Will Lyons - VP of IR Steve Kaufer - CEO Ernst Teunissen - CFO.

Mark Mahaney - RBC Mike Olson - Piper Jaffray Deepak Mathivanan - Barclays Justin Patterson - Raymond James Mark May - Citi Kevin Kopelman - Cowen & Co.

Eric Sheridan - UBS Jed Kelly - Oppenheimer Naved Khan - SunTrust Perry Gold - MoffettNathanson Paul Bieber - Credit Suisse Heath Terry - Goldman Sachs Douglas Anmuth - JPMorgan James Lee - Mizuho Securities Nat Schindler - Bank of America Laura Martin - Needham.

Good morning, and welcome to TripAdvisor's Fourth Quarter and Full Year 2017 Earnings Conference Call. As a reminder, today's conference call is being recorded. At this time, I would like to turn the conference call over to TripAdvisor's Vice President of Investor Relations, Mr. Will Lyons. Please go ahead. .

Thanks, Gigi. Good morning, everyone. Joining me on the call today are Steve Kaufer, our CEO; and Ernst Teunissen, our CFO. Last night after market close, we distributed our Q4 and full year 2017 earnings release. We made available our prepared remarks in our Investor Relations website located at ir.tripadvisor.com.

In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. You will also find supplemental information which includes certain non-GAAP financial measures discussed on this call as well as other performance metrics.

Before we begin, I'd like to remind you that this call may contain estimates and other forward-looking statements that represent the company's views as of today, February 15, 2018. TripAdvisor disclaims any obligation to update these statements to reflect future events or circumstances.

Please refer to our earnings release and our filings with the SEC for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. And with that, I'll pass the call to Steve. .

Thank you, Will, and good morning, everyone. Q4 capped a year of important progress on our long-term growth initiatives and we've been taking important steps to preserve EBITDA while also investing for future growth. Our market opportunity is huge and we know we still have a lot of work to do.

It is incumbent upon us to execute and unlock this growth potential. With that, we now open up your call for questions..

[Operator Instructions] And our first question is from Mark Mahaney from RBC. Your line is now open..

If I can ask two questions, please. Your outlook calls for hotel revenue to be lower in 2018. Could you talk about some of the assumptions behind that? And do you think that that's going to be driven more by a lower number of hotel shoppers, lower amount of revenue per hotel shoppers? So just peel that back a little bit.

And then if I could just ask broadly, could you discuss your relations with your two largest customers now, Priceline and Expedia? Anything you would say about how that relationship has trended over the last year or two and how you think about that going forwards? Thank you..

I'll start with the first part of the question and Steve can take the second part.

Our assumptions for next year, an important - two important drivers, is one, in the front half of the year, we are not yet lapping the bid-downs that we saw in Q3, and that's going to give additional pressure on growth rates in the front half until we lap that in the second half. The second important driver is our marketing investments.

As we said in our prepared remarks, we're pulling back in the hotel on our total marketing investments, increased TV, but decrease our online marketing. And that is going to resolve in additional pressure on the top line growth but is helping the bottom line, because we’re cutting marginal unprofitable spend.

So those are the two most important drivers. And the reason why they work more in the – more significantly on the first half of the year than on the second half of the year..

Our relationships with our biggest customers, our big OTAs, Priceline and Expedia Group, I would characterize as excellent. They like the traffic we send. They help us identify and qualify even better traffic for them. We drive a reasonable number of bookings.

It's strong, notwithstanding, Priceline or any company's interest in shifting the marketing mix. So as we look to the future of our Hotel business, we see strengthening relationships with these folks, with our supplier direct channel, with the independent hotels, leaving us in a position of a nice healthy option..

And our next question is from Mike Olson from Piper Jaffray. Your line is now open..

The non-Hotel business has been really strong.

What's the biggest factor there? Is it strong inventory growth? Is it more effective marketing? Is it something else? And then are you seeing any real competition in that space, or is the competition primarily offline bookings in tourist Attractions and Restaurants? And then secondly, if you could mention what you're expecting for tax rate to look like in 2018 based on the recent changes? Thank you..

Yes, our non-Hotel business, particularly Attractions, is doing really well.

It's all a function of having a wonderful supply footprint that continues to grow, matching it - getting better and better at matching it with the demand footprint that TripAdvisor prides plus all the indirect channels that the Viator business unit also chases, be it the travel agents or the viator.com set of websites or other third-party relationships.

