Q3 2020 Trivago NV Earnings Call
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[music].
Good day, ladies and gentlemen, thank you for standing by and welcome to the Trivago Q3 earnings call 2020 team at this time all participants are in a listen only mode. After the speakers speech that will be a question and answer session Classic question. During the session you will need to press Taiwan.
Your telephone I must advise you of the call is being recorded today Tuesday. This date of November 2020, we are pleased to be joined on the call today by axle Kiefer Trivago C O and managing director and the P.S. Tillman Trivago CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Tuesday November three 2020, P. only trivago does not undertake any obligation to update or revise this information as always some of the statements made on today's call are forward.
Looking typically preceded by words, such as we expect we believe we anticipate or similar statements. Please refer to the Q3 2020 operating and financial review and the company's either filings only the SBC for information about factors, which could cause.
It's too bad this actual resorts to differ materially from these forward looking statements you will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today into those operating and financial review, which is posted on the company's IR loved site at <unk> Dot com.
You are encouraged to periodically visit Trivago us investor relations site for important content.
Finally, unless otherwise stated all comparisons in this call will be I guess results for the comparable period up to 2019 with that let me turn the call over to actual thinking.
Good morning, Thank you for joining our earnings call.
In Q3, we wanted to achieve two things.
First to continue to progress on our recovery plan.
Adjusting our products value proposition and marketing and second to preserve our cash position.
Looking back at the third quarter, we are very happy with the results most notably.
We managed to achieve a positive adjusted EBITDA and almost broke even on a cash flow basis.
We released a number of new features in our core product and accepted the up version of our new local travel product.
We launched our new SCPA model in our marketplace and continued to scale, our alternative revenue streams, and we improved our bidding in performance marketing and tested a new creative concepts successfully.
With a number of infections rising quickly and many of our core markets and possibly our full markdowns being implemented the short term business outlook appears challenging however, we.
We believe that a sustainable recovery in travel is coming close as progress and testing vaccination and treatments are likely to show effects and 2021.
We continue to focus on this point in time, and a disciplined and progressing on our plant irrespective of the short term travel outlook and with that I will turn it over to a T.S. to cover our financial development in more detail.
Thank you Alex and good morning, everyone.
We have seen a significant improvement in travel activity in the third quarter compared to the second quarter circuit.
The recovery was mainly driven by easing of looked on measures in most countries due to lower number of call. It 19 cases, and a general uptick in demand.
As we enter the peak summer holiday season in the northern Hemisphere.
In particular in our segment developed Europe. This sequential increase in qualified reefers and revenue per quarter to like repos was very strong.
This allowed us to selectively invest in TV advertisement in certain European markets, and we were very pleased with it resides right.
Tested a new campaign and the positive response makes us confident that we can build up on the learnings to tailor our messaging for a sustainable recovery.
Overall, we continue to focus on preserving our cash and therefore limited the brand marketing test to certain European countries.
We're also mindful that our investments in performance marketing channels and focus on buying high quality traffic.
The final OS or restructuring closed the sale of a Spanish entity and consolidated all operations in our headquarter in dusseldorf.
In addition, we reduced other selling and marketing expenses and other non discretionary items.
As the result of our operating expenses, including stock based compensation decreased by 15 million or 32% in the third quarter compared to the same period in 2019.
The combination of higher travel activity and our cost saving initiatives led to a net loss of 2.3 million Euro and a positive adjusted EBITDA of 6.1 million Euro.
We are very happy with our financial results in the third quarter and the progress we made in setting up the company forward, what we expect will still be a challenging and unpredictable foreseeable future.
[noise] over all of our markets continue to be volatile, but there are a few trends emerging since the beginning of October.
In developed Europe, the rapid increase in new covert cases since the second week of October had a negative impact on our qualified refer development.
The year over year growth rate had stabilized end of September and begin to drop again since mid October as most countries going into partially or fully locked once again.
Looking at our segment rest of World, where there are regional differences overall, both qualified refer and revenue per qualified reefer year over year growth rates have been stable over the last couple of weeks and hence our reefer revenue continues to be around 20% off 2019 levels.
In Americas, we continue to observe a steady increase in our qualified refer to year over year growth rate, which is mainly driven by a significant improvement in Latin America.
While the year over year growth rate in the U.S. has been stable since August.
Qualified referrals were around 50% off 2019, let us in October improving from 35% of 2019 levels in the third quarter.
Due to the country mix effect the revenue per quarter, if I'd refer to year over year growth rate has started to decline slightly in October.
As we have now entered our low season quarter interface with a second wave of COVID-19 cases in particular in Europe, we expect a negative EBITDA in the fourth quarter.
However, we are confident that we have set up the company for this challenging environment and continue to focus on preserving our cash until treasury bonds.
With that let's open the line for questions.
Operator, we're now ready to take the first question. Please.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one is telephone unlike say name to be announced if you wish to cash as your request. Please press the hash key.
And your first question comes from the line of Tom White from D.A. Davidson. Your line is now open. Please ask your question. Thank you.
Great. Thanks, guys for taking my question just first on the cost the acquisition product that you guys have talked about.
I guess my presumption would be that the net version of the product.
The one that factors in.
Installations would be more appealing to advertisers and advertisers in the current environment.
Is that is that accurate and are you getting any real traction there and I guess I'm curious like are you inclined to really close and that version of the product.
Or not really want that kind of maybe becoming the new normal that advertising.
Maybe once things get back to normal and then I just have a quick follow up.
Of course, so they.
Just to be clear I mean that probably the the C.P. a product that we have taken live in October and why now rolling out as a cross SCPA product. So we are taking over the risk off the the booking happening the booking conversion risk we are not taking over the cancellation risk and we think that it is exit.
Very very good first step to to help our advertisers in particular to deal with the uncertainty and data spasticity in the current market environment.
Whether we will eventually move to a net CPGA model or not is something that that we will see in the next couple of weeks and months, but given that the time to travel that's come down a lot and there are very very short travel windows, we think that the cross EPA.
