Q3 2021 Trivago NV Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the curve I go Q3 earnings call 2021 I met advice. He doesn't this call is being recorded today Monday. The first of November 'twenty 'twenty. One we are pleased to be joined on the call today by actual he for tobacco C O N E.
Getting director and Matt just to a man survivor, CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Monday November one 2021 only.
<unk> 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, 2021 or breathing.
And financial review and the company's other filings with the S. E C for information about factors, which could which good cost through Vegas, what are thoughts to differ materially from the DS.
Forward looking statements.
You will find reconciliations on non-GAAP measures to the most comparable GAAP measures discussed today into regular operating and financial review.
Which is posted on the company's IR website at IR <unk> Com you are encouraged to periodically visit <unk> Investor relations site for important content.
Finally, unless otherwise stated and comparison in this call will be against were sold for the comparable period of 2020 with that let me turn over the call over to Axel.
Thank you everyone for joining us today for our Q3 2021 earnings call I hope everyone is doing well.
Another quarter has passed and even though the pandemic is not all that.
It seems that things are slowly moving back to normal.
In Europe, and the Americas, most travel restrictions have been lifted.
More and more people are being vaccinated kids are going back to school and friends and family have reunited and business partners have met.
That being said the pandemic is not over yet and the winter in the northern Hemisphere is coming.
In some countries. The situation is deteriorating quickly and tough months are ahead of us.
However, we have come out of summer, Wisconsin, and we believe our strategic direction is right and offer significant opportunities for 2022 and beyond.
We believe that city trips will return that scale segment that is very important for us is our value add is greatest when prices for many hotels are compared.
Our teams have continued to work very hard on improving our user value proposition and our local travel product weekend. We have added rated packages in Germany and customer activities in the U K.
We have successfully taken live our first partner as far our B to B solutions and are very excited about this other scale up of this new line of business.
By leveraging our technology data and connectivity.
We do believe that we will be able to offer a unique solutions to existing and future partners over the years to come.
We continue to stay optimistic and believe the changes and enhancements we've made to our product offerings are setting up as well and we are very excited to see what the next year will bring.
With that I now hand over to Matthias.
Thank you Alex and good morning, everyone.
<unk> has been strong in our core markets in Europe, as we have seen a lot of pent up demand.
Positive trends, we highlighted in July persisted well into August before we started to see the usual seasonal decline in September.
Globally, our qualified referrals increased 26% year over year.
The auction dynamics improved significantly as well in particular in a market where demand recovered strongly.
As a result or referral revenue increased by 133% year over year in the third quarter.
All segments are recovering at different paces, though sequentially, we saw the strongest increase in Europe with our referral revenue increasing by over 70% compared to the second quarter.
The region benefited from high pent up demand coming out of a lockdown early in the second quarter.
We recover in our segment Americas continued at a more gradual pace, while referral revenue in most countries in the <unk> segment rest of world improved only slightly compared to the second quarter.
With the overall increase in traffic volume, we ramped up our marketing spend in the third quarter, which led to a decline in our return on advertising spend sequentially from 145% in the second quarter to 139% in the third quarter.
As we had significantly reduced our advertising on TV in 2020, we believe that we did not benefit from past investments to the same extent as in prior years. However.
However, we managed to run Brent marketing campaigns with good return in a few markets. This summer.
We believe that we can invest long term profitably to increase our baseline, but we'll need to do so in a disciplined manner as with almost two years of reduced advertising levels or starting point next year will be lower than in 2019.
Moving on to expenses, we increased our advertising expenses to $98 1 million euro in the third quarter compared to $30 6 million during the same period last year.
The significant increase was mostly driven by the travel demand recovery in Europe and Americas.
We continued with our brand TV campaigns that we started in June and increased our investment during the third quarter.
Given the different levels of recovery in different markets, we only selectively invested in markets, where we had high confidence of achieving our long term ROI target.
Excluding advertising expenses operational expenses increased by one 8% compared to the third quarter last year.
The increase was mostly driven by higher share based compensation, but items that sky with the traffic on our platforms like cloud related costs or digital sites, Texas.