So not unlike how the hotel space has had some fantastic growth over the past couple of decades in the form of booking engines Viator and its supply team had been impasse to getting Attractions bookable online.

And when we acquired them, integrated our demand platform into that, it just fueled the growth that you're seeing and that we expect to see for many more years. We don't look at – or we haven't identified meaningful competitors in the space that are directly competitive to Viator.

It's not to say there aren't handfuls in various countries but really, the point of competition or the point of growth opportunity is teaching folks that when they're on TripAdvisor, they can book those attractions.

When they're on Viator and all the other vehicles that consumers will use to book, that it's, in many cases, smarter, cheaper, safer to book in advance or book on our mobile device when you're in market rather than walk up to the attraction and hope you can get a ticket or phone it in or rely on a hotel concierge.

So we're tapping into a marketplace that is exploding in terms of going from the traditional offline mechanisms to online, and we think we're in a great position to capture the increased demand. .

In terms of the tax rate and the impact from the recent changes, there are many puts and takes but the most important impact on us in the upcoming year and in the following years is the lowering of the U.S. corporate tax rate from 35% to 21%. We have a little over half of our revenues in the U.S.

and a very sizable component of our profits in the U.S., and so that's going to make an impact. Our GAAP tax rate, we expect to be in the high 30s. Despite of that, in 2018, we have a couple of GAAP impacts that keep it up in 2018.

One is SPC impacts from our share price and the second one is certain loss of countries that we - can be used for tax purposes as that allows us. So high 30s is the GAAP tax that we expect. We expect a lower non-GAAP tax..

And our next question is from Deepak Mathivanan from Barclays. Your line is now open..

Two questions for me. So first, excluding TV spend, direct marketing costs per hotel shopper was down almost 20% this quarter, and you noted improved marketing ROIs from online channels as well.

Can you elaborate on how you're achieving this? Is it any specific channel? And also do you expect this to continue in 2018? And then the second question is on mobile monetization. In terms of smartphone revenue per shopper, it was strong once again this year.

What inning overall on a high level do you think we're currently in the stack? Do you see opportunities for mobile and desktop to converge at some point in the next few years? Thanks, guys..

To start with online marketing, yes, it's a very important driver of what's going on in our auction business in particular in Q4 and into 2018. So what – we have progressively refined over the past year our ability and attribution of the downstream convertibility of traffic. We've always managed online marketing as a basket to roughly breakeven.

But as we have better information on attribution and better models, we're basically seeing that some of the spend was not profitable, and so we've become more sophisticated in identifying that and have started in the back half of 2017 to eliminate some of that spend and we'll continue to do that into 2018.

Now the impact of that is that it reduces our growth rate from online channels and this is across search and other online channels. It reduces our spend. It reduces our revenue but it improves our profitability because, by definition, we're taking out the least performing spend here. And so that's what's been going on in the second half of 2017.

And as we look at 2018 and one of the drivers of our statements that we are able to, at least, mitigate the impacts on EBITDA and decrease the decline in EBITDA, 2017 to 2018 versus 2016 to 2017, is that we pull back on some of that marketing spend to help the bottom line..

With respect to the mobile monetization question, it's definitely still early innings. We have some nice tailwinds, we believe, from consumers who are getting more and more comfortable booking something as complex as travel on their phone, and that just naturally helps our downstream conversion rate.

We're getting better - the industry, I should say, is getting better at measuring cross device attribution.

So someone who looks on our site and clicks downstream and then returns later on a desktop to book on a client side, we are getting - we expect to get more credit for that; and some of our newer products like sponsored listings that help hoteliers get into the consideration set for where someone might want to stay, or for restaurants are priced the same and work equally well on mobile versus desktop.

So kind of at launch, the product is already monetizing at the same rate, if you will. So, yes, we're proud of the improved revenue per shopper on the phone. We would expect that to continue.

Some opinions around the table would say that the highly considered weeklong vacation purchase, while maybe researched on the phone, is still going to be transacted for a while on desktop.

I'm thinking that's happening a lot quicker than some others, but just internally, we know that all of our development, all of our focus is delivering the best product on the phone, with the responsive design that also carries it to the web, but we're planning for the phone ads. We're building for the phone as our future now..

And our next question is from Justin Patterson from Raymond James. Your line is now open..

