Tripadvisor

With a sale of the company taken off the table, the market’s focus has returned to the fundamentals of the business. As with others in the travel and leisure sector, the company is experiencing softness in its core markets and guidance for FY24 revenue growth was a disappointing “low to mid-single digit”.

At the same time, with publication of the 10-Q our system has picked up a new flag related to DSO (receivable days), which is shown on the chart below (extracted from our automated report):

What we see here is a sudden reversal of the improvement in DSO witnessed since the end of Covid, when the company faced difficulty with collection due to the financial distress experienced by hotels and restaurants.

In absolute terms we can see from the disclosure that accounts receivables have risen by nearly 30% in the last 3 months from $192m to $248m (extract from 10-Q notes below):

The trend is unusual because the collection cycle for Tripadvisor is normally quite short. As the company mentioned in the 10-K disclosure: “Our customer invoices are generally due 30 days from the time of invoicing”. Furthermore, the business which has been growing the fastest, Viator (now 36% of total revenues) ought to have a very short collection period. This is because collection of payment by Viator typically occurs at least 2 days before the experience occurs (and when the revenue is booked). This suggests that receivable days for the core business may be even more extended than suggested by the chart here.

There are be a number of explanations for this, including an increasing level of financial stress amongst end customers, or possibly more generous payment terms being offered to B2B customers in an effort to drive more revenue.

Despite the increase in the level of DSO, our system also flagged a relatively low level of allowances made against these receivables (see extract from our report below). Back in 2020, the company put in place a large provision against receivables amounting to 28% of gross receivables. At the time it made the following statement in the 10-K:

“given the volatility in global markets and economies and the financial difficulties faced by many of our travel suppliers and restaurant customers, we have materially increased our provision for expected credit losses..on our accounts receivable”

Since then the receivable allowance has come down as we would expect, but the improvement has extended well beyond the end of Covid, continuing to act as a tailwind to earnings in 2023 and Q1 24. We expect this tailwind to come to an end in 2024, or even turn into a headwind if the current trend in DSO continues.