Tripadvisor Inc (TRIP) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to your TripAdvisor, first quarter 2013, conference call. At this time, all participants will be in a listen-only mode. Later there will be a question-and-answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded. And now I would like to introduce your host for today, Will Lyons, Senior Director of Investor Relations.

Thank you, John. Good afternoon everyone and welcome to TripAdvisor's first quarter 2013, earnings conference call. I'm Will Lyons and joining me on the call today are our CEO, Steve Kaufer and our CFO, Julie Bradley. Before we begin, I'd like to remind you that the estimates and other forward-looking statements included in this call represent the Company's views as of today, May 7, 2013. TripAdvisor disclaims any obligation to update these statements to reflect future events or circumstances.

Please refer to today's earnings release and TripAdvisor's filings with the SEC for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. You'll also find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call, in our Q1 earnings release which is available on our IR site, ir.tripadvisor.com. Finally, unless otherwise stated, all references to selling and marketing expense, general and administrative expense, and technology and content expense excludes stock-based compensation, and all comparisons on this call will be against our results for the comparable period of 2012. With that, I will now turn the call over to Steve.

Thank you, Will, and welcome everyone. 2013 has gotten off to a great start for TripAdvisor as we strive to create the best experience for every user, on every device, in every geography. I'm going to highlight some key metrics, update you on our ongoing meta initiative and briefly discuss some notable developments pertaining to some of our strategic growth initiatives. Julie will then provide color on our financials and outlook.

We were pleased to see strong traffic growth during the first quarter, as total TripAdvisor unique monthly users grew at 54% year-over-year. Notably, unique hotel shoppers accelerated to 41% year-over-year growth, according to our log files, up from 35% growth that we saw in both last quarter and in Q1, 2012. TripAdvisor branded sites topped 200 million average monthly unique visitors during the quarter, according to Google Analytics. We were also thrilled to be able to announce that we now publish over 100 million reviews and opinions, further solidifying our leading position in the travel research funnel.

Our hotel shopper growth, coupled with strong pricing in all geographies, proved 24% revenue growth in our core click-based business. Our other products also fared well, as display revenue re-accelerated to 14% growth and subscription and other revenue grew 50% year-over-year. Collectively, this led to a strong Q1 total revenue and EBITDA growth of 25% and 30%, respectively. Our underlying fundamentals are indeed very strong, providing a nice backdrop for our exciting product initiative that we outlined on our last earnings call, adding hotel metasearch functionality to all TripAdvisor websites.

To paraphrase consumer feedback, our new meta display has taken the work out of shopping for the best price. Users love finding out whether their hotel is available, and how much their stay will cost, alongside all of the helpful reviews, traveler photos, room tips, and the rest of the valuable user generated content that we offer. We began our metasearch rollout in Q4, initially to 100% of our smartphone traffic. We then started testing on desktop and tablet in Q1, and as of today we have more than half of our worldwide traffic on meta. At this point, all traffic from Brazil, Canada, Germany, India, Ireland, Singapore, and the UK, has been fully transitioned to meta. On the other points-of-sale, approximately 19% of our desktop and tablet users are seeing meta today, with the goal of ramping to 100% globally by the end of June.

Partners are benefiting from this meta transition as well, as early data suggests that our hotel shopper leads are converting to bookings at much higher rates. We've seen our bid position and bid recommendation reports help partners make quicker, more informed ROI decisions. Additionally, upgrades to our bidding platform now allow partners the ability to change bids daily, and many large partners are updating bids several times per week. These tools help us further deepen our relationships with our partners, and we expect that our bidding platform will continue to become more efficient as we rollout to 100% meta implementation.

From a monetization standpoint, partners are paying us CPC rates that are several times greater than historical CPC rates, based upon the improved conversion of our leads. And while we have made great progress towards our goal of revenue neutral transition to meta, there's still work to be done. Namely, we must continue to improve the conversion rate of hotel shoppers, to revenue generating clicks, while simultaneously improving our client facing bidding tools, to help our partners spend effectively on our platform. Remember that while we control the activity of improving conversion rates, final pricing is set by our clients in our auction. Based upon expected improvements in conversion rates, and the natural competitive dynamics of an auction, we now expect to achieve revenue neutrality by the end of the year.

I'll now touch upon some interesting developments in a few of our growth initiatives. Our mobile offerings remain some of our fastest growing products in terms of users, hotel shoppers and revenues. Average monthly mobile uniques of 62 million, was up about 300% year-over-year. The new meta functionality is working great on both these devices, and two weeks ago we introduced a significant update of our smartphone app experience. A key objective of this redesign was to provide a more refined, engaging, interface that includes larger photos and we are working on a similar refresh of our tablet app and tablet web experience, to make it easier and more delightful to quickly discover helpful travel information. Also, through our recently announced Samsung partnership, TripAdvisor will be pre installed on the new Galaxy smartphones, a device which at an expected 10 million units per month, is likely to be a bestseller for Samsung. We are excited by what this could mean for global brand distribution in end-market user engagement. In addition to pre installing TripAdvisor's industry-leading app, Samsung is using TripAdvisor's user generated content to power its travel widget, lock screen slideshow, and city information in Samsung's story album.

