator product. And then Mike, I think we'll take the second. So I think there is a lot of headroom on Viator product. The team is very focused and disciplined about what it delivers quarter by quarter and annually, and we see many, many more opportunities than we can go after.

And so as we look at where we're focused, we've been focused on the app, which is driving significantly more app downloads, I think 50% more app downloads and really thinking about how to improve the post-booking journey. And of course, the app converts better than any other surface. So we're really excited to continue leaning into the app.

They're also spending time thinking about loyalty and how travelers can be rewarded to drive further repeat. So they're just testing a rewards program, which will roll out as well. And the initial tests have been really quite positive about items and also a lift in repeat. There's a lot we can do going forward using data. So of course, we have a unified data platform now, and the team has been experimenting with leveraging data from across the group, including Tripadvisor data to drive audiences that will make it far more effective.

There's also experimentation going on in pricing. And similarly, as we continue to offer award-winning customer service, leveraging AI to drive augmented customer service that will be great quality and also improve handle rates significantly. So there is a lot we can be doing, and we're excited about Q4 road map and 2024.

[Mike Noonan, executive]

Yes, Ben, on the cost savings and just to reiterate a little bit, we said for Core is the $35 million annualized savings. And then we introduced a new -- our new incremental to that, it was 10% at TheFork, just to be clear, and there's no confusion.

Yes. When I think about the question around flow-through to next year, I think one emphasis is that the teams have done a lot of hard work this year, right, building a great foundation to implement strategy work. And I think that cost savings work is a big piece of that. I think we are evaluating how to execute against our strategy. Our strategy is very important as to the long-term growth and margin of Core and so a lot of the work on the savings is -- allows us the opportunity to evaluate investing rather than necessarily flowing that all through to margin. And these are the choices that we're making and evaluating right now.

[Operator]

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

[Lloyd Walmsley, analyst]

Apologies if you've covered some of this already, but I wanted to just dig into the long-term strategy around more integration of generative AI. Like what are you seeing so far in your trip planning product in terms of consumer uptake and kind of the overall impact on the platform?

And how do you see that evolving over the next year? How big of a priority is this? And how meaningful could this become? Would love to get your thoughts on that.

[Matthew Goldberg, executive]

Thanks, Lloyd. Of course, we've been working on AI and ML for a long time in this company when generative AI became something that everybody was talking about. I was very clear that we have urgency and focus on it, and we think about it in 3 ways. One is what we can do to really drive activity in our product. And you've seen us do that with our itinerary builder and really leveraging our data, the proprietary first-party data that we have, click stream data, behavioral data to really understand users and then to deliver an itinerary that is highly personalized and with the right kind of prompt engineering to deliver a good experience.

And that product, of course, is now delivering a really good number of generative AI itineraries. It's a double-digit percentage of total itineraries being created and growing.

And we're seeing that those users are returning at a much higher rate, as I mentioned. And this is without significant product marketing or further enhancements of the product.

And so now we look to enhance that product and really drive monetization and further integration coming out of it going forward. We also have been doing a lot with our content, right? We have this incredible vast billion reviews that are from real people, and we have got -- and we've been improving the product so that we continue to have recency and relevance, which gives us an incredible content data set to be leveraging and of course, our audience and brand of trust. So we think generative AI around our product is going to continue to be meaningful, and we'll look to leverage it across all of our categories, hotels, experiences, and restaurants.

We'll also leverage generative AI for productivity, and we're exploring lots of use cases across how we think about trust and safety and what we're doing to make sure we have the highest quality reviews, translation and localization, as I mentioned before, customer service, engineering productivity, marketing productivity. We can imagine a use case for every functional area, and we're going to be leaning in for the long term.

And then finally, we want to be very thoughtful about how we partner with the best-of-class LLMs and the large tech platforms as we think about being a part of the generative AI ecosystem. Whether we choose to be a direct partner or, frankly, select the ones that we feel we're getting the most value from and choose not to work with and therefore, block the others that don't.

So we think we've got a good strategy for the long term, and this is a long-term proposition. It's very early days, but we're excited about where we are.

[Operator]

The next question comes from the line of Doug Anmuth of JPMorgan.

[Dae Lee, analyst]

This is Dae on for Doug. I have 2. So first one, could you provide a little more color on the Viator 4Q growth guide? Does the low 20% growth expectation includes any view on improvement in growth in the back half of the quarter?

And then secondly, just looking at monetization, is the goal to drive more revenue per user using the monetization you already have in place? Or do you see an opportunity to add new monetization options over time?

[Mike Noonan, executive]

Yes. I'll take the first one on Viator Q4. So yes, I would say, when we think about Viator and outlook for Q4, I would say a couple of things. One, it is a tougher comp or a tough comp, lapping still very high growth rates in that fourth quarter. And then secondly, I would say, as I said in the prepared remarks, October, we did see some volatility coming out of the Middle East and as -- and some have leaked over into Europe.

And that was -- that's part of our forecast. So I think those are 2 areas that would be, I would tell you in terms of how our thoughts are thinking around Q4 for Viator.

[Matthew Goldberg, executive]

Yes. Thanks. And in terms of monetization, you're absolutely right. Our strategy is less about having a vanity metric of users and much more about focusing on the highest value users that are going to significantly drive ARPU. And as you know, we will continue to attract an audience of scale, and we feel that we can stabilize the top of the funnel, but we really believe that we can convert more of them into highly engaged users into members, that drive deeper into our site and further engagement through our mobile app, which will deliver much stronger monetization and ARPU.

Now it's also true that we believe we can diversify monetization. Of course, we've been a business in the very early years of this business that at Tripadvisor, in particular, that was driven by CPC economics.

And more frequently, we are driving a balance with increasing CPM economics. And of course, marketplace economics where we are increasingly matching supply and demand and taking a percentage of the transaction. That's what we've seen in our marketplaces -- our experiences marketplace, and we believe that there is a lot of headroom there for Tripadvisor as we add new categories, as we add new geographies where we can go deeper into slivers of demand and match with supply.

It may be via towards supply, but it could also be supplied from elsewhere, and we're excited to continue to do that. And we will also lean in to our mobile app experience to really drive that diversification as well.

[Operator]

The next question comes from the line of Niall Mitchelson of Bernstein.

[Niall Mitchelson, analyst]

I just wondered if you could break down some of your Q4 guide for Core as to how do you think sort of that mid-single decline will come from meta and some of the other moving parts because, obviously, business-to-business was up in the quarter. So maybe you could break that down as to how much is driven by meta.

And then another question, if I may, the buyback guidance of $250 million. How are you thinking about timing of that? And how do you sort of balance buybacks with the cash that you have on your balance sheet as well and capital returns to shareholders?

[Mike Noonan, executive]

Yes, on Core, I think the guide of what we gave you is heavily influenced. We didn't give you a breakdown on the business units at Core, but obviously, it's going to be heavily influenced by the Core Auction business. In terms of the Core Auction business, I'd say a couple of things.

One, for Q4, it's really more dependent around pricing assumptions. I think Q4 tends to be historically lower pricing just seasonally.

And then secondly, we are lapping some product changes, which I referenced in my prepared remarks around pricing benefit which has really helped us this year. And we just want to be prudent as we continue to lap those changes and think about how it impacts us in Q4. So that would be the biggest -- kind of biggest way we thought about Q4 for the Auctions business.

In terms of the buyback program, we are very excited about this. When we think about overall capital allocation, this is important part of that framework. We still want to provide adequate liquidity to think about value-accretive M&A. We've talked about that for some time this year as well as making sure we're maintaining a strong balance sheet and liquidity position.

The buyback, we do want to execute opportunistically according to as we think about overall liquidity needs, and we do want to maintain a strong liquidity profile. So we'll be evaluating that as we progress over the next 2 years, where we see excess capital that we're generating from free cash flow that we could deploy to the buyback incrementally over time and are excited about the program.

[Operator]

The next question comes from the line of Jed Kelly of Oppenheimer.

[Jed Kelly, analyst]

Great. Just circling back to some of the pricing commentary you had and the differences between Europe and the U.S. Was some of the pricing due to the European market just being so good and a lot of your partners receiving higher organic traffic? And should we expect like an improvement in next year? And then can you just give us an update on what your fixed cost baseline should be going into next year after the cost cuts?

[Mike Noonan, executive]

Yes. So on the pricing side, Jed, and good to hear from you. The pricing side for Q3, our pricing was better than anticipated, but still lags, I could say, other regions, U.S. and Europe. I think pricing is better in free than paid. The paid channel in Europe continues to be very competitive and the paid channel in Europe and globally, we continue to manage for profitability and ROAS targets as we -- as I said in my prepared remarks, which has remained stable year-over-year.

Hard to see how -- if that changes next year, I think we expect that to continue to be a competitive market. And as we sit today, we expect to continue to kind of approach that market in a similar way as well as how we approach other markets.

In terms of fixed cost base, I think I'd just repeat back kind of what I said before in my earlier remarks, when we think about Core, we are -- with the activities we did this year, we are excited about the opportunities to think about where we invest for growth and strategy, I'd say, and a long-term growth and the opportunities and decisions we make around how we think about that in savings.

We continue to be prudent as to where those savings came from in terms of headcount reductions, primarily in G&A and some of our sales and marketing functions, while protecting a lot of the areas around innovation that we've been making this year, which is very important to our long-term growth and health and underpin all the things that Matt has talked about earlier.

So we're excited about the position we've put ourselves in. And again, we'll be making some of those trade-off decisions as we finalize planning in the next couple of months.

[Operator]

The next question comes from the line of Brian Fitzgerald of Wells Fargo.