Two if I can. First, you called out preserving Hotels segment profit and making trade-offs against the growth in the prepared remarks. Could you talk about how you came to that decision? I think we're all used to your philosophy of investing for the long term. So I’m curious if there's any shift there.

And then secondly, with non-Hotel, you called out a few growth opportunities in the year ahead from improving the user experience, enhancing transaction capabilities and growing media advertising opportunities.

Could you really just flush that out in more detail, where are you at on those initiatives today and how should we think about that investment going forward? Thanks..

I'll take the first part of the question. We're investing significantly and we have been investing in 2017 in this long-term growth for the Hotel segment and we believe that there is ample opportunity for us to return to profitable growth in the Hotel segment.

And the big investments we have been making and continue to make are booked on the product side. We have been investing in a much improved user experience as it comes to price comparison for hotels. And then, additionally, have reinforced that with a strong brand marketing campaign. And so last year, we spent $74 million on TV.

We're going to spend more in 2018 and those are long-term investments in changing user perception from predominantly seeing us as a great place to do research, to a great place to do research and price compare and find the best deal on the hotel side.

And so that's a long-term investment that we're making and continue to make and believe will ultimately get us back to profitable growth on the hotel side. In the near term, we look at our bottom line on the hotel - in the Hotel segment in particular, in 2016 and 2017, we've seen a meaningful reduction of our EBITDA.

And when looking at some of the levers that we have there, we've turned our eye to online marketing. I've talked before how we’ve looked at online marketing and the potential there to create some benefit.

That doesn't come at a long-term cost to us or not at a significant long-term cost to us strategically, because a lot of that revenue that we create with this online marketing is short-term in nature. It doesn't have a very large lifetime value component to it.

And so it's a short-term revenue gain that actually has a short-term negative EBITDA impact as well. And so as we mitigate the EBITDA losses in our Hotel business, that's the area of investment that we focus on the most while continuing to be able - to have room for investment in the things that really, matter for us to do long-term.

And so between those and we strike a balance between getting to sustainable growth in the Hotel business over time and making sure we invest in that while preserving EBITDA and margin in the Hotel business by focusing on some of the more near-term impacts of online marketing..

So sort of moving on from that, kind of focus on the hotels, I bring in how kind of the new organization and the new President roles that we've created really help drive home.

The President hotel is chartered – and that hotel business unit is chartered with delivering the absolute best hotel shopping experience, making sure the marketing mix is appropriate, as Ernst talked about, leaning into the TV campaign for the brand shift, for the consumer awareness as a more sustainable long-term EBITDA positive growth trajectory for hotels.

And then it set up a business unit on our core experience because when we look at the non-hotels, it's really leveraging this incredible demand, the incredible footprint that this TripAdvisor community of travelers that, I have to admit, has been underinvested in relative to our particular shopping channels in the past.

And so I wanted to deliver or we want to deliver a real crisp look at that core experience in terms of a consistent interface across the platform, new vehicles to attract customers to TripAdvisor, a stickier part of the journey so that you're building - you're not just shopping for a hotel or just shopping for an attraction but planning out your entire trip on TripAdvisor because that is a piece of our differentiated experience that really nobody else can touch.

And so when we look at that, it's yet another way to build an experience that is unique to TripAdvisor that monetizes across several different channels, be it flights, hotels or rentals or Restaurants or Attractions leans perhaps a little bit more to media when you look across the segments, and that's - you have a launch of two of our newest media product in the past six months.

One's a replacement for restaurants and a similar product for hotels, and that again all complements having the best-in-class shopping experience for each of the verticals. And so attraction is certainly growing super fast with, as I mentioned before, lots of headroom.

So time that in to our demand footprint is where we see high growth for TripAdvisor in the future on a very differentiated playing field..

Our next question is from Mark May from Citi. Your line is now open..

A couple here.

Given that some of your Attractions revenue comes from TripAdvisor traffic, I guess the question is why is the pullback in online marketing spend, which I realize is mostly tied to kind of your hotel marketing not impacting growth there? Does it imply that the businesses are relatively separate and distinct and there's not a lot of kind of cross sell or tie between the two? And then given this renewed effort to reduce spend in some of the unproductive performance channels, I'm trying to get a sense of how quickly this will happen.

I guess one way of asking it, at what point this year or next year do you kind of get to a point where you're actually growing your spend again, how quickly will this process take place?.