In our vacation rental business, the big news is that we have launched a new free-to-list transaction-based option for property owners, and early results are quite positive. Overall listings are up as well as inquiries. On the property owners side, offering two distinct listing options increases choice and thereby expands our supply footprint. As other transaction oriented rental types have shown, having a free option for owners is a great way to reduce sign up friction, and build inventory. On the consumer side, having more properties on display gives potential renters more choice, and drives more inquiries and bookings. We've also seen that free-to-list property owners respond more quickly to inquiries, creating a much better user experience. We believe that supplementing our healthy and growing subscription-based option with the free-to-list model, will help facilitate long-term sustainable growth in this product line.

Augmenting all of this organic growth and innovation, we have also been busy on the acquisition front. Late in Q1 we added a mobile postcard business Tiny Post, and we will be integrating visibility to send postcards while in destination, into both our TripAdvisor and City Guide apps. Subsequent to the end of the quarter, we added the leading travel flash sales site Jetsetter, cruise research and planning site CruiseWise, and a leading Spanish vacation rental site, Niumba, to the TripAdvisor family. All are nice strategic complements to our traveler value proposition. We continue to actively look for great ideas, teams and opportunities to accelerate our product road map, and to enhance our global competitive positioning. Finally, as I mentioned previously, when hotel metasearch is live to 100% of our traffic, we will kick off our off-line branding campaign. We are scheduled to begin testing our first TV ad later this quarter, and you should expect to see us on air in a meaningful way starting in Q3 in the US. As always we will test and learn, but at this point we expect to launch in at least a couple of other countries before the year is out.

In summary, we're off and running in 2013, investing in our people, technology, to deliver an even better user experience for our users and our customers. I want to acknowledge the entire TripAdvisor team, and all TripAdvisor users for the contributions to making the site better every day. I'll now turn the call over to Julie, who will provide some color on the financial results, as well as our outlook.

Thanks, Steve, and good afternoon everyone. As Steve just described we're seeing very healthy traffic trends, and this is providing a nice backdrop for revenue growth. The first quarter came in better than we had expected, as hotel shopper growth and better pricing drove our core click-based business. Total revenue and profit growth accelerated to 25% and 30%, respectively. Assuming constant currency total revenue would have been 1% lower.

Our Q1 click-based revenue was up 24%, fueled by hotel shopper growth of 41%. The delta between the two growth rates can be attributed to three factors. Mobile, international, and our transition to meta. Hotel shoppers on smartphones grew well over 100% this past quarter, but monetized at less than 20% of desktop. To that end, we believe that approximately 5% to 10% of the delta between hotel shopper growth and revenue growth, is and will likely continue to be due to smartphones. We see a similar trend with international hotel shoppers. The geographic mix of our traffic growth continues to skew to higher growth countries, that monetize at lower levels. We believe the impact of this is a 5% to 10% delta between hotel shopper growth and revenue growth. The final reconciling item is meta. This past quarter, the meta rollout negatively impacted revenue growth by approximately 3% to 5%. We expect this negative impact will be greater in Q2, and then start to recover in the back half of the year as we approach revenue neutrality.

Specific to geographic mix, revenue from international points of sale was 50% of total revenue during the quarter, which was consistent with Q4 and up from 48% in the first quarter of 2012. As previewed on our last call, we are now providing additional geographical color on North America, India, LATAM, and APAC, which is inline with how we measure the business internally. Specifically, hotel shoppers continued to grow rapidly on our APAC and LATAM points of sale. And we've seen pricing recover in every geography except for APAC, where pricing was relatively flat.

In our display-based business, revenue growth re-accelerated to 14% year-over-year due to traffic growth, better sell through rates, and slightly higher pricing. Subscription, transaction and other revenue, which includes business listings, vacation rentals, and our transaction businesses had a good Q1, growing 51% and in-line with our full-year expectations. 2013 revenue and cost contributions from our CruiseWise, Jetsetter, Niumba and Tiny Post acquisitions are factored into our forecast starting in Q2, given the timing of those transactions.

As expected overall expenses for the quarter decreased as a percent of revenue sequentially. Primarily due to how revenue seasonality impacts our largely fixed cost structure. This past quarter's hiring progressed slower than anticipated, so we're gaining some benefit there. But we continue to increase direct marketing costs on an absolute basis in an effort to diversify traffic, expand internationally, and fuel user engagement through social networks. These investment initiatives including our upcoming off-line marketing campaign, are important pieces of our long-term growth strategy. Moving on to taxes, our Q1, GAAP effective tax rate was 26%, due to our continued geographic mix shift towards lower foreign tax jurisdictions. This is inline with our expectations that our 2013 effective tax rate would be in the mid-to high 20s. CapEx was $9.3 million for the quarter or 4% of revenue. Due to our continued strong traffic growth, we are slightly raising our CapEx expectations for the full-year from approximately 4% of revenue, to approximately 6% of revenue.