Is actually helping our advertisers very significantly and it's a very very good foundation for entering next year.
Okay. That's helpful. Thanks, a quick follow up you guys have any sense as.
As to what percentage of your business or your referrals.
You think might come from corporate travel and I and I guess I mean, they're kind of on managed corporate travel for the.
The worker that booking his own hotel room, and then getting reimbursed.
As opposed to us on a corporate level than maybe goes.
The large travel management companies.
Yes, sure so on on corporate travel.
We don't know the exact mix of our business. So we don't have perfect visibility on that.
What we said in the past is that obviously through into action on our website through certain behaviors et cetera, we estimate what what kind of Trevor.
You are coming from.
But.
In general business travel is not the largest part of our overall business mix.
A large part is rather a city trips and there we have seen obviously a negative development relative to the rest of the markets.
In the third quarter and.
Now that continues in the fourth quarter.
Yes.
Does that answer your question.
Yes. Thank you very much appreciate it.
Thank you.
And the next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is now open. Please ask your question.
Thanks, two questions if I could actually just one follow up on your exposure to city traveled city vacations can you remind us how that has trended as it has it varied any overtime, maybe specifically with 2020 or in particular and then the second question is around the rollout of sponsored lifting the display ads.
How would you assess the rollout how far into the role at are we how is it being implemented.
Is it broadly is it regional is there with respect to certain types of inventory is the onboarding process around those sponsored listings and display ads accelerating what we're trying to get a better understanding of the adoption rates and the runway there. Thanks.
Thanks, Brian this much yes, I will take the first part of your question and then pass it on to Axa. So in general what we what we have seen is a clear shift in the third quarter, two nature nature destination and and nearby destinations, whereas usually.
A big part of our traffic mix at least as Hitler city destinations.
And to give you an idea.
So city trips.
In Germany, we use that example, before so there we saw a decline of more than 50% off of city destinations launch, let's say trips, whereas we saw that.
Trips to nature destinations.
Even up year over year in Germany now.
So if you if you look at.
And those categories like what what we said in the past and our last update is that we believe that nature and close destinations will come back first lets that's exactly what we have seen.
Density Trevor and lastly, international travel and that is exactly what we are seeing right now.
On your second question regarding the status of the rollout of sponsored listings on display I mean first of all I'd like to say that there has been huge and there is huge interest by our advertisers in these alternative products because they serve slightly different different use cases.
And by having a broader product offering towards our RFP to be advertisers, we can serve their needs much better.
The adoption and the interest has been very broad so I wouldn't say that there has just been a specific segment of the market being interested in these products and some advertisers have have started their their test and also a permanent campaigns sooner.
The us have taken a bit more time and obviously the environment is is still very difficult for a lot of our partners. The church in your infections in Europe is a bit of a temporary setback I would have to say because obviously I'm there are markets, where currently none of their products as ready generating significant volumes.
But we remain very confident that with these products, we are very well prepared for a more sustainable recovery in next year and the interest remains very very strong despite the difficult environment. We're currently in.
Thank you axle expertise.
Thank you.
The next question comes from the line of Naveed can some truly securities. Your line is now open. Please ask your question.
Hi, This is Robert Taylor on for Matt. Thanks for taking the question.
So two if I can with Colgate resurfacing in Europe in parts of North America, how would you compare the demand you see today.
Versus the demand you guys saw during the lows of April in March and then second.
Secondly, so you guys had mentioned that travelers had been traveling to more local nature destinations that they can drive too.
And you called out in the latter I think this new feature and the local travel discover product you guys plan on launching in 2021. So do you expect that this trend is going to continue into 2021, I guess when do you see a return to.
He traveled to bigger cities are more densely populated destinations. Thanks.
Thanks to all of this material so I'll take the first part of your question.
Oh, Yeah, how does the current situation compares to too much.
So first of all.
We we just.
We have October this is in the books and October has been a mixed bag.
And with different developments in our three segments.
I broadly covered that in my prepared remarks, but let me give you a few more data points here.
In Europe, we obviously clearly see that the increase off of new Kevin covered cases in a negative development in ore qualified referrals.
But having said that the the first week was still very similar to the last weeks of September and then only middle for October it's started to decline. So it's still early and I think it's also too early to compare that to the situation in March and April.
Given that we.
We are now less than three weeks into that development in Europe.
But over or.
What if I referred are declining and clearly impacted.
How exactly that will compare to April I think again will be.
It's a bit early and we'll probably be we can probably get give you a better update on that and a couple of weeks and on the other hand in Americas, We clearly see a positive trend.
In particular in Latam as I said before and most notably in Brazil. So in the last week of October qualified referrals were almost at last year's level in that country.
And it confirms the trend that we have seen during the summer season in Europe when summer comes people want to Trevor.
There might be shifting travel demand for example, what we have seen in Europe and are now seeing in Brazil as well.
Is that people choose domestic or international destinations.
But overall there is a pickup in demand and this makes us confident that Trevor will recover in the.
Second half of next year as well.
So on your on your question regarding our discover product, so and and the the outlook for next year and so you are absolutely right. We do think that that local travel will be would also be very very important for next year and all of our core markets.
And they're in particular, the summer that we expect to it to be show 'em sustainable recovery 'em, we do think that that local travel will will be much greater than than what we've seen in 2019. So similar trend to what we've seen this year. The return off of city trips that are as much as I said earlier are very important for.
Our us for core product, we expect in the second half of the year.
And there there is some opportunity that there might also be summary coverage in the first half, but but that is more uncertain. The discover product more specifically is it's not focus on nature or say t., but it is more focused on local so more driving distance destinations and it's giving you inspiration to where.
Where you could go and we do think that as this 100% spot on and in terms of customer need for next year.
It is a accepted in the App and and we are we are working on on on launching it on the other platforms and have a full pipeline of features that we are planning to deploy in the product over the next couple of months. So that it is ready with a with full feature.