And G&A cost slightly increased due to higher share based compensation and a reduction of expected credit losses in the third quarter last year, which was a one off decrease in expenses that did not repeat this quarter.
The increase in the selling and marketing category was mostly driven by an increase in digital search, Texas like cost of revenue increased due to higher cloud costs.
Those increases were partly offset by a decrease in the TNC related in TNC related expenses.
<unk>, mainly from lower personnel costs and the non recurrence of restructuring cost compared to the same period in 2020.
Overall, our expenses remained stable at a significantly lower run rate compared to pre pandemic levels.
We also remain well capitalized with a cash position of 194 million at the end of the third quarter.
Which is stable compared to the beginning of the quarter.
The increase in accounts receivable and a decrease in accounts payable offset the positive impact on our cash position from other operating and investing activities.
I would like to highlight again that we did not have to raise any capital during the pandemic.
Our net loss of 2.3 million Euro in the third quarter last year turned into a net income of $5 5 million, while our adjusted EBITDA increased from $6 1 million.
$215 5 million, an increase of 154% year over year.
Yeah.
Looking at the latest trends on our platform, we can observe the usual seasonal decline as we are now post the peak summer season in Europe.
In most European countries. The number of new Covid cases is increasing again with the spread of the Delta variant and consequently, some travel restrictions are still in place in.
In particular in countries, where the shelf vaccinated people relatively low the situation is getting worse as we are approaching winter.
And while travelers are getting used to rules and restrictions uncertainty is still high.
On the other hand, some intercontinental routes opening up again for example, the U S will allow Europeans to enter the country again as of November eight.
And as of today vaccinate people traveling to Thailand, do not need to quarantine anymore.
As a result, we have seen that in some regions growth rates was 2019 have improved further but for others. They are stable.
In the following I will share a few more data points on recovery trends in our respective segments.
All comparisons refer to the period from October 1st to October 29th was the same period in 2019.
Despite a few positive signs overall travel activity in our segment rest of world is still muted.
Qualified referrals and referral revenue remained around 50% and 30% of 2019 levels respectively.
In developed Europe qualified referral continued to be approximately at 80% of 2019 levels and referral revenue around 70% with a rising number of new cases in most European countries. We do not expect a further improvement for the remainder of this quarter.
Another segment Americas qualified referral further improved from 58% in the third quarter to around 70% of 2019 levels, while referral revenue improved from 51% to around 60%.
In particular in Latin America, and in the U S travel demand picked up further coming out of the third quarter.
That brings me to our guidance as we are approaching the low season throughout the period of the year, we are reducing our marketing activities in most countries and consequently expect a return on advertising spend to increase sequentially.
With the seasonal decrease in travel demand and resulting lower revenue base, we expect our EBITDA to remain positive in the fourth quarter, but to be lower than in the third quarter.
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, if you have questions feel free to call and you May Press star one on your telephone keypad.
Our first question comes from the line of Brian Fitzgerald from Wells Fargo. Please ask your question.
Thanks, guys.
The case, maybe ripping off your your last comment on ROE as it was set to compress as I recall in <unk> and then was it was going to rebound.
In Q4.
I'm wondering if that transpires to the degree you expected and and.
What's your outlook for rollout as we progressed through Q4 into next year. You just said, it's going to be up but is it is it going to be up to the extent that you surmise. It was going to be when we started unpacking you know the <unk>.
Unlocking of travel restrictions.
Yeah sure Thanks, Brian.
So we said last quarter.
That we will invest into the recovery, but by ramping up.
TV and also online video spend.
The brand marketing campaigns.
And that is exactly what we have done during summer now.
This naturally leads to lower raws compared to periods, where we significantly reduced our brand marketing investments.
So coming out of the summer peak season.
We reduced our marketing spend as we have always done historically.
With a lower share of brand spend.
And that will lead to an increase in.
And Ross again, that's what we expect for the fourth quarter. So what we are seeing now in Q3 is broadly in line with what we expected.
And I think we are on track to delivering what we expected for the fourth quarter.
I mean, it's too early to talk about next year really.