We ended the quarter with $597 million in cash, cash equivalents and short-term and long-term marketable securities. We have $370 million of long-term debt outstanding, and a currently undrawn credit facility of $200 million. With regard to shares outstanding, fully diluted share count was 144.7 million. We continue to expect fully diluted share count will increase 3% to 4% over 2012 year-end levels, based on employee equity grants at various stock price assumptions. However, it does not assume stock repurchases under our board approved $250 million buyback program. Due to the timing of the approval of this program late last quarter, we were unable to buy back shares, but it is our intention to do so over the balance of the year.

With that, let me provide updated thoughts on our 2013 outlook. For click-based revenue based on what we've seen so far in our meta rollout we do not expect meta to be revenue neutral by the end of the second quarter, resulting in increased revenue headwinds for Q2 and Q3. Baking in our better than expected Q1 results, including the assumption that hotel shopper growth will remain strong, offset by a longer than expected timeline to achieve revenue neutrality in our meta transition, we now expect click-based revenue growth in the high-teens to low 20s for full year 2013.

Assuming continued strong traffic growth, good conversion metrics, and stable pricing in late 2013 and into 2014, we expect to see re-acceleration due to our strong top of funnel traffic trends. Based on our strong Q1 results we now expect display-based revenue growth in the low double-digits for the full year with Q4 being the strongest quarter. Given our better than expected new subscriptions in business listings and expected contributions from our recent acquisitions, we now expect full-year subscription, transaction and other revenue growth in the mid-50s. Adding it up, we are reiterating our low 20% total revenue growth expectation for the full-year. As a reminder, this outlook does not contemplate a meaningful lift in repeat visits or traffic from our planned off-line ad campaign. So that could provide some upside from a traffic and revenue standpoint.

On the expense side our investments and hiring plans remain unchanged. So the increase in click-based revenue headwinds in Q2 and Q3 will flow directly to the bottom line. From a profitability standpoint, our meta transition, coupled with our ongoing investment plan, recent acquisitions, and our fixed cost structure could result in negative EBITDA growth in Q3 and Q4, due to the timing of our off-line ad campaign. Accordingly, we now expect 2013 EBITDA growth in the mid single-digit range.

In conclusion, we performed very well in the first quarter across many of our product and growth initiatives. We are seeing record total visitor and hotel shopper growth, and are making great strides innovating and improving the TripAdvisor experience for both users and advertisers on our sites. We'll now open the call up to your questions.

(Operator Instructions)

Lloyd Walmsley, Deutsche Bank.

I was wondering if you can just comment on the revised guidance in the click-based revenue? Sounds like hotel shopper growth is firing on all cylinders and doing better than expected, and yet it sounds like the headwinds from meta are a little bit stronger. Can you parse out what it is? Is it just people not clicking as much because prices are shown on the site? Versus not getting pricing lift as much as you thought? And then when you talked to revenue neutrality, does that contemplate any pickup in users who are using the site for commercial activity because it's a better user experience? Or is that purely kind of a pricing neutrality that doesn't contemplate any usage gains from just a better experience?

Certainly. So as Julie had bridged from the super strong hotel shopper growth down to the revenue growth, you had the 5% to 10% in the increase in phone you had the 5% to 10% for just international skewed to the lower monetization, you would certainly expect that monetization in those newer points-of-sale to improve over time but we're just reporting what we're seeing. In meta of course is the most interesting for us to chat about I think because that's really the big transition that the Company's going through. We have projected fewer clicks per session. That came true. We had projected a much higher CPC for each of those clicks and that came true. And so as we go forward we're basically not at the point yet where I can swap them out and not see a revenue hit. We're still in the negative. And we predict both an increase in the conversion rate -- number of people that are going to generate clicks -- as well as an increase in that average price that we're paid from our clients to hit the revenue neutrality.

To your question on -- to your point on am I assuming anything by way of people coming back more because the meta experience is better? The answer is no. I look at that as wonderful upside, but given that travel is rather episodic I'm not sure I'm going to be able to see that within a month or two, versus the next trip. So I'm certainly counting on the fact over the long term, and this is our big bet that we totally believe in, that by delivering this better experience, by delivering the notion that not only can you pick the perfect hotel for you because of all this incredibly rich content, we've scoured the internet and found you the best price as well. And there is in a lot of part of the world -- in many parts of the world a meaningful price discrepancy that we're now helping users sort through and save them money on the trip.

So you combine both of those, we get our message out, and yes, there will be some short term revenue pain that we've consciously decided we're willing to take right now because that user experience is that much better. And we expect to get it back in spades in outgoing years. Not part of the revenue neutral equation.

Next question.

Nat Schindler, Bank of America Merrill Lynch.