Yes, when a when the volume well will come well will increase again next year.
Okay understood. Thank you very much.
Thank you.
Thank you.
Your next question comes from the line of James Lee from These awards Securities. Your line is now open. Please ask your question.
Great. Thanks for taking my questions I was hoping to get maybe a little bit more specific on the geographic trends here are you guys talk about repo revenues down about 80% year over year.
For.
Europe.
Do you have a sense what the trend is like for qualified referrals and for you what specifically you commented that call.
If I recall it down 50% year over year in October what is the reasonable revenue trends look like thanks.
Sure.
Thanks James.
So I mean I gave some some data points.
On on the U.S. I think there's nothing specific to add here as I said in my prepared remarks qualified referrals the quota for refer year over year growth rate in the U.S. has been stable since August.
And Omar the broader trends that have not changed and so we.
We still see a shift towards domestic travel and fewer city trips.
So.
That's on the U.S., if we if you look at rest of world.
There are regional differences differences in central Eastern Europe. For example, the development is very similar to our developed Europe segment segment quote.
Qualified refers are declining fast with the increase in new covert cases.
In Southeast Asia quote if I'd refer to year over year growth rates are also declining but not as fast and then on the other hand in our biggest markets in that segment.
Only Australia, Japan and in particular, India we.
We see a gradual recovery offsetting the effects in the other regions in that segment. So overall the year over year revenue growth rate is stable compared to what we have seen in Q3.
Yep.
That is all I can can say more specifically to the reason regions.
And the T. as they can have a follow up question here, we talk of recovery normalization and first half of 21 are you referring to read the news so I'll be referring to broker referrals.
[noise] growth off referred so.
So basically when when we talk about normalization and Trevor we mean, the underlying demand and that will translate into our qualified referrals and then if you look at our revenue obviously with on top the monetization component that is you have to look at that separately.
Okay, great. Thanks, so much.
No problem. Thank you.
Thank you.
Next question comes from the line of Shyam by PR from Susquehanna. Your line is now open. Please ask your question.
Hi, guys its Ryan on for Shaun I'm, just two quick ones.
First can you just talk about what what's giving you confidence that travel demand should recover sustainably in the second half of next year is that kind of content on a vaccine.
And then secondly.
Google is is under some some deal Jay scrutiny. So do you think that could that could maybe help you if they decide to kind of ease off on on funneling traffic into their own travel product.
Thanks.
Sure so on on the and the begin of sustained recovery next year I mean, what what makes US confident there I think the the first thing that that is giving us confidence that is the what we've seen already and summer in the northern hemisphere.
In summary, and now in the southern Hemisphere that there is a fundamental need of traveling and that that that that that our travelers to want to travel. So so that needs. We see to possess and also see the same trend for all I expect the same trend for next summer so a strong.
On nature of demand in the peak season for the second half of the year in the segment that is very important to us the city travel we do think that the combination off.
Faster and cheaper testing, where you see a lot of development are happening right now.
The availability of the vaccine at these two high risk areas and improvements in terms of treatment will give overall, a better perception of control, which doesn't mean that the the pandemic worthy over but we.
We believe that there will be a positive impact on the on the on the autumn season next year and that that will lead to some recovery of city trips.
And why why is that for us overall positive I mean city trips, obviously are very important to us and we are agnostic to the destination. So as long as travelers are feeling comfortable to travel somewhere.
We do have the right product to offer and we don't need anybody too.
On a board a plane neither domestically nor continental in our Intercontinental play and so that's why we do think that in terms of recovery, we should benefit slightly sooner than other travel companies.
On your second question regarding the investigation into into Googles practices.
I mean, it's it's it's not only happening in the U.S. its happening and quite a few countries that there is an increasing skepticism that some of the mega platforms and their most notably Google are.
Our are ensuring fair competition overall and the segments that they are they are participating in.
With any kind of.
Regulatory action I mean, they did but the one thing that they have in common is that they take some time, but our our read of the overall situation is that there is now a broad consensus that that's something is not right and that ultimately at at at some point in time.
Well have an effect on the competitive environment.
Okay.
Next question please.
Thank you.
Our next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is now open. Please ask your question.
Hi, Thanks, two questions first we.
When kayak with publicly reported yeah.
Two segments search and advertising and your advertising what's over half of total revenue. So can you maybe talk through the puts and takes of how youre sponsored listening in display ads all comparing could qualify for what they've done and give us a sense for where you think this can scale team as a percent of maybe 2019.
Revenue.
And then second one.
Yes, a little more out there, but have you looked at price comparison in other segments beyond travel I mean, we just saw good or excellent public in the you all doing.
In prescription drug price comparison, when you're doing 500 million in revenue, 30% growth, 35% EBITDA margins curious if you've ever explored leveraging your strong user base and brand and move into other categories, all that maybe kind of less competitive and have more attractive.
Oh.
Yeah attractive attributes.
Yeah sure. Thanks.
Thanks for the question of Lloyd.
The first question on on the business opportunity Forest sponsored listing and ER our display products.
So I think you're spot on I mean, there there is significant opportunity to increase revenues there and signed off of course, we also looked at competitors and realize that that we are we were pretty much. The only player that was just depending on CPC revenue and the core product.
Whether we can reach the levels at kayak has reached at the time of their IPO.
I'm not 100% sure given that that their business makes as much more skewed towards flights for says obviously, an accommodation and as far as I understand the the the search revenues are stronger I'm on the accommodation side. So I would expect our share true to lack why.
What you have seen at kayak, but we do believe that there is significant opportunity.
I'm not sure that right now is the right time to try to quantify the exact share given that there are so much volatility in the market, but at some point in time next year I would hope that we have a better view and what the overall perspective is and and potential is but yeah. We are very bullish on on the additional products and that's all.
So what weve heard as a feedback from our advertisers.
Yeah and.