But usually what we what we do is going into.
Into Q1 coming out of the winter holiday season, we ramp up our investments again, it's the first.
<unk> peak season for us.
When when people start looking for summer and start booking some vacations et cetera. So that's when we normally ramp up brand marketing as well.
At this point.
We plan to do that as well to.
To what extent.
It's still a bit early given the uncertainty I mean, I mentioned that we are now seeing that the number of cases in particular in Europe are going up again.
And we will see over the next two months what will change in terms of travel restrictions et cetera, and that will to some extent determined than the start to the next year and for US what is important right now or how we look at it is to stay flexible.
To not commit any bunch it but then react quickly when we see how things are playing out.
And that is for sure a different comp.
Compared to two pre pandemic like in 2019, we usually committed.
Some budget already for the first quarter.
We did not do that in 2020, we did not do that last year and we won't do that for Q1.
Next year.
To keep the flexibility.
And then <unk>.
<unk> into opportunities that we are seeing.
For some of them I mean at this point I would be Oh.
I wouldn't be a bit more confident given what we have seen last year and this year already.
But then again the exact level of.
Spent et cetera will also be a function of what we see in Q1.
And.
The performance in particular in Europe, So that's probably something we can talk about.
Early in Q1.
Okay, great. Thanks.
Thank you.
Your next question comes from the line after Naveed Khan from <unk> Securities. Please ask your question.
Yeah.
Uh huh.
A couple of questions.
Sure.
So maybe Mike.
Can you talk about the that had gone up pretty fast.
How are you thinking in terms of timing in terms of what are you seeing on the ground.
And then maybe also touch on the adoption of the <unk>.
We can't hold them for the local travel offering.
In Alaska and that how do you just wanted me to be maybe expand on that a little bit.
What are the different all cranes and what's your.
What's the timeline how are you thinking about the launch of these products in.
And then on the monetization.
Sure so on.
The city trips.
As I said the sales reps are for us extremely important because they the value that we offer is to compare prices and that's where where the value is greatest Arab theyre, most options and the price discrepancies are greatest.
And what we've seen so far in the pandemic that.
And we talked about it on on some of the previous earnings call Stat.
They the travel that has returned first as obviously friends and family about then.
Leisure as al So really getting a break coming out of some very very long lockdowns in very difficult situations, where a city of trips.
They have not come back to the same level I mean, partially early in the pandemic because the a.
A lot of the attractions in the cities. We're not open right now we do believe that there is still some hesitancy entering the winter and I would actually be the time to do two separate trips.
And that's why we are we still not seeing the same recovery than we've seen in other trip types.
However, obviously with some risk and depending on what would happen over the next couple of months in the northern Hemisphere, We do believe that it is very likely.
That we will see a normal.
Travel behavior in most of our major markets next year.
And there it is very difficult to to to.
To estimate when exactly that will start we think that spring as where we will see a change in mindset was a lot of people.
Whether it's early or late spring.
I mean, we don't know so but lets say I mean, its latest starting next summer and then the second half of next year and most of the main markets. We do expect a normal travel behavior.
On the leisure side business travel.
It will be a bit different obviously still.
Your second question on a weekend.
So we were doing a lot of work on the product we are adding more and more features and we are.
We are benefiting from the fact that we we are global so we launch different test different features and different markets.
So in a way in terms of adoption and we are we are still in at focusing on adding feature that testing feature and then bringing all of those are results together really for next year. So the adoption is not our key focus it's more an improvement of the product and a more complete feature set while we've seen.
So far Nevertheless has been has been positive and in summer I mean, there. We've also run some marketing test.
Net debt debt that are giving us good indications of where the product can go to.
But as I said the key focus is on adding more features and testing them in different markets to accelerate.
Yeah.
The speed of development there.
On the <unk> side.
We've run.
A few tests are actually immuno tested with a few partners. So I think that's probably the better way to put it.
And the last.
Couple of months or even quarters and we are now very excited because we actually moved into into life stage with our with a few partners in the beginning obviously the revenue as Estelle scale scaling up.