One, how are your large OTA clients reacting to you stepping up seemingly, buying your own keywords with Tingo, and then additionally your recent acquisition of Jetsetter, moving into the more of the OTA space? Additionally, when you are testing out meta right now, have you instituted minimum pricing to play ball in the transition timeframe? Or is it just really going to auction for these and let the advertisers figure it out? The value of the increased conversions?

Sure. Thanks, Nat. I'll answer both. So I really haven't heard much from the large or the small OTAs on how they feel about Tingo buying on TripAdvisor. Nor really anything on Jetsetter. We've been in the transaction space for quite some time now with SniqueAway and with Tingo, vacation rentals is now transaction, they're not part of TripAdvisor, they are part of the TripAdvisor media group. So the fact that we have these things in our other Companies doesn't seem to be bothering our clients. To the question of minimum pricing on meta, yes, we do have minimum pricing. It's successfully moved to a per property minimum pricing.

And I'd view it more as a failsafe or a preventative policy just in case there is a single OTA, and they're the only ones that can sell one of the properties that we have, and without a minimum price, they might bid a nickel when the minimum price might be $1. So we force them to bid $1. We know they're making money on it, so it's not a challenge for us to enforce a minimum at this point. The money -- most of the CPC money that we make are the OTAs and suppliers that are bidding for that number one or number two slot. And those are almost always above the minimum, because the auction is going. So yes, we have minimums, but the actual level that we set it at isn't determining a big portion of our revenue, because the vast majority of our properties have a healthy auction going, and the auction determines the revenue.

Next question.

Scott Devitt, Morgan Stanley.

This is Nishant for Scott Devitt. You mentioned a 5% to 10% headwind from hotel shopper to CPC revenue growth due to international. I was just wondering, do you expect the monetization gap between international and domestic to narrow? And then what would be the main drivers or is it -- are some of it just structurally different?

Sure. So I want to be clear, some international countries have wonderfully healthy CPC rates even though they might be slightly newer geographies for us. So I can't lump all of international, but there's certainly some countries out there that are quite large and fast-growing, where the general hotel landscape isn't lending itself to the higher CPC's at this point in time. Japan might have been an example where CPCs, even though it's certainly a mature market or robust market, the merchant model doesn't play as strong a role for domestic properties as perhaps in some other countries. So the average CPC might be lower.

I'd say overall, we like the general trend, more properties come online, more competition comes online, and as more transactions happen online, the hoteliers pay more attention to the channel and are more interested in the traffic and we're one of those sources of traffic. So overall, trends in our favor, would expect that to continue. And very few markets have anything that I would say is a structural issue in place that would prevent CPCs from approaching our mature markets.

All right. Thank you.

Michael Purcell, Stifel.

On the mobile side, you gave the app data you're up about 300% to 62 million downloads and if I remember correctly I think you are up about 200% the last quarter so it's clearly accelerating. You gave us the monetization was the 20% and that's for the smartphone but I was wondering if you could update us on the tablet monetization, if it's similar to the desktop now? Or close two. And secondly I'm wondering if you're seeing an improvement just from your internal logs on the conversion rates within the mobile apps? Thanks.

Okay. So let me go back and correct some of that stuff. The 300% growth was all mobile. So it's mobile web, mobile app, tablet and phone. It was 62 million visitors, monthly visitors not downloads. So we have grown downloads, but that was a different number. We've I think modestly improved the monetization on our smartphone. And that is something we pay attention to, because we do see that 100% hotel shopper growth on the phone.

And while it's not going to grow at 100% for the next five years, we still expect for the next year or so to grow strong. And we need to start monetizing that better, and we're turning our attention to it now as the numbers have gotten larger. Tablet, we're already approaching the same monetization levels as desktop. I don't frankly see any reason why they won't be the same or even better in the not-too-distant future. So the extent to which tablet replaces desktop for folks planning a vacation that's fine with me.

I don't think TripAdvisor is necessarily any better or worse off. Arguably we're better because we have a really nice app and it's a great user experience, better photos, and you get your fingers to swipe and all the rest of that. So very comfortable with tablet growth and we're seeing a ton of it. Smartphone, working on monetization now, and expect to see improvements going forward. And I think that covered it.

Okay. My apologies, it's 36 million app downloads, I have the numbers backwards, thank you.

Douglas Anmuth, JPMorgan.

I was hoping you would provide a little bit more color on the impact from the meta transition. So trying to understand the 3% to 5% drag in 1Q and then the greater than that in 2Q. Is that being driven more on the volume side or the pricing side relative to your expectations? And then can you comment on the speed at which OTAs and other advertisers are adjusting their prices relative to conversion rates? Thanks.

Sure. So two great parts of the question there, Doug. The meta transition -- so we had started at 10% or so in the beginning of the quarter and have ramped up to the point where we're close to 50% on our desktop tablet traffic base. We have already rolled out 100% on phones, so the 3% to 5% drag in Q1 was a relatively -- was a much lower percentage rollout on average than what you'll see in Q2. At a worse monetization rate, because we hadn't done the on-site conversions, and our partners had not had a chance to adjust their bids, or some of them had but a bunch of them hadn't, and so we were going through. And part of the back story is as you roll something out at a 10% level, we have to get our partners attention to come on, start bidding up on meta, you're losing share here to a competitor.