Hi, Lloyd this materials on on your second question I mean, that's a very interesting thought I mean, obviously, we have built our brand equity around Trevor for for many many years and have invested a lot into that.
And as a result of that we do believe that we have a strong global Trevor brand.
So if you were to go into a completely different fields that that would be a bigger shift for sure and.
I'm not sure that the timing right now is perfect for that overall, we have a very lean set up.
We have focused teams.
And we are very excited about all opportunity and Trevor.
And with all that we have a full product pipeline and the team knows exactly where to work on and what to do and that has been one of our key strengths in the past and how we made it that far that we were always very focused and and everyone coming here to work every day notice it.
Exactly where we are and where we want to be and I think thats also key asset so never say never and again I think it's a very interesting thought but right now I believe.
We should continue on.
Exploring opportunities that we do have with our strong product teams and with our strong global travel brand.
Okay. Thank you.
Thanks, Thank you.
Your next question comes from the line of Dog and Mop from JP Morgan. Your line is now open. Please ask your question.
Great. Thanks for taking the questions actually was just hoping you could give us some more thoughts on the brand campaign that you did in some European markets and just curious how your messaging.
Messaging, and then mix of marketing or could potentially changes as things hopefully recover more next year and then also can you just give us an update on your progress with alternative accommodations in how you're thinking about the path there going forward. Thanks.
Hi, Thank you I will take the first question.
On the brand campaign, and then actually were talking with the board.
Your second question so.
Given the production lead time that usually have we had to decide in April already what kind of creative we would want to add during the peak summer season. This year.
And if you.
Remember how the situation was back then our revenue was close to zero in April.
There was a global locked on and nobody knew how Q3 will turn out.
And with that in mind, we decided to produce.
Much softer TV campaign in terms of messaging.
And that turned out to be a very good decision. We got very positive results and got some valuable learnings all of that that we can now apply for four new campaigns.
I wont be more specific than that but the key take away is that we have by now tested a few different concepts and not only.
In Q3 this year, but we already started end of last year to test different form.
Formats and different components to diversify away from our Mr. Trivago campaign.
And then we also got interesting learnings and this has been now the next step and into into.
Another direction and was was very valuable what we have and I think by now we have a pretty good understanding.
Of what is working for us and.
That will give us the flexibility to.
Uhhuh to tailor that to towards a new campaign next year to whatever the market environment will be.
[noise] on on your second question alternative accommodation I think you're right you're absolutely right.
We are very happy that we started to really focus and invest significantly in Anton alternative accommodation end of 17. So for this summer our business. Our apartment coverage was very important and it was very important to really have all the inventory available.
Given that a lot of the the top nature destinations, where I'm frankly speaking just fully booked out and get to you needed to have all the inventory that was available to show availabilities to to your users and customers and for for next summer, we expect a similar dynamic with the.
The market overall recovering we think that the the significant increase in share that is going through a part two apartments will normalize to a certain extent, but we continue to believe that even even with a recovering market apartments will be a key part of our overall value proposition and a key differentiator for us.
Great. Thank you both.
Thank you.
Thank you.
And we have one more question from the line once again, if you wish to ask a question. Please press star one and your telephone keypad and the next question comes from the line of Kevin Kopelman from Cowen. Your line is now open. Please ask your question.
Hi, Thanks, so much.
On a marketing trend so in the third quarter, you were able to reduce your marketing spend year over year significantly more than your revenue decline.
Hi, can you give us an update on those dynamics.
Into Q4, if that you know any change there with with what's going on in Europe. Thanks.
Sure. Thank you Kevin.
Yes, I think that's a that's a very good observation. So if you look at Q3.
As percentage of revenue our advertising spend was around 50% so compared to what we've done historically that is a very low number.
And there was.
Predominantly the case, because we only tested in Europe or invested in TV in our segment develop Europe and as we didn't see the same opportunities in other segments and we're more cautious and again as I mentioned before our.
The key focus during the third quarter was to preserve our cash.
And on the other end in Europe, we did see.
A decent pickup so I also wanted to invest into that that's on the brands marketing side and on the performance marketing side.
We also saw when we saw a pickup in demand. We also went back in and invested more.
But also.
More cautious than than what we have done previously and I mean, we have talked about it before already pre covered we.
Started a test in our performance and Thats, where we increased our return on advertising spend targets to to really see what the incrementality of that channel as for US and now when we went back and we kind of had a similar approach and were running high ROI targets.
And what we had before and then obviously we benefited also from the fact that.
Overall competition in those auctions.
Still is lower than compared to pre covered so if you look at the fourth quarter and what it means for our investments in the fourth quarter.
Historically its been a low.
Low quarter for us in terms of brand spend anyways as we approach holiday season, TV advertisement becomes more expensive at the same time.
Demand for our product drop so.
We usually cut back.
If you if you look at the situation in Europe, right now and if you. If you look at the data points that I gave you see that.
On a global level in Q4, and it's fair to assume that we don't expect to.
Have a higher ratio of revenue.
In the fourth quarter as a share of 2019 levels than what we had in the third quarter. So if you take that as a starting point and then look at the 50% we had in the third quarter in terms of advertising spend of revenue.
You can assume that this will be not higher in the fourth quarter that gives you a good idea of how we are approaching our marketing activities in the fourth quarter.
Does that make sense.
Yes, Thanks for Ts is very helpful.
Great. Thank you guys.
Thank you never know for sure to questions. At this time. Please continue thank you.
Yes, Manny thanks for taking the time to participate in our Q3 earnings call.
Respective of the very challenging situation, we are facing in many markets. We continue to see the crisis as an opportunity.
An opportunity to face, our travelers and advertisers with better products and opportunity to become more relevant and grow our market share.
This is what is driving us forward no matter how long the winter were lost.
Many thanks for your time stay safe and see you next quarter.
Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.
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Yes.
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[noise] good day, ladies and gentlemen, and thank you for standing by.
Welcome to the term cycle Q3 earnings call 2020 at this time all participants are in a listen only mode. After the speakers speech there will be a question and answer session. Chad's question. During the session you will need to press Star then your telephone I must advise you that the call is being recorded today Tuesday.
Sorry, That's November 2020, we are pleased to be joined on the call today by accelerated differ too badly CEO and managing director and the T.S. till now to Bagless, Yes, Oh and managing director.
The following discussion including responses to your questions reflects management's views as of today Tuesday November 22020, only two bagger does not undertake any obligation to update or revise this information as always some of the statements made on today's call are forward.
Looking typically preceded by words, such as we expect we believe we anticipate or similar statements. Please refer to the Q3 2020 operating and financial review and the company's filings only the stcs for information about factors, which could cause.
It's too bad this actually starts to differ materially from these forward looking statements.
Five we price realizations of non-GAAP measures to the most comparable GAAP measures. This question day in Chicago, its operating and financial review, which is posted on the Companys IR website at <unk> Dot Com you are encouraged to periodical. These basic two boundless investor relations site for important content.
Finally, unless otherwise stated all comparisons in this call will be against results for the comparable period of 2019 with that let me turn the call over to actual thank you.
Good morning, Thank you for joining our earnings call in.
In Q3, we wanted to achieve two things.
First to continue to progress on our recovery plan.
Adjusting our products value proposition and marketing and second to preserve our cash position.
Looking back at the third quarter, we are very happy with the results most notably.
We managed to achieve a positive adjusted EBITDA and almost broke even on a cash flow basis.
We released a number of new features in our core product and accepted the i. person of our new local travel product.
We launched our new SCPA model in our marketplace and continued to scale, our alternative revenue streams, and we improved our bidding in performance marketing and tested a new creative concept successfully.
With a number of infections rising quickly and many of our core markets and partial or full knockdowns being implemented the short term business outlook appears challenging however, we.
We believe that a sustainable recovery and travel is coming closer as progress and testing vaccination and treatments are likely to show effects and 2021.
We continue to focus on this point in time, and a disciplined and progressing on our plant irrespective of the short term travel outlook and with that I will turn it over to my T.S. to cover our financial development in more detail.
Thank you Alex and good morning, everyone.
We've seen a significant improvement in travel activity in the third quarter compared to the second quarter the.
The recovery was mainly driven by easing of looked on measures in most countries due to lower number of call. It 19 cases, and a general uptick in demand.
As we enter the peak summer holiday season in the northern Hemisphere.
In particular in our segment developed Europe. This sequential increase in qualified Refurbs and revenue per call. It five preferred was very strong.
This allowed us to selectively invest in TV advertisement in certain European markets, and we were very pleased with the results.
Tested a new campaign and the positive response makes us confident that we can build up on the learnings to tailor our messaging for a sustainable recovery.
Overall, we continue to focus on preserving our cash and therefore limited the brand marketing test to certain European countries.
We were also mindful with all investments in performance marketing channels and focus on buying high quality traffic.
We finalized our restructuring closed the sale of a Spanish entity and consolidated our operations and our headquarter in dusseldorf.
In addition, we reduced other selling and marketing expenses and other non discretionary items.
As a result, our operating expenses, including stock based compensation decreased by 15 million or 32% in the third quarter compared to the same period in 2019.
The combination of higher travel activity and our cost saving initiatives led to a net loss of 2.3 million Euro and a positive adjusted EBITDA of 6.1 million Euro.
We are very happy with all financial results in the third quarter and the progress we made in setting up the company for what we what we expect will still be a challenging and unpredictable foreseeable future.
Overall, our markets continue to be volatile, but there are a few trends emerging since the beginning of October.
In developed Europe, the rapid increase in new covert cases since the second week of October had a negative impact on our qualified refer to development.
Well the year over year growth rate has stabilized end of September and begin to drop again since mid October. That's most countries are going into a partial or full doctor once again.
Looking at our segment rest of World, where there are regional differences over all both qualified reefer and revenue per qualified reefer year over year growth rates have been stable over the last couple of weeks and hence I'll refer revenue continues to be around 20% or 2019 levels.
In Americas, we continue to observe a steady increase in our qualified refer to year over year growth rate, which is mainly driven by a significant improvement in Latin America, while the year over year growth rate in the U.S. has been stable since August.
Qualified referrals were around 50% off 2019, let us in October improving from 35% of 2019 levels in the third quarter.
Due to the country mix effect the revenue per quarter, if I'd refer to year over year growth rate has started to decline slightly in October.
As we have now entered or low season quarter interface with a second wave of call. It 19 cases in particular in Europe, we expect a negative EBITDA in the fourth quarter.
However, we are confident that we have set up the company for this challenging environment and continue to focus on preserving our cash until treasury bonds.
With that let's open the line for questions.
Operator, we're now ready to take the first question. Please.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one is telephone unlike say name to be announced if you wish to catch on giving a question. Please press <unk>.
And your first question comes from the line of Tom White from D.A. Davidson. Your line is now open. Please ask your question. Thank you.
Oh, great. Thanks, guys for taking my question just first on the cost.
Well listen product, it's good to talk about.
I guess my presumption would be that the net version of the product you know the one that fact is in cancellations would be more appealing to advertisers and advertisers in the current environment.
Is that is that accurate and are you getting any real traction there and I guess I'm curious like are you inclined to really close and that version of the product.
Or not really want that kind of maybe becoming the new normal that advertisers.
That you want and get back to normal and then I just have a quick follow up.
Of course, so they.
Just to be clear I mean that probably the the C.P. a product that we have taken live in October and why now rolling out as a cross EPA product. So we are taking over the risk off the the booking happening the booking conversion risk we are not taking over the constellation risk and we think that it is a very.
Okay very good first step to to help our advertisers in particular to deal with the uncertainty and data spasticity in the current market environment.