[Brian Fitzgerald, analyst]

I know you guys kind of hit this a bit already. Maybe we want to try and parse out hotels meta in Europe a bit more. If you had to assign percentages of weightings for impacts or influences there from the consumer side versus from traveler partners and bidding dynamics, can you -- and I know they're all related, but could you talk to that dynamic? And maybe what's impacting the most with meta in Europe?

[Mike Noonan, executive]

Yes. So just to start, U.S. is our largest market, for sure. I'd say in Europe, the dynamics are similar. We saw good dynamics coming out of Q3. They were consistent as we moved into October. So October trends are very similar to what we saw in Q3. I think Europe remains a competitive marketplace in the paid channels. It's one that we are going to be very prudent as to how we approach that. And as I said earlier, be consistent in thinking about our ROAS targets.

Our volumes have been down in the paid channels, better in the free channels and that dynamic is not new there, Brian, though, and one that we continue to manage, we believe, for a profitable business in Europe. So we're -- I'd say, Europe remains very competitive, but we're very pleased of how we're executing against that backdrop.

[Matthew Goldberg, executive]

And Brian, it's Matt. I just want to be clear, the bidding dynamics in the Auction are good, and the relationships with our Auction partners are strong. We meet regularly. We talk about how we can drive product enhancements that really help them achieve their goals. I think those dynamics are good.

[Operator]

The next question comes from the line of Tom White of D.A. Davidson & Co.

[Thomas White, analyst]

Just you touched on supply and with Viator. I'm curious where ramping supply in area -- focus areas. Matt, you made a comment earlier about kind of the vanity metric. I think you related -- you're talking about kind of consumers or users. But curious whether that kind of view informs how you think about supply at all with Viator?

[Matthew Goldberg, executive]

Yes. The vanity metric point, it was around Tripadvisor Core and how we think about really leaning into the most important users that come to us rather than the number of top funnel, which we're focused on. And Viator has the best supply team in the business. And they've proven that by ramping up supply, focusing on quality supply and really developing programs to deliver for suppliers and operators. And we try to be the best partner we can and supply is always a focus, and I think it is a continuous area to think about where do we see demand coming in and how do we have the right products and the right partners on our platform. And again, I think that the programs that they have been delivering with -- over time and the take rate is just a really clear example of the value that we are providing to suppliers even as we scale.

[Operator]

The next question comes from the line of Kevin Kopelman of TD Cowen.

[Kevin Kopelman, analyst]

Could you touch a little bit on the competitive landscape in Experiences with Viator, maybe characterize your position in Viator and any changes or how you see it developing?

[Matthew Goldberg, executive]

Yes. So obviously, the Experiences category is large and growing. It gets a lot of attention. It's a competitive market. I think I've spoken in past calls about how it's largely broken down by region. And we are very focused on building out a global platform. Now we've seen a lot of players come in and go out.

And of course, we're always watching what's happening in the ecosystem. But we actually think that the competition is just a good signal that this is a really interesting market.

And so as the market leader, we want to be focused on innovation and really differentiating the way that we deliver as we scale. The largest competitor in this market is probably still the majority offline bookings rather than some other company in the space.

And so our teams are just so focused on how we bring the traveler online, how we drive awareness to the category and to what we're doing in the category at Viator and the behaviors that we think are going to emerge and really helping make it easy. This is how the category is going to be one. And our performance suggests we are on the right path.

[Operator]

The last question comes from the line of John Colantuoni from Jefferies.

[Unknown Analyst]

This is Chris on for John. Curious about the different components of the restructuring charge we incurred in the quarter and are expecting for the fourth quarter. Can you just give us some more color on the individual pieces of that $18 million? How much of it is kind of severance versus other things that you're doing? And is that breakdown consistent across Core, Viator and TheFork?

[Mike Noonan, executive]

Yes. Good question. So yes, the restructuring charge, as I mentioned in my prepared remarks, a majority of that is really around TA Core. Now TA Core is really around -- the vast majority of that is headcount-related. So it will be severance costs and severance payments, things like that. And as I mentioned earlier, a majority of that is in around G&A functions and sales and marketing.

We did keep investment in areas like technology and content for our longer-term strategy. Similarly, for TheFork, I would say, a similar type of breakdown, I think, a little bit more diverse, but really headcount-related and Viator was really around restructuring of moving some product teams into low-cost locations. So not a savings for Viator, but really a reallocation, a long-term savings, I think from a more efficiency perspective, the reallocation of resources to a more efficient location.

[Operator]

At this time, I'd like to turn the call back over to CEO, Matt Goldberg.

[Matthew Goldberg, executive]

Thanks, Felicia, and thanks again to everyone joining us today. We're excited about the progress we're making on our stated strategy in each of our segments and focused on closing out the year strong as we look forward to 2024. See you soon. Thanks.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.