But it was only losing some percentage of share on a 10% slice of our traffic so again, not the wake-up call that we wanted to send, saying get ready, guys, this is coming. And we need that wake-up call to move the bid, so we work pretty darn closely with our major clients, prepping them, working on the tools, working on being able to allow them to make changes, making recommendations, here's where you can, for a small amount of extra money, bid up and start to gain share on your competition in order to move the pricing towards what we'll call breakeven pricing -- what we'll call fair pricing on the part of the client side, where they're still spending on TripAdvisor at the same efficiency that they were before. So we feel that, that's a perfectly reasonable goal. So the OTAs, the big OTAs are now up to speed. They're bidding as frequently as they are ready to in most markets.

And since we're fully rolled out in a number of big markets, including the UK which is a very big market for us, we're seeing a robust bid environment. We think our clients are still learning where they sit, they're still digesting some share reports from us, they're still playing around with what happens when you bid up and bit down, but we always knew it would take a little time for them to figure out the right level of efficiency versus share. As in Q2, you can say, all right, well, it's mid-May. And you've got close to 50% of our desktop traffic on meta now. And by end of June you're at 100%.

So you can take a reasonable guess as to the pretty significant average percentage for the quarter, while we still haven't recovered as much as we would have liked to in the conversion in the pricing. So that's why we're saying, Q2 is going to be a bigger revenue hit as we work through improving the conversion pricing through Q3. So if we are able to hit our rollout objectives you'll have all of Q3 and beyond at 100%, but we'll have clawed back a lot of the revenue loss through pricing gains and conversion. Our basic philosophy was or to preempt another question perhaps, why hurry up and do this? It's basically, we looked at that user experience and said, wow, it's really that much better. And since TripAdvisor has so many travelers visiting every single day, we really didn't want to spend any more time than we had to, teaching new travelers about the old pop-up window mechanism versus showing the brand new meta experience, which is so much better. So it's a bit more pain earlier than we had thought before, but in our view, clearly worth it when you take the 2014 and beyond view.

Thank you.

Next question.

Tom White, Macquarie.

On the off-line ad campaign I was hoping maybe you guys could provide a bit more detail on precisely when that may launch is it a 3Q or 4Q event? And then how can we think about your expectations about how rebranding the property with this new metasearch functionality might help convert a bigger part of your traffic into traffic that generates real revenues for you guys? And then just secondly on the revenue guidance, I think you affirmed guidance but could you press out the impact of the recent M&A deals? I imagine Jetsetter's the biggest piece but maybe an aggregate what that's contributing in terms of revenues this year? Thanks.

Thanks, Tom. I'll try to answer some of those at least. The off-line ad campaign again, very pleased that we're able to get a test ad out this quarter, fingers crossed. And that will help us both test the message as well as test our ability to measure the impact of that ad. And so I'm not necessarily talking raw dollars, but are we generating more traffic to our site? Are we generating some more awareness that is measurable because we want to test it before it rolls out? When we look -- that's one of the reasons we're starting in the US, it's just easier for us to measure some of the stuff.

In terms of the better color in Q3, we really don't know at this point what the media campaign would look like and where it would ramp. It's not ideal from a timing perspective because ideally you'd love to have everything already in market in Q2, Q3 because that's peak travel season around here. Whereas we're still learning and trying all sorts of different stuff in Q3 as we continually ramp our spend. And Q4 may not be the best time from a ROI perspective, but unfortunately, product wasn't ready to start the campaign earlier so there we have it. In terms of rebranding, we don't expect meta to have a meaningful impact on taking folks who are currently not hotel shoppers and turning them into hotel shoppers if that was the question. We get a ton of free traffic looking at restaurants and attractions.

Our off-line branding our stickers our campaigns drive people to come and look on TripAdvisor, what do I want to do when I'm in a city? If they weren't a hotel shopper before, they're probably not going to be a hotel shopper now, because those attraction pages aren't fundamentally changing. Our hope is that folks will start to spread the word on their own, having a great experience on the meta product, and so we would see a lift in overall repeat usage of hotel shoppers, and a bunch of that other traffic eventually needs to book a hotel, so hopefully they'll come back to TripAdvisor to do it. To the financial impact of acquisitions, I'll turn it over to Julie. I'm not sure there's --.

Yes. So we're not going to be breaking out the exact impact of the recent acquisitions. But I will say that a key driver in increasing the guidance in our subscription transaction and other revenue line is related to the four recent transactions. And just a note from the last mix, and on the decrease in our EBITDA guidance, the contributing factor there too was the recent acquisitions we made.

Next question.

Mike Olson, Piper Jaffray.