We do think that there is a very big and also very exciting opportunity for us by providing our services and also our data and connectivity to other partners.
More specifically.
The first product that that we are offering them.
Is it basically in access to to a full meta search accommodation meta search experience and we offer that currently through an API. So our partners are basically able to integrate.
The comprehensiveness of our offerings in terms of hotels, but then also in terms of pricing options into their existing front end.
Seamless way.
But that's that's that to us that's more of the start of a long journey rather than at the end and we are very excited about the opportunity ahead of us.
There's going to be on the B to B can.
Can you give me a sense of the types of partners.
Oh good.
Our smaller.
And.
What type of partner.
And indeed this type of thing.
It.
Yeah. So.
I mean, we are I mean, the the partners that are there are still in testing I mean, where they are we are we are not in a position to give the names of the slate, but one partner that we've just announced last week as it's Huawei and there in particular their search product pet oil search.
So for search engines. It is obviously very interesting to get access to to our services to offer an owned hotel stretch product, which.
Without a partnership with us would require a lot of scale and a very very high upfront investment and the partnership is is much much easier to launch and to scale by basically benefiting from our existing scale, but they are also partners that are completely different offerings.
Have a more targeted product offering.
And our focus on price conscious users that prefer a meta search product than a normal otas integration, which.
Websites use for their affiliate business.
All four additional affiliate revenues.
Thank you.
Thanks.
Your next question come from the line of James Lee from Mizuho. Please ask your question.
Great. Thanks for taking my questions, maybe help us understand maybe puts and takes on QR and RP QR.
When the travel mix start to returning back to normal, meaning a mix shift to urban and international travel. It seems like QR, you should be able to get back to.
Pre pandemic level.
How should we think about RP QR that seem to be a little bit more challenging in my view what needs to happen for that to get back to prior level.
Thank you.
Okay.
Hello.
Thanks, James Yeah, So I'll take that question.
So on not be QR.
In general it's the product of the average booking value the conversion or monetization and I.
I think we've talked about all three in the past.
At the beginning of the pandemic, what we've seen is that the monetization dropped significantly as.
Some partners.
Completely stopped.
Being active in our auction others just been down there was high uncertainty around cancellation rates future cancellation rates, which are also reflected in the CPC bps then.
And what we have seen that over the last couple of quarters that with travel volumes coming back and confidence coming back in cancellation rates coming down a little bit again that monetization has improved.
Commented last time already.
In some markets in Europe, we saw towards the end of the second quarter and in July.
You are approaching 2019 levels again.
So in general and we've seen a continued improvement in Q3, I mentioned that the improvement in auction dynamics, we still see a difference in countries.
Like in rest of World was Europe to peak extremes Ware.
<unk>.
On the one hand in rest of world traffic volumes are still significantly below 2019 levels more restrictions.
And all of that and that resides in less active and less active and competitive auction and you can see that in the RP QR.
As in Europe.
We have seen that.
With traffic coming back that our partners became more active again.
And similar in Americas in the U S and Latin America, whenever we saw volumes coming back.
Dynamics in our auction improved as well.
With regards to.
Conversion.
I think.
We have seen a similar pattern in our estimated whether to book and that's important so we don't have full visibility, but estimate estimate.
Downstream booking conversion.
We have seen a similar pattern compared to pre pandemic.
Levels during the summer months.
And.
Yes, Theres clearly you can clearly see the year over year improvement.
And not be QR, if you look at that together.
From what we can see it would be the combination of.
The improvement in monetization and conversion, but monetization for sure was the bigger driver.
And then I can ask a follow up question as we head into next year and you guys are looking at.
Normalized travel pattern at least for the western hemisphere in the summertime.
Thank you hotel partners to do do you expect them to drive the traffic directly are more relying on third party channels like Otas.
I remember from the financial crisis, Hoteliers ship more to Otas.
And third party channel just curious, what you're thinking and how you're positioning your business accordingly.
Yeah, I mean, we again, we have seen it already this year in Q3 that our partners are happy to to.
By incremental traffic when its available.
And they did better on our platform enhance we saw a significant improvement in auctions, so I wouