Question: At Tripadvisor, as a controlled company, what mechanisms did minority shareholders have to pressure Chairman Greg Maffei to make dramatic changes? Answer: Relatively few.
Tripadvisor recently laid off well over 200 employees to reboot its once-market-darling Experiences business as part of a wider reorganization. The company’s share price has basically been in free fall since the summer of 2014 when it reached $110 per share.
With coronavirus taking a toll in recent days, Tripadvisor’s stock was trading at lower than $29 per share in the past few days.
It all underscores the travails of this once-dominant travel giant. How it got to where it is today reveals missteps, a changing competitive environment, and a corporate structure that left little accountability.
From Online Travel Leader to Struggling Company
When Expedia spun it out in 2011, Tripadvisor was the undisputed king of hotel reviews and research with great reach in organic search — that is, until Google Travel tilted consumer traffic in its own direction and competitors such as Booking.com, Expedia, and Airbnb closed the gap. In the interim Tripadvisor pivoted from hotel pop-under advertising to metasearch; from metasearch to instant booking and back; and toward an emphasis on experiences, dining reservations, hotel business-to-business services, and travel inspiration.
In its third-quarter report in November, Tripadvisor cited Google pushing its own hotel products as contributing to a 12 percent revenue decline in Tripadvisor branded hotels, as well as a slower than expected revenue increase, at 19 percent, in its once starry-eyed but increasingly pressured Experience and Dining segment.
Today, if you walk into hotels and restaurants around the world, you’re likely to find a Tripadvisor certificate of excellence or a “top-rated” sign, but the company isn’t known as a place to find hotels, vacation rentals, or attractions to book. Despite all of the pivots, the company still hasn’t found its bearings.
We reached out to a corporate governance organization, investors, financial analysts, industry veterans, and Tripadvisor itself to get a reading on the company’s status and to gain insight into what’s wrong at corporate headquarters in Needham, Massachusetts.
A Controlled Company
Institutional Shareholder Services Group, in its annual look at Tripadvisor prior to the company’s shareholder meeting in June, faulted the controlled company on a number of grounds, including a board majority that is not independent; the lack of a formal nominating committee; chairman Greg Maffei serving on more than three public company boards while being CEO of a fourth, Liberty Media; and executive compensation that isn’t tied sufficiently “to objective performance conditions.”
Liberty Tripadvisor Holdings, of which Maffei is president and CEO, controls 57.5 percent of Tripadvisor’s voting power. It has controlled the company since 2012.
As a controlled company, Tripadvisor is exempt from certain Nasdaq corporate governance rules such as a requirement for a formal nominating committee. Tripadvisor disagrees with Institutional Shareholder Services Group on how it defines independent directors, claiming it only has three that are not independent. It states that although a majority of its executive incentive compensation program is based on performance metrics, “there is, of course, a personal performance component.”
The corporate governance group doesn’t specifically have a position on whether Tripadvisor’s corporate governance structure contributed to its subpar financial performance over the years, but it’s interested in best practices.
But a 2016 study it carried out on the performance of controlled companies that are in the Standard & Poor’s 1,500 found that controlled companies with multiple classes of stock, such as Tripadvisor’s dual-stock setup, “generally underperformed on a broad swath of financial metrics over the long term, are perceived as having more financial risk, and offer fewer rights to unaffiliated shareholders than dispersedly owned firms.”
Although there are exceptions, controlled companies with a single class of stock out-performed other controlled companies on several financial metrics, the report found.
“While insiders may favor the combination of public market liquidity with private market autonomy, it does not appear that external shareholders necessarily benefit from this trade-off,” the report said.
If Tripadvisor Weren’t a Controlled Company
If Tripadvisor hadn’t been controlled by Maffei’s Liberty Tripadvisor Holdings starting in 2012, and minority shareholders had been given more power to shape strategy and influence leadership, might Tripadvisor be in a better financial position today?
Might Tripadvisor have been pressed to become an online travel agency instead of tying its fate to metasearch? Would shareholders have pushed out Tripadvisor co-founder and CEO Steve Kaufer, who’s on the cusp in February of 20 years at the helm? Might activist shareholders been able sway the Tripadvisor board to devote more money to brand advertising earlier than it did?
Should Tripadvisor have simplified its business and doubled-down on user reviews? When Tripadvisor was at the top of its game with a dominant grip in online hotel reviews, if it had been a company that wasn’t controlled, could shareholders have shaken it out of what some view as its complacency?
All of this, of course, is difficult to say, and none of these ideas would have guaranteed that Tripadvisor would be thriving today in a hyper-competitive landscape.
Tripadvisor Was ‘Screwed’
Skift spoke to one investor who argued that the issue of Tripadvisor being a controlled company really isn’t the overriding problem, contending that perhaps the board hasn’t been the best one in the travel industry, but it was better than Expedia’s, which likewise was a controlled company until recently.
With the big online travel agencies catching up to Tripadvisor with verified hotel reviews, and their big marketing spend, and Google diminishing Tripadvisor’s vaunted search engine optimization, Tripadvisor “was screwed” and needed to diversify away from dependence on its hotel research business, as it eventually did, according to the investor.
Kaufer was given a free hand to shape Tripadvisor’s strategy for many years, the investor argued. Tripadvisor Chairman Maffei got pissed in 2017 when the value of his Tripadvisor investment plummeted, and for a time Kaufer was “on thin ice,” the investor claimed.
Tripadvisor reduced sales and marketing spend 8 percent in 2018 to $778 million, and its stock rose through much of the fourth quarter of 2018, and into the first quarter of 2019, the investor pointed out. Part of the reason was that in addition to the spending trims, and earnings growth, investors were bullish on the company’s experiences and dining reservations businesses.
At the time, dining and experiences had been valued at around $2 billion, the investor said, but that has been roughly halved as competitors such as GetYourGuide and Klook are flush with advertising money and resources because of relatively large funding rounds.
The investor argued that it is not an obvious choice that Kaufer has to go to fix Tripadvisor because the question arises who would the board draft as CEO that would be better than Kaufer? The management problem, as the investor termed it, “probably should be solved through consolidation as the OTAs (online travel agencies) need to consolidate.”
Marketing and operations consultant Flo Lugli, who held vice president positions at Wyndham and Travelport, said that like Expedia, Tripadvisor is feeling Google’s heat. Lugli said Tripadvisor has not been able to mitigate its dependence on Expedia Group and Booking Holdings’ marketing spend on Tripadvisor, and the company’s efforts to build its restaurants and activities business didn’t fill the gap when those two companies pulled back.
“There’s seems to be an execution issue perhaps more than strategy,” Lugli said. “It reminds me of my GDS (global distribution system) days as we tried to move into building out new and evolving revenue and business lines but kept getting sucked back into dealing with core airline issues. Perhaps the lack of execution stems from the continued pressure on its core hotel performance so attention is diverted from future building activities to finger-in-the-dam tactics.”
The controlled nature of the company may have saved Kaufer, Lugli inferred.
“Any other company might have looked at management changes to drive change a la Expedia, but that’s never a guarantee to improved results,” Lugli said.
Too Little Too Late?
Dan Wasiolek, senior equity analyst at Morningstar, said it is an “interesting question” whether Tripadvisor would have fared better if it weren’t a controlled company.
“Tough to say,” Wasiolek said. “I think they could have done better at rentals and monetization of the platform, but would have still faced challenges from Booking, Expedia, and Google.”
Wasiolek argues that Tripadvisor might have performed better if it had become an online travel agency years ago instead of emphasizing metasearch referrals.
“Looking back, TripAdvisor was probably too late to the game in trying to monetize its network, and might have benefitted from early education marketing campaigns to do so, perhaps starting in 2016, shortly after acquiring key experiences and dining assets,” he said.
Tripadvisor likewise could have moved sooner, such as in 2016, and not 2017 and 2018, to simplify and improve the user experience on its platforms, Wasiolek said.
“A year or two difference can be a lifetime in a consumer-technology-driven industry,” he added.
Short-Term Rentals Misplay
Tripadvisor took a majority stake in a vacation rental site, Flipkey, in 2008, and missed the boat in that super-hot sector. Today, Tripadvisor officials hardly talk about short-term rentals, and it isn’t a focus area.
Scott Breon, chief analytics officer and head of revenue at Vacasa, recalled that Flipkey years ago had greater market share than Airbnb.
“Tripadvisor missed on all aspects of the Flipkey integration,” Breon said. “They failed to retain some talented and passionate people. Their technical product launches were late, irrelevant, and buggy. At the same time, their customer demand generation plummeted after a failed migration of Flipkey’s SEO (search engine optimization) value.”
Travel industry veteran Krista Pappas, a senior vice president at Lola.com, contended that Tripadvisor should simplify its premise and be a review site with a subscription model liked Spotify’s with users creating travel playlists, and doing shareable things that are meaningful.
Tripadvisor should “totally reinvent themselves and turn the model on its head,” Pappas said. “Have a free version and then subscribe to unlock the good stuff.”
Tripadvisor has argued that Google’s hotel feature has had substantial impact on Tripadvisor’s core hotel business. The company just reorganized to drill down on its experiences and dining businesses, as well as hotel business-to-business, and media segments.
And Tripadvisor’s board certainly played a role in the company’s diversification efforts over the years.
Tripadvisor, meanwhile, argues that being a controlled company has served it well.
In a statement provided to Skift, Tripadvisor said: “Being a controlled company and having the support of Liberty Tripadvisor and our chairman has enabled us to focus on the long term. We believe that long-term view of our business is better for the company and our shareholders.”
Long-term views can be admirable. But when will there be more of a sense of urgency?
CORRECTION: An earlier version of this story incorrectly stated Tripadvisor recently laid off 300 employees. It was more than 200 employees.
Photo credit: Shown here is a Tripadvisor store at Toronto airport. Raysonho @ Open Grid Scheduler / Scalable Grid Engine / Wikimedia