Just a quick follow-up to beat the dead horse here on meta. I understand that you won't be at overall Company-wide revenue neutrality for meta until year-end, but in those markets where the transition is 100% complete like in the UK, could you provide an indication of if you are at or near revenue neutrality now in those markets?

Sure. We are not at revenue neutrality in those markets now. If we were, then we haven't been 100% live in the UK for that long so if we had achieved revenue neutrality in both conversion and pricing, in a few short weeks, wow, I would have given a completely different set of expectations. So again, to be clear, there's a fair amount of our best guess in this. We are convinced the transition is the right thing for the Company, for our visitors, for our long-term growth, for the user experience. We may make up the revenue in terms of all on the conversion side. We make it all up in pricing. We may make half and half.

We may do X% better in both, and it may end up being a revenue positive. At this point, since we've made the decision to switch over 100%, in a sense, we're just back to our standard operating procedure of, we're always looking to maximize the revenue from every hotel shopper. Or from all visitors but primarily hotel shoppers as they come to the site. Because we have an experience set in classic, and we know what our clients were paying and in some cases, we know how many bookings they were getting for the amount that they were paying, we can do a before and after and say, there's still certainly room for our clients to bid up higher and still be just as profitable. And that gives us optimism to be able to pricing going up. Now, in the true bid, prices could go up even higher.

I have a harder time seeing how efficient we are vis-a-vis Google, the other major competitor for traffic. In terms of conversion, we've been at it for a long time, we had some meaningful conversion gains last year in our classic product, so I have a lot of confidence that with the constant iteration that we're good at, and really I have to tip my hat to the engineering and product team right now and sales folks because just done an excellent job reclaiming a bunch of the loss that we've seen in the past quarter. And I have every reason to believe that we'll continue on that trajectory. The more we optimize, the harder it is to get the next percent or two of revenue gain, so it slows down a bit, which is why we've sort of set the expectation that it may take us the rest of the year to get back. We'll talk again in three months and I'll give you the update then as to how far we've come, but it's hard for me to share anything more, because I don't actually have the crystal ball that says how quick we can get there.

Thank you.

Peter Stabler, Wells Fargo.

One for Julie. Julie, last quarter you helped us size the amount of spending that you guys were allocating towards the off-line spend and you helped us back into what EBITDA growth would have been absent the expected investment. So my question is, if you guys implement a test in a handful of markets in the US, and you don't see what you want to see because you guys are rigorous in terms of analytics and ROI, so you don't see what you want to see, do you still go forward or do you turn back money to the bottom line? Do you scale back? Another way to put the question is, what are the contingency plans if you don't see the kind of traffic lift in ROI from the test that you're expecting right now? How should we think about the total spending and could this be an upside to EBITDA for the year?

So I'll start off and then hand it over to Steve. So, right now, all of our investments that we laid out at the beginning of the year is intact as we embark on what we think is a pretty exciting investment opportunity. I think it's going to take time to understand how TV impacts our business. And we will do that testing and measuring and re-testing it and re-measuring, so I think at this early onset, we are staying put on our investment plans, that they're intact but we'll see how it goes. I'll turn it over to Steve and see if he has any more color on this.

It is a great question that I think about frequently. So we've allocated the funds and we intend to spend them. I think the odds of a fantastic obvious ROI answer great, let's go kick it up and talk about spending more, probably not going to happen. I can't find folks that have that success record with TV. There's test and learn, there's try it, recover from the failure, move forward. The bigger question for us, given that some of the stuff may take a little while to deliver decent results on is how quickly do we go international? I'm a believer in being able to have enough evidence that something is working before blowing it out on a global basis.

And we had set a feasible -- we had set what we thought was we believed to be a reasonable amount that will allow us both in the US and to test some of the markets where perhaps we're not as well known. So the way I look at it, there's going to be a lot of different things that we can test, and it will be most interesting when it comes to our 2014 budgeting plan. Have we found enough things that we believe are working? But that's probably the better perspective to look at it, rather than having a big impact on Q4.

Thank you.

Next question.

Laura Martin, Needham & Company.

Julie, on your CapEx going from 4% to 6% maybe you could give us some granularity on what's driving that? Steve, I'm really interested in your acquisition strategy here, how do you think about the mix of international versus US? And when you think about where you want to go next specifically in the US I'm really curious as to are you doing mobile, are you doing more social integrations, how do you think about the acquisition plan specifically in the US? Thanks, guys.

So on the CapEx side it's really simple. Our traffic is growing at record rates right now. And we still are able to operate at a fairly small percentage of revenue of additional CapEx. And we are our assumption is that traffic growth rates are going to continue and we are adding hardware and data center to support that. So that's really the backdrop between the slight raise from 4% to 6%.