Whether we will eventually move to a net CPGA model or not is something that that we will see in the next couple of weeks and months, but given that the time to travel that's come down a lot and there are very very short travel windows, we think that the cross it.
Hey is actually helping our advertisers us very significantly and that's a very very good foundation for entering next year.
Okay. That's helpful. Thanks.
A quick follow up you guys have any sense as.
What percentage of your business or your referrals.
You think might come from corporate travel and I and I guess, I mean, they're kind of on managed corporate travel well. So the worker that booking his own hotel room, and then getting reimbursed.
Close on a corporate level than maybe it goes.
The large level then.
Yes, sure so on on corporate travel.
We don't know the exact mix of our business. So we don't have perfect visibility on that.
Oil what we said in the past is that obviously through into action on all the upside through a certain behaviors et cetera, we estimate what what kind of Trevor.
Coming from but.
In general business travelers, if not the largest part of our overall business mix.
A large part is rather city trips and that we have seen obviously, a negative development relative to the rest of the market.
In the third quarter and.
No that continues in the fourth quarter.
Yeah.
Does that answer your question.
Yes. Thank you very much appreciate it.
Thank you.
And the next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is now open. Please ask your question.
Thanks, two questions if I could actually just one follow up on your exposure to city travel city vacations can you remind us how that has trended as it has it varied any overtime, maybe specifically with 2020.
In particular and then the second question is around the rollout of sponsored Liftings in display ads, how would you assess the rollout how far into the role what are we how is it being implemented is it broadly is it regional is there with respect to certain types of inventory is the onboarding process around.
On the sponsored listings and display ads accelerating what we're trying to get a better understanding of the adoption rates and the runway there. Thanks.
Thanks, Brian this materials I would take the first part of your question and then pass it on to talk so.
So.
In general what we what we have seen is a clear shift in the third quarter, two nature nature destination and and nearby destinations, whereas usually a big part of our traffic mix at least as Hitler city destination.
And to give you an idea.
So city trips.
In Germany, we use that example, before so there we saw a decline of more than 50% off of city destinations lots lots 50 trips, whereas we saw that.
Trips to nature destinations.
An up year over year in Germany now.
So if you if you look at.
And those categories like what what we said in the past and our last update is that we believe that nature and to close the sessions will come back first lets that's exactly what we have seen.
Density travel and lastly, international travel and that is exactly what we're seeing right now.
On your second question regarding the status of the rollout of sponsored listings on display I mean first of all.
I'd like to say that there has been huge and there is huge interest by our advertisers in these alternative products because they serve slightly different different use cases and by having a broader product offering towards our RFP to be advertisers, we can serve their needs much better.
The adoption and the interest has been very broad so I wouldn't say that there has just been a specific segment of the market being interested in these products and some advertisers have have started their their tests and also a permanent campaign said sooner others have taken a bit more time and obviously the environment is.
It's still very difficult for a lot of our partners. The surging your infections in Europe is a bit of a temporary setback I would have to say because obviously I'm. There are markets, where currently none of the products as Israeli generating significant volumes, but we remain very confident that with these products.
We are very well prepared for a more sustainable recovery in next year and and the interest remains very very strong. Despite the difficult environment. We are currently in.
Thank you axle expertise.
Thank you.
Your next question comes from the line of Natalie can some children Securities. Your line is now open. Please ask your question.
Hi, This is Robert Taylor on for Matt. Thanks for taking the question. So two if I can with Colgate resurfacing in Europe in parts of North America, How would you compare the demand you see today versus then the demand you guys saw during the lows of April in March and then.
Second.
Secondly, so you guys had mentioned that travelers had been traveling to more local nature destinations that they can drive to and you called out in the latter I think this new feature in the local travel discover a product you guys plan on launching in 2021.
So do you expect that this trend is going to continue into 2021, I guess when do you see a a return.
To travel to bigger cities are more densely populated destinations. Thanks.
Thanks, all those materials I take the first part of your question.
Oh, Yeah, how does the current situation compares to too much.
So first of all.
We just.
We have October this is in the books and October has been a mixed bag.
And with different developments in all three segments.
I broadly covered that in my prepared remarks, but let me give you a few more data points here.
And.
In Europe, we obviously clearly see the the increase off of new Kevin covered cases in a negative development in ore qualified referrals.
But having said that the the first week was still very similar to the last weeks of September and then only mid October it's started to decline. So it's still early and I think it's also too early to compare that to the situation in March and April.
Given that we.
We are now less than three weeks into that development in Europe.
But over or.
Quote if I referred are declining and clearly impacted how.
Exactly that will compare to April I think again will be.
It's a bit early and we'll probably be we can probably get give you bit up that on that and a couple of weeks.
On the other hand in Americas, we clearly see a positive trend.
In particular in Latam as I said before and most notably in Brazil. So in the last week of October qualified referrals were almost at last year's level in that country.
And it confirms the trend that we've seen during the summer season in Europe. When summer comes people want to travel and there might be shifting travel demand. For example, what we have seen in Europe and are now seeing in Brazil as well.
Is that people choose domestic or international destinations.
But overall, there's a pickup in demand and this makes us confident that Trevor will recover in the.
Second half of next year as well.
So on your on your.
Question regarding our discover product so and the the outlook for next year and so you are absolutely right. We do think that that local travel will be would also be very very important for next year and all of our core markets.
And they are in particular, the summer that we expect to it to be.
So sustainable recovery 'em, we do think that that local travel will will be much greater than than what we've seen in 2019. So similar trend to what we've seen this year. The return off of city trips that are as much. He has that already are very important for us f. all core product, we expect in the second half of the year.
And there there is some opportunity that there might also be some recovery in the first half, but but that is more uncertain. The discover product more specifically is it's not focus on nature or say t., but it's it's more focused on local so more driving distance destinations and that's giving you inspiration to.
Where you could go and we do think that as this 100% spot on I mean in terms of customer needs for next year and it is a accepted in the App and and we are we are working on on on launching it on the other platforms and have a full pipeline.
Line of features that we are planning to deploy in the product over the next couple of months. So that it is ready with a with full features when a when the volume well welcome well will increase again next year.
Okay understood. Thank you very much.
Thank you.
Thank you.
The next question comes from the line of James Lee from user while Securities. Your line is now open. Please ask your question.
Great. Thanks for taking my questions I was hoping to get maybe a little bit more specific on the geographic trends here.
Guys talk about repo revenue down about 80% year over year.
For Europe.
Europe.
Do you have a sense what the trend is like full qualify referrals and what do you. What specifically you commented that qualify we fold down 50% year over year in October what is the Reefal, rather then trends look like thanks.
Sure.
Thanks James.
So I mean I gave some some data points.
On on the U.S. I think there's nothing specific to add here as I said in my prepared remarks qualified referrals. The quote if I'd refer year over year growth rate in the U.S. has been stable since August.
And although the broader trends that have not changed and so we still see a shift towards domestic travel and fewer city trips.
So that's on the U.S. if we if you look at rest of world, they're on a regional difference differences in central Eastern Europe. For example, the development is very similar to our developed Europe segment segment.
Qualified referrals are declining fast with the increase in new product cases.
In Southeast Asia quote if I'd refer to year over year growth rates are also declining but not as fast and then on the other hand in our biggest markets in that segment, and namely Australia, Japan and in particular, India.
We see a gradual recovery offsetting the effects in the other regions in that segment. So overall the year over year revenue growth rate is stable compared to what we have seen in Q3.
Okay.
Yes that.
That is all I can can say more specifically to the reason regions.
And the T.S. They can have a follow up question here, we talk of recovery normalization and first half for 21 are you referring to read the news so I'll be referring to growth the referral.
[noise] growth off refer it.
So basically when when we talk about normalization and Trevor we mean, the underlying demand and that will translate into a our qualified referrals.
And then if you look at our revenue obviously U.S. on top the monetization component that is you have to look at that separately.
Okay, great. Thanks, so much.
No problem. Thank you.
Thank you.
Next question comes from the line of Shyam appeal from Susquehanna. Your line is now open. Please ask your question.
Hey, guys. This is Ryan on for Sean.
Just two quick ones first can you just talk about what what's giving you confidence that travel demand should recover sustainably in the second half of next year.
Is that kind of content kind of vaccine.
And secondly.
Yes, Google is is under some some D.O.J. scrutiny. So do you think that could that could maybe help you if they decide to kind of ease off on on funneling traffic into their own travel product. Thanks.
Sure so on on the and the begin of sustained recovery next year and what what makes US confident there I think that the first thing that that is giving us confidence that is the what we've seen already in summer in the northern hemisphere in summer and now in the southern Hemisphere.
There is a fundamental need of traveling and that that that that that our travelers do want to travel. So so that needs. We see to possess and also see the same trend for all I expect the same trend for next summer. So a strong nature dimont I'm in the P.
Season for the second half of the year in the segment that is very important to us the city travel we do think that the combination off faster and cheaper testing, where you see a lot of development are happening right now.
The availability of the vaccine at least two or high risk areas and improvements in terms of treatment well give overall, a better perception off control, which doesn't mean that the the pandemic well be over but we.
We believe that there will be a positive impact on the on the on the autumn season next year and that that will lead to some recovery off city trips and why why is that for US overall positive I mean said Detroit's obviously are very important to us and we are agnostic to the desktop.
Nation, so as long as travelers are feeling comfortable to travel somewhere.
We do have the right product to offer and we don't need anybody to on a board a plane neither domestically nor continental in our Intercontinental play and so that's why we do think that in terms of recovery, we should benefit slightly sooner than other travel companies.
On your second question regarding the investigation into into Googles practices.
I mean, it's it's it's not only happening in the U.S. its happening and quite a few countries that there is an increasing skepticism that some of the mega platforms and their most notably Google are.
Our are ensuring fair competition overall and the segments that they are they are participating in.
With any kind of.
Regulatory action I mean, they did the one thing that they have in common is that they take some time, but our our read of the overall situation is that there is now a broad consensus that that's something is is not right and that ultimately at at at some point in time.
We'll have an effect on the competitive environment.
<unk>.
Next question please.
Thank you.
Next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is now open. Please ask your question.
Hi, Thanks, two questions first we track with publicly reporting two segments search and advertising and their advertising boards over half of total revenue. So can you maybe talk through the puts and takes of how youre sponsored listening in display ads all compare and contrast.
So what weve gone and give us a sense for where you think this can scale team as a percent of maybe 2019 revenue.
And then second one.
Yeah look a little more out there, but have you looked at price comparison and other segments beyond travel I mean, we just saw good already Republican that you all are doing prescription drug price comparison, when you're doing 500 million in revenue, 30% growth, 35% EBITDA margins curious if the rubber hits.
Lord leveraging your strong user base and brand and move into other categories or that may be kind of less competitive and have more attractive fall.
Yeah attractive attributes.
Yeah sure. Thanks.
Thanks for the questions Lloyd.
The first question on on the business opportunity far sponsored listing and ER our display products.
So I think you are you are spot on I mean, there there is significant opportunity to increase revenues there and signed off of course, we also looked at competitors and realize that that we are we were pretty much. The only player that was just depending on CPC revenue and the core product.
Whether we can reach the levels that kayak has as reach at the time of their IPO.
I'm not 100% sure given that that their business makes as much more skewed towards flights for US is obviously, an accommodation and as far as I understand the the the search revenues are stronger on the accommodation side. So I would expect our share true to lack why.
But you have seen that kayak, but we do believe that there is significant opportunity.
I'm not sure that right now is the right time to to try to quantify the exact chair given that there is so much volatility in the market, but at some point in time next year I would hope that we have a better view and what the overall perspective is and that potential is but yeah. We are very bullish on on the additional products and that's all.
So what weve or does the feedback from our advertisers.
Yeah and.
Hi, Lloyd this material and on your second question I mean, that's a very interesting thought I mean, obviously, we have built our brand equity around Trevor for for many many years and have invested a lot into that.
And as a result of that we do believe that we have a strong global Trevor Brent.
So if you were to go into a completely different fields that that would be a bigger shift for sure and.
I'm not sure that the timing right now is perfect for that overall, we have a very lean set up.
We have focused teams.
And we are very excited about all opportunity and Trevor.
And with all that we have a full product pipeline and the team knows exactly where to work on and what to do and that has been one of our key strengths in the past and how we made it that far that we were always very focused and and everyone coming here to work every day and also.
Exactly where we are and where we're going to be and I think thats also key asset so never say never and again I think it's a very interesting thought but right now I believe we should continue on.
Exploring opportunities that we do have with our strong product teams and with with a strong global traveler brand.
Okay. Thank you.
Thanks, Thank you.
Your next question comes from the line of Dog and Mop from JP Morgan. Your line is now open. Please ask your question.
Great. Thanks for taking the questions actually was just hoping you could give us some more thoughts on the brand campaign that you did in the European markets and just curious how you're.
Messaging, and then mix of marketing or could potentially changes as things hopefully recover more next year and then also can you just give us an update on your your progress with alternative accommodations and how you're thinking about the path there going forward. Thanks.
Hi, Thank you I will take the first question.
On on the brand campaign, and then actually were talking a bit about.
Your second question so.
Given the production lead time that usually have we had to decide in April already what kind of creative we would want to add during the peak summer season. This year.
And if you.
Remember how the situation was back then our revenue was close to zero in April.
There was a global locked on and nobody knew how Q3 will turn out.
And with that in mind, we decided to produce a much softer TV campaign in terms of messaging.
And that turned out to be a very good decision. We got very positive results and got some valuable learnings that that we can now apply it for four new campaigns.
I wont be more specific than that but the key take away is that we have by now tested a few different concepts and not only in.
In Q3 this year, but we already started end of last year to test different a.
Formats and different components to diversify away from all Mr. Trivago campaign.
And then we also got interesting learnings and this has been now the next step and into into another direction and was was very value, but what we have and I.
I think by now we have a pretty good understanding.
Well what is working for us and.
That will give us the flexibility to tailor that to towards a new campaign next year to whatever the market environment will be.
[noise] well on your second question alternative accommodation I think you're right you're absolutely right. We are very happy that we started to really focus and invest significantly Anton the alternative accommodation.
End of 17, so far this summer our business our apartment coverage was very important and it was very important to really have all the inventory available.
Given that a lot of the the top nature destinations, where I'm frankly speaking just fully booked out and get to you needed to have all the inventory that was available to show availability is true to your users and customers and for for next summer, we expect a similar dynamic with the.
Market overall recovering we think that the significant increase in share that is going through a part two apartments will normalize to a certain extent, but we continue to believe that even even with a recovering market apartments will be a key part of our overall value proposition and a key differentiator for us.
Great. Thank you both.
Thank you.
Thank you.
And we have one more question from the line once again, if you wish to ask a question. Please press star one on your telephone keypad and the next question comes from the line of Kevin Kopelman from Cowen. Your line is now open. Please ask your question.
Hi, Thanks, so much.
On a marketing trends so in the third quarter, you were able to reduce your marketing spend year over year significantly more than your revenue declines.
Hi, can you give us an update on those dynamics heading into Q4, if that you know any change there with with what's going on in Europe. Thanks.
Sure. Thank you Kevin.
Yeah, I I think that's a that's a very good observation. So if you look at Q3.
As percentage of revenue our advertising spend was around 50% so compared to what we've done historically that is a very low number.
And that was.
Predominantly the case, because we only tested in Europe or invested in TV in our segment developed Europe as we didn't see the same opportunities in other segments and we're more cautious and again as I mentioned before our.
The key focus during the third quarter was to preserve our cash.
And on the other end in Europe, we did see a D.
Recent pick up so I'm also wanted to invest into that that's on the brands marketing side.
On the performance marketing side. We also saw when we saw a pickup in demand. We also went back in and invested more but.
But also a more cautious than than what we have done previously and I mean, we have talked about it before already prequel that we.
Started a test in our performance and Thats, where we increased our return on advertising spend targets to to really see what the incrementality of that channel as for US and now when we went back in <unk>, we kind of had a similar approach and were running high ROI targets.
Then what we had before and then obviously we benefited also from the fact that overall.
Overall competition in those auctions still.
Still is lower than compared to pre covered.
So if you look at the fourth quarter and what it means for our investments in the fourth quarter.
Historically its been a a low.
Low quarter for us in terms of brand spend anyways as we approach holiday season, TV advertisement becomes more expensive at the same time.
Demand for our product drop so.
We usually cut back.
If you if you look at the situation in Europe, right now and if you. If you look at the data points that I gave you see that on.
On a global level in Q4, and it's fair to assume that we don't expect to.
Have a higher ratio off of revenue.
In the fourth quarter.
As a share of 2019 levels than what we had in the third quarter. So if you take that as a starting point and then look at the 50% we had in the third quarter in terms of advertising spend of revenue you can assume that this will be not higher in the fourth quarter that gives you a good idea of how we are approaching.
Our own marketing activities in the fourth quarter.
Does that make sense.
Yeah. Thanks for Ts is very helpful.
Great. Thank you guys.
Thank you never know for your questions at this time. Please continue thank you.
[noise] yeah. Many thanks for taking the time to participate in our Q3 earnings call Aerospace.
Irrespective of the very challenging situation, we are facing in many markets. We continue to see the crisis as an opportunity.
An opportunity to face all travelers and advertisers with better products and opportunity to become more relevant and grow our market share.
This is what is driving us forward no matter how long the winter were lost.
Many thanks for your time stay safe and see you next quarter.