I'll take the first one then Ernst the second. So we do run the kind of traffic acquisition teams for Attractions and Hotels separately. So when we talk about, as Ernst - to elaborate on the change in the marketing mix, it's really all about hotels.

So Attraction continues to secure traffic through all available channels, both buying traffic onto the TripAdvisor point of sale as well as the various TripAdvisor domestic and international points of sale as well as the various domestic and international Viator points of sale. So full steam ahead there, no pullback at all on the Attractions side..

And with regards to your second part of your question, Mark, we have started to pull back on the marketing in Q3 and in Q4 and are continuing to do that in Q1 and then throughout the rest of the year, and the impact will be year-over-year will be felt in every quarter but of course is going to be felt more in the front half of the year because we started to pull back already in Q3 and Q4 of 2017.

And we see this as a reset that will continue throughout 2018, setting us up well for 2019 thereafter..

Our next question is from Lloyd Walmsley from Deutsche Bank. Your line is now open..

This is actually Seth on for Lloyd, and just two if I can. You noted stabilizing bid auctions in metasearch. So I'm just wondering if you're seeing auctions migrate out relative to the 3Q bid downs or if it's just more stability there and not continued declines.

And if you feel like the auctions have enough density that there's decent visibility there at this point. Or is there still a lot of movement there and making it difficult to assess? And then also, just like as a follow-up on a previous question, I was just wondering how much of a direct sales and marketing spend was unprofitable? Thank you..

I'll take the first one, Ernst the second. We have seen stability in auction. We remind folks it's always volatile month-to-month and it's rare that we've kind of called anything out other than that one-time Q3 bid-downs that we saw that clearly had a material effect.

So with the caveat of – yes, there's always a some ups and downs, I would say, the term is stabilized, not shifting any particular direction since Q3..

And on the direct spend, it's a minority that we've identified as unprofitable but it's a sizable enough minority for it to matter and really be – a real lever that we have for EBITDA mitigation. And so we have identified that and we'll continue to evaluate as we go forward.

It's a dynamic in the sense that, to the extent that we are able to improve our monetization revenue per shopper, that also helps the return, obviously, of the paid spend and, therefore, has some of the spend that we have identified currently as unprofitable become profitable.

But right now, we have identified a , as we saw a meaningful minority of spend that we're able to address..

Our next question is from Kevin Kopelman from Cowen & Co. Your line is now open..

So one, to start off over on the Hotel revenue side. I think you just kind of discussed some of the Q4 trends. Could you give us any more color on 2018 on the Hotel revenue side? What's the magnitude of the declines that you expect there? Are you looking low single digits, high single digits, double digits? Any additional color you could give there..

We have not quantified. We've stated that we expect a decline. We've not quantified the magnitude of the expected decline. We are pulling back on marketing, as I described before, and we are investing in television.

We believe that the visibility that we have on EBITDA is a little better than on revenue, especially because of that dynamic that I was describing of. The actual monetization that we'll find has a leverage effect on how much we can spend on marketing. And so the variability on our revenue line is a little bit larger than on the EBITDA line.

So we've chosen to give better visibility on overall EBITDA, and said we would be approximately flat for the year on consolidated EBITDA. And on the revenue expect to be down, but haven't quantified that. As we progress in the year, we may or may not clarify that view..

And so may be switching over to Attractions then. It's gotten to be pretty sizable at this point. Can you give us any sense of what the average take rate is there? Obviously, we know there can be big variation within that, but just how to think about the overall business..

Yes. Average take rates are healthy. There is variability in them, but they can be as good or sometimes better than the Hotel business. So it's a very – from a profitability perspective, from both the gross margin as well as a contribution margin perspective, very healthy business. And the growth is continuing very nicely in our Attractions business.

We saw a sort of a quarter-on-quarter deceleration of revenue growth in non-Hotel in Q4. That was not driven by attraction. Attractions was - has continued to grow continually before very consistently. We had a few more one-off impacts on our Restaurant business and our rentals business that we don't expect to continue into 2018.

And for the whole non-Hotel segment, of which Attractions is about half now, we expect very similar growth as we've seen in 2016 and 2017. In 2016, we saw 27% growth. In 2017, we saw 24% growth in that non-Hotel segment and we expect continued performance there with Attractions clearly a strong performer in that portfolio..

And then you talked about in the letter about TripAdvisor point-of-sale growth.