Sure. Thanks for the question, Laura. So the one or two liners for the four acquisitions that we've done, Tiny Post we look at and say, fun product, already built, mobile and social combined, and how cool it is to send a postcard when you're on the road, what a great way to share the TripAdvisor brand with all of your friends in a fun way. And we have a lot of travelers in markets, so could be really nice brand extension, not looking at it from a I'm going to charge $1 a postcard, that's just not on the table right now. Vacation rentals clearly we're growing in vacation rentals, we've done two acquisitions this is the third, and expands our inventory footprint, go back to the user perspective and if you want to rent a place in Spain, we just added a ton of great inventory to help you find the right place.

We already have the infrastructure to -- we already have the traffic, we already have the infrastructure, so we're just kind of fits in with where we are going. CruiseWise and Jetsetter, two acquisitions led by other TripAdvisor media group businesses. And so as running the whole media group, whenever any one of our businesses identifies a company out there that can make their core value proposition bigger, better, scalable or can extend them into a new market that's particularly interesting, these two aren't examples of that, but I would generally look favorably upon it. Because I like to let most of the businesses run on their own. So that kind of explains the CruiseWise and the Jetsetter. The other way -- the other lens through which I look at acquisitions is really furthering the core TripAdvisor offering globally, so we'd look at either something that adds lots of traffic in a market where we're not strong in, or something that adds technology or features to something that we can roll out globally.

Because again, we're trying to leverage our traffic base, our content base, our reach, our membership, and those are pretty powerful assets that if we brought technology or a team, we can often make some nice hay with that. And then TripAdvisor for business as a separate group, serving up subscriptions to hoteliers and other folks interested in attracting -- other businesses interested in reaching the eyeballs of travelers, that's kind of another leg of the Company that could be up for acquisitions in the future simply because we have the sales force, we have the traffic, and we have the travelers, so maybe there's some additional products that would fit there. In almost all of the acquisitions that we do, talent plays a key role, so it's not that obviously we innovate and we build a lot of stuff ourselves, but we're certainly not a Company known for (inaudible) situation as I think these folks would make it up to 15 or 20 acquisition that we've done, something like that.

Thanks so much.

Heath Terry, Goldman Sachs.

When we look at what the road map for moving to meta on mobile and I realize we've talked about meta a lot tonight, but as we look at the road map for that, any sense how meta on mobile is going to work for you relative to what you're seeing in the early stages of desktop? Is there at least a sense that the monetization gap within a meta environment is different in some way from what you see in the current model you're using within mobile?

That's a really good question. The challenge on meta on mobile in our mind moves to booking on mobile. And the meta experience is far and away better than the old check rates experience where you have a bunch of different tabs or windows but on mobile you're still left with all right, it's $199 a night for this property. I click over and I'm left on God forbid a webpage, hopefully a mobile webpage for going in and entering all your information on that reservation site. On your phone, it's still a reasonably painful experience. So we think that there is more that can be done especially on the phone to make the experience better.

For us at this point, it's a lower priority than the full desktop tablet transition. And the improvements that we get to make on tablet going forward, with some of the brand refresh and some of the interface refresh that we're planning on. So I don't think there's interesting lessons to learn from the phone onto the desktop and sorry I guess I interpreted your question as to phone as opposed to tablet, but I tangented over to there being more that we think we can do on the phone over time.

Great. Thanks, Steve.

Eric Sheridan, UBS.

One, on the related party revenue from Expedia it looks like based on our math that it was a nice bump up in the percentage of Expedia's overall marketing spend. Can we drill down a little bit deeper on what you're seeing from the OTA partners and whether you might be taking budget of their overall marketing spend as you see the meta transition rollout? That's number one and then number two, Julie, more of a guidance question on the display, given the 14% growth in Q1, I'm trying to understand what you saw in Q1 that might lead to weakness in the middle part of the year, so the bead on Q1 in display doesn't roll through more for the full-year number for display? Thanks, guys.

Okay. I'll start on that. So we don't think in the transition to meta that we're taking budget share from other folks at this point. As it's a revenue negative transition for us so far, so by the time we get to a breakeven, that's when we hope the new option in the meta system will actually kick it into high gear, and will start being that combined with the bidding tools, a better platform to go spend incrementally vis-a-vis Google, which is really the only other competitor that we're fighting for budget share for. So I think again I'd be happy for an increased wallet share, but we don't see that dynamic happening yet. To the question on --.

On display, really we are seeing strong traffic growth, prices are up slightly, the real difference in the quarterly growth rate Q1 being strong, Q4 we expect will be the strongest which of course implies that we'll have a little bit of seasonal weakness in Q2 and Q3. Just has to be more about the quarters that they were comping last year, and we had some -- we had a tough comp in the fourth-quarter of last year. And we had an easier comp in the first-quarter of last year. And that's how the year-over-year growth rate fell out.

Next question.

Ken Sena, Evercore Partners.

10 basis point that you talked about being a headwind for mobile, can you say how much of that is just continued transition in terms of usage versus is there anything implied in that number as far as closing the monetization gap? And how much do you think you can close that monetization gap if you look further out? Thank you.

So as we study the behavior of our phone traffic versus desktop, we see it improving on a conversion level, maybe because people are getting used to doing more things on the phone. Maybe because we are attracting a different audience that is loyal to Trip and is now on the phone. We're just not sure. As phone continues to grow, mobile hotel shoppers continue to be a headwind, but to be clear, if you do the math backwards, yes our desktop and tablet hotel shoppers continue to grow at a very strong rate. So it may be cannibalizing some but healthy on all fronts. I do expect our mobile monetization to improve as we essentially pay more attention to it and optimize the meta experience and the meta pricing on the phone.

As more and more transactions happen on the phone on our client's sites, believe me, they start paying more attention to buying traffic that is on the phone. And so we're able to sell our phone traffic for more. We would predict. I'm tough to go on -- tough to get me to go on record on that because we haven't seen a lot of that yet. And just to be clear, we do price our leads differently when they come from the phone versus desktop traffic -- tablet, so the bidding when I talk about a partner bidding on meta across 20 different point-of-sale or 50 different IP levels, times it by two because they're putting in a different bid price for the phone versus desktop.

Great. Thank you.

Kevin Kopelman, Cowen and Company.

I wanted to ask about advertising expense. You saw a nice leverage in sales and marketing this quarter. Does seem like a lot of that was related to the comp, but can you give us any color on the ad environment and paid search and your other main ad channels in Q1 and what you're seeing in Q2 to date?

So I'm not sure I can add much. I wouldn't say there's been any big shifts or big movements that I'm currently aware of in our existing pay channels when we're buying traffic. And on the client side, just by way of color we're not seeing in our classic markets we weren't seeing big price increases or decreases from our standard clients, CPM, similar I think it might have gone up a little bit but not a big meaningful trend jump. We've been pricing wise, we've all been focused on the meta and that just kind of disrupts any and all comps and on the traffic acquisition side which I think was the point of your question, I wouldn't really say any big changes in Q1.

Yes. I'd also add that we are a little bit behind in hiring in sales and marketing. So that's part of the reason.

Fair enough.

Thanks a lot.

Next question.

Brian Fitzgerald, Jefferies.

First relation and then social were key areas of focus that you've discussed previously. Any specific metric or trends to highlight there coming out of the social sphere, engagement or conversion rates? And then a second real quick one, I don't know if you've touched upon it yet, you're showing good growth rates, accelerating growth rates out of EMEA. Any different trends for Europe versus the rest of EMEA there? Thanks.

So I'd say in the major countries in EMEA we have seen some recovery, it's a little hard to say if it's macro or well, it was just so bad a year ago that we're now back to the new normal phrase. To the personalization, social, we have continued our efforts on social in a pretty big way. Working on some things that are on the TripAdvisor site, as well as in our cities I visited Facebook app. The partnership with Facebook continues to go great guns, more and more of our reviews are social enabled so they're seen and shareable on Facebook to your friends, and there's consistently higher and higher chance that when you come to TripAdvisor, even if you're just instantly personalized because you happen to have Facebook open, you're going to see your friends have been on TripAdvisor, and you're going to see reviews and ratings from your friends. So it's a long build if you will.

It's a slow build in terms of the amount of reviews and content that we can share, but it's an incredible advantage that we now have that's growing, like clockwork every month, over every other player, because our view and we're very public about it, is that being able to annotate the wisdom of the crowds with the wisdom of your friends is going to beat everyone else when it comes to the quality and the insight you get from reading reviews. And you can go to other major OTA sites and you can see plenty of reviews. You'll frequently see a half a dozen reviews from us as well, and then you come to TripAdvisor and you see not only the incredible volume, but you see the ones from your friends or your friends of a friend. So that just kind of cements yes, why should I bother reading the reviews anywhere else? Let me go to the source, TripAdvisor. So true, I didn't mention it, didn't give it much air time in my talking points, but it remains a dedicated focus of TripAdvisor, dedicated product team, dedicated engineering team and ongoing effort.

Personalization, I in a sense, wish we had done more in year-to-date. We feel we have an incredible base of users that we can help make better recommendations for, based upon friend activity, browsing history, all sorts of stuff that we have. But this was a prioritization call on my part to say, we're going to slow that one down in order to assign as many available resources onto the meta transition as we could. So would like to be able to report more growth there. We believe in it. We believe it's another incredible competitive advantage that TripAdvisor has over everyone else. We just have so much content and information about our users that we can make a better recommendation, but I fully acknowledge that we don't do a great job of it now. And hopefully or not hopefully, and you will see some more activity on the personalization front over the course of this year.

Great. Thanks, Steve.

Ladies and gentlemen, this does conclude our question and answer portion. I would now like to turn it back to Steve Kaufer, CEO for closing remarks.

Thank you everyone for joining us today. And thank you to all TripAdvisor employees from our growing list of 20 travel brands whose hard work has allowed us to turn some huge goals into reality. We look forward to updating everyone on our progress in the coming months. Until then.

Okay. Ladies and gentlemen this does conclude your conference. You may now disconnect and have a great day.