Should we still – should we think of that business as being like half TripAdvisor point of sale, half Viator, or what's the breakout?.

We haven't done that breakout but I do encourage you to remember that, Kevin, there is the Viator point-of-sale and all of the international components. There’s all of the third-party distribution agreements that Viator had before we bought them and they've expanded since.

There's the travel agent channel that again sell-through Viator and TripAdvisor is a channel. So TripAdvisor is clearly growing the fastest because we're able to tap into this existing demand and kind of control both sides of it but I wouldn't want to think at this point that most of the demand or anything is coming from TripAdvisor.

That would not be accurate..

But it is growing - so it is growing the fastest and we see definitely as we look at the future of the Attraction segment, we think the biggest potential is to continue to leverage the large user base we have on the TripAdvisor pages.

And so a big focus, to keep improving that product and make sure we have more products on TripAdvisor so we can improve that monetization of those users..

And then one last question. How are you thinking about overhead costs? In 2017, they were pretty flat. They were maybe up just a little bit. What are you planning for 2018? Thanks..

On the Hotel side, in particular, as you can imagine, we're very careful with any expense item not just marketing but any overhead or any people investment that we make, and we continued to do that. Clearly, we are matching our ability to grow expenses with our ability to grow revenue.

On the non-Hotel side, we continue to invest and we'll see growth on the non-Hotel side..

And our next question is from Eric Sheridan from UBS. Your line is now open..

Maybe two if I can.

One, bigger picture, which I think sort of what everyone is trying to get out on the call is, Steve, maybe thinking out over the next couple of years with the industry growing in roughly to mid-teens and marketing growing roughly in line with that, what are some of the things that are sort of in your control in terms of deploying assets to get the Hotel business back to that kind of growth versus the structural headwinds you're seeing, whether it'd be product innovation from competitors or diversification of their own advertising spend that we should sort of factor in as headwinds to getting back to that kind of growth? It's a more of a medium- and long-term question there.

And then on the brand advertising, with the move from about 74 million in 2017 to a range of 100 million to 130 million in 2018, how much of that increase is leaning in on geographies where you're already spending TV versus broadening out TV on the marketing side more globally? Thanks guys..

I'll take the first. Big picture, we see tremendous growth available to us in the hotel space. We haven't been able to deliver anywhere near the expectations that we hold ourselves accountable for in the past couple of years.

We know that and we've been doing a bunch of things over the past year to address it, to improve our fundamentals, to improve the structure and the way that we're running the company internally. And of course, it starts with delivering a better product on all fronts.

So we've made nice strides on the fundamentals like pricing, like usability, measuring - doing a better job measuring preference, site performance. These are all things that may not get a lot of fanfare but are very meaningful for improving conversion on the site which is - its revenue is direct revenue and improving user engagement.

So we think that there's still a lot that we can do there and we have a track record of making those improvements. I then point you to some of the newer products, media products like TripAdvisor ads, enabling hoteliers to get into the consideration set. It's almost all incremental revenue and profit for us.

So there's potential there that we're excited about, and the cadence of us releasing these new products I think is a good sign internally when we look into the company. And again, it's both helping the consumer and helping the biz.

And then when we look at our shift of marketing mix, we have many, many years of doing the search engine marketing pieces, and we kind of know what to expect by way of how it changes the brand and how it builds or doesn't build a lifetime value, whereas TV, the signs that we're seeing are quite encouraging for that longer-term brand-building, changing the perception of TripAdvisor from just reviews to a place where I cannot only read reviews, discover, but also shop.

And that shop action, finding the best price, obviously, is where the money is in hotels.

Take all of that together and you can easily see the hotel – we see that Hotel business getting back into meaningful growth mode over the next few years and that, again, delivers on the bottom line as well, completely separate and very different dynamics of the non-Hotel space but we've already talked about that..

And in terms of things that are out of control, which is the other part of your question, Eric, is clearly what has lessened our control is the marketing strategy of our partners as well as our competitors choose to behave.

And we believe that we have such a potential with the platform, as Steve was just describing, of making improvements that we can get back to growth over the - sustainable growth in that Hotel business over time and effectively offset any of the pressures that we can see there.

But Eric, especially in the short term, as we saw in Q3, there are bumps in the road that we cannot – that are out of our control very clearly.

The best thing we can do and what is in our control to continue to make sure that we have very high converting traffic on our sites and we believe that ultimately will pay off in revenue for us because that's valuable traffic where a large site, valuable traffic for any partner.

And we continue to hone our product and make it better and better and so we can stay ahead of the competition or catch up in areas where we have to catch up which was true on the price comparison side in 2017. The next part of your question, Eric, was around TV.

We are going to invest in new markets as well, so this is the combination of continuing investment in existing markets. Last year, in those existing markets, we obviously only spend for a little over half a year.

We started in June, but we have learned a lot and we think we can more efficiently spend some of that TV spend in those existing markets as well, and so we'll continue to do that. We're launching some new markets as well and expand the number of – really the footprint that we touch in terms of our overall revenue footprint.

We're also launching a new creative in parallel to our existing creative that we have put in place. And we believe that being able to compare those two will help us drive forward as well. We acknowledge that the consensus was higher of how much we're going to spend. We've looked carefully about what we thought was a good progression.

We see good signs in our television investment. We see positive signs in terms of the branded metrics that we see both in terms of appreciation and brand awareness as well as just spiking branded traffic on our sites in those markets where we're on TV, but we're going to grow this gradually rather than in big lumps.

And so this $100 million to $130 million is a gradual progression from the $74 million that we spent in 2018. And of course, we'll continue to evaluate that on our way to getting this to breakeven for us..

Our next question is from Jed Kelly from Oppenheimer. Your line is now open..

How the directing marketing related to the non-Hotel segment grow in 2017, how should we think about non-Hotel advertising growing in 2018 in relation to its revenue? And then secondly, can you just give us an update on how you are thinking of investing in Vacation Rental segment going forward?.

Yes, Jed. I'll take the first question and then I'll ask Steve to answer the second one. So the non-Hotel business, we have online marketing spend in – particularly in our Attractions and Rentals business, to a lesser extent also on our Restaurant business.

We ran a small TV campaign on the restaurant business last year, and we continue to invest in marketing in the non-Hotel segment, particularly on the Attractions side to make sure that we can continue to capture the growth there..

And on the Vacation Rentals side, we look at rentals as an important category for all of our travelers. We've had it on the site for quite a few years in almost all of our markets and we certainly expect that to grow in prominence as we feature it to more travelers and more places on the site.

So one of the things that we look and say we don't do a good enough job at is presenting rentals in markets where we don't have the right set of hotels or predominantly rental markets, and right now it's, we admit, too difficult to find on our site.

So, short version of the answer is rentals strategic part of the offering for TripAdvisor, for the accommodation shopper, and that will stay that way, but we're not making massive new investments in the rental category, vis-à-vis the other players out there. .

Our next question is from Naved Khan from SunTrust. Your line is now open..

I have two questions. One on the Hotel side and one on the non-Hotel.

On the Hotel side, can you just comment on performance of the bookings, direct bookings by hotels, how that is doing relative to meta? And then on the non-Hotel side, does it make sense in the Attractions business to maybe do some distribution, maybe potentially accelerating growth in this business?.

On the hotel side, instant booking or the ability to actually finish the transaction on TripAdvisor remains part of the product on all platforms in most countries. We think of it as burning its spot in the meta auction. So where we have signals that the consumer prefers this, then that's what we will show in the premier position.

Otherwise, it is yet another option. It's not a strategic thrust for us to grow that channel as it happens because a segment of a population like it, that's wonderful for us. If not, that's okay.

So we're no longer, as of a while ago, we're not trying to push that forward and we're not investing a ton of resources in that particular path versus a click-off to a supplier or an OTA. To the second question, Attraction distribution, we are thrilled to sign up as many distribution partners for our Attractions business globally.

We think of it as TripAdvisor is one, albeit very large, distribution channel for the Viator supply platform, but it's only one and they have many others and we love there to be hundreds more. So we have separated the concept. We're not preferencing a TripAdvisor platform.

We love as many different channels to be picking up that our supply to be as valuable to Attraction owners as we can. And so since we have the demand and demand is growing, it's obviously great for the TripAdvisor traveler but it's equally great for travelers who are on other sites..

Our next question is from Perry Gold from MoffettNathanson. Your line is now open..

Anything you'd call out in terms of macro trends, strengths or weaknesses in any particular markets? Thanks so much..

Nothing that we call out in particular other than comment I think you heard from others in the industry, but we believe overall the market is robust and we are working through our transition but we believe we're operating in a robust online travel environment..

Our next question is from Paul Bieber from Credit Suisse. Your line is now open..

I have two. I think you may have responded to sort of one question, in Eric's question. But I was under the impression that you plan to spend 150 million on TV ad spend in 2018.

What changed? And perhaps if you could give a little bit more color on just the early results that you're seeing in some - early results you're seeing from some of the TV ad campaign.

And then the second question I have is what drove the acceleration in display advertising revenue?.

First, on the TV. So we didn't guide to a number for 2018 before. We said we would gradually increase is what we said about it. And as I was saying before is as we look at different campaigns, the impact, we see good results. We see what we want to see. We also believe that we could improve still. I said before, we're launching a new creative in parallel.

We have had lot of learnings about improvement opportunities that we have in different markets that we've invested in last year. And so rather than really expanding much more aggressively in the area of $200 million in 2018, we're going to do this gradually. And so we're going to earn our way into it.

And if it continues to do well, that means we can increase our plans for 2019.

On the display side, so we saw – as you probably point to some of the acceleration in that line of our display and subscription in Q4, the display business can sometimes be lumpy with budgets at the end of the year being allocated at the last minute and doesn't always replicate. So we saw some of that happening in our Q4 business.

And so I caution against extrapolating the Q4 growth rate into 2018..

Our next question is from Peter Stabler from Wells Fargo. Your line is now open..

This is Rob on the call for Peter. Thanks for taking our questions.

On the strong mobile revenue per shopper growth, is it fair to assume that would have grown even more strongly excluding some of the challenges in the auction? Or was mobile not as impacted by some of the challenges there? Just wondering if you could comment on some of the underlying trends? And then also on the reorganization, the core experience.

Wondering if there's anything that’s come out of that early on in terms of changes in marketing, messaging or site design that you could point to any outcomes of that reorg so far? Thank you..

I'll go ahead and start in, maybe Ernst could add more. Mobile rev per shopper, we have seen that grow. As I mentioned before, some of it is going to be just the tailwind of people being more comfortable booking but we've done a lot by way of reducing the friction and improving the user experience on the phone.

To the best of my recollection, the bid-downs that we saw in Q3 were across all devices because our clients had wanted to - well, some of our clients had wanted to pull back - well, for their set of issues, I would say. So the short version would be, yes, we think our mobile rev per shopper would be higher had it not been some of the bid-downs.

For the core experience unit, it's very early days in the reorganization but we are focused internally on building that sort of connective tissue, making sure that the user feels like they're on one TripAdvisor site, experiencing multiple different parts of our value proposition. We're excited about it. We see a better impact on membership.

We've also been working hard on some of the foundational layers.

We're rolling out some new – some of our new map functionality has just been kind of rolling out which, if you're experiencing it, you're on the test slice, and I think you'd agree that it's actually much better than it has been, and that's going to play out over the course of the year as we delight users in more aspects of the overall shopping experience.

I do see with - there're some new features coming over the course of the year that aren't particular to the hotel shopping versus the attraction shopping versus the flight shopping, but are really more focused around enabling folks to plan and have a better trip and enjoy the travel experience and those will be rolling out in plan, in design, in dev now and rolling out over the course of the year as kind of output coming from this particular business unit..

It's another highlight is, just to follow up on Eric's earlier question about what is in your control and what's not in your control. Clearly, what we are doing is investing in revenue sources outside of the core auction where more of those elements outside of our control are present as we all know. And so this core access is one example of that.

Non-Hotel investment is another example of that. And Steve was talking about some of these new ad products that we offer to hotels as well. And so these are all categories of where we believe real potential diversification away from reliance on the core auction uncontrollable dynamics..

Our next question is from Heath Terry from Goldman Sachs. Your line is now open..

I was hoping you could unpack the math behind the online marketing spend reduction for us a little bit.

Did these channels become unproductive because of better information to TripAdvisor around attribution? Is it because the cost of inventory went up, conversion rates declined or because monetization behind those convergence declined? And then, also as you work on your direct booking relationships, how are you seeing hotels use loyalty rates or other pricing strategies to drive direct traffic through the channel?.

Good question on the unpacking of what's going on, on the online site. And I think it's a bit of all of those things, but a couple of things to say about that.

First is our approach had been to spend to approximately breakeven on average across the portfolio, and we have different – as in any portfolio, of course, different levels of profitability and some more profitable and some less profitable as a starting point. So we have taken a more disciplined look at that.

The second thing that has happened is we have improved our attribution models, and so we have been able to have better insight into the downstream conversion of some of the traffic that we provide.

Of course, we have – we operate a model in which we get paid on a per-click basis but then the downstream conversion of that traffic is actually very important for future behavior in the auction. We've become smarter about that attribution across devices, attribution across channels.

And so that has given us some new insight into what we believe are more or less profitable channels. And then there's indeed the impact of as your revenue per shopper moves some channels that were profitable before become less profitable.

And so all of those have allowed us to take a harder look at – and drawing a different line of the performance we want to achieve across all channels..

On the kind of loyalty rates and other things that other partners currently do that we don't. We think it's, in the scheme of things, a relatively small effect, if any. There's always been a certain preference among some to book supplier direct, and we have those suppliers, almost all of them, in our auction today.

So if you are a loyal Marriott user, that's wonderful. You come to TripAdvisor, make sure you're getting a good price, click on the Marriott link and book and get your points and/or your better pricing, your loyalty rates.

We also have the subscription product that takes advantage of that instant book direct, and again, we get paid a little differently but we still get paid for when a traveler has that brand direct preference.

So it's not really in our wheelhouse to opine on whether those programs are gaining traction or not but we don't think it's going to have a material impact on our business even if they did..

Our next question is from Douglas Anmuth from JPMorgan. Your line is now open..

First, I just want to circle back on mobile.

Can you just talk about the current monetization gap with desktop and with mobile at 45% of hotel shoppers? How do you think about the timing of mobile moving from a growth headwind to a tailwind? And then secondly, with the buyback in place, can you just comment on how you're thinking about capital allocation going forward? Thanks..

On the monetization, so we keep that improving that monetization gap as again this quarter, we accelerated RPS on the phone, and we see definitely more upside there and more opportunity to narrow.

How far we can really narrow it over time is a question and Steve addressed it before of what is going to be ultimately the behavior of our users for the higher end of travel booking. And, therefore, it's always going to skew more to desktop, but we believe we could continue on this path of narrowing it.

It may never completely close but around on the path to narrow it. In terms of capital allocation, we have a sufficient funding capacity. We have both cash, and since tax reform, that cash is more freely usable across the globe for us than before and we have a sizable credit facility in place. So we have the funds.

We look at two ways of capital allocation beyond investment in operations. One is M&A. We continue to keep an active radar on M&A. We've been less active on the M&A front in 2017 compared to previous years, but we continue to look at great opportunities to help us grow and enhance our strategy. And then buyback has been a consistent area of investment.

We invested $250 million in 2017 and in - we've just received another approval for 250 from our Board, and so we're actively continuing to look at that as one of the options we have for capital allocation..

Our next question is from James Lee from Mizuho Securities. Your line is now open..

Ernst, maybe one more follow-up question on marketing spending. Can you talk about maybe reduction, is it geography related, where in certain geography you found in efficiency, and therefore you decide to reduce the spending? And also looking at 2018 declining kind of marketing spend on performance, also any geographic implications there? Thanks..

Hi James. We can barely make out your question.

So Gigi, could we go to the next caller, please?.

Our next question is from Nat Schindler from Bank of America. Your line is now open..

A couple of questions. One, how does GDPR affect your cookie-based marketing in attribution in Europe? Secondly, can you unpack the logic on the buyback of 250 million? Your cash position, your net cash position continues to fall, mostly for your buyback last year obviously, but also your free cash flow growth is considerably less.

And yet your multiple's probably one of the highest point than it's ever been.

So what is the logic on using that cash there versus investing somewhere else?.

And our next question is from Laura Martin from Needham. Your line is now open..

Can you guys hear me okay? Hello.

Can you guys hear me?.

We can hear you but we cannot hear any specifics of what anybody is saying at this point..

So, you can't hear my question but you can just hear that I'm asking something right now?.

Gigi, I think we have to end the call at this point because we can't make out anything that anybody is saying..

At this time, I am showing no further questions. I would like to turn the call back over to Steve Kaufer, CEO for closing remarks..

Well, I want to thank everyone. I thank all TripAdvisor employees around the globe. Sorry that we're having some technical difficulty at the end of the call here. With all of you on the line, I wish we could take a couple of more questions, but in any event, we look forward to talking to you and catching up with you next quarter. Thanks again everyone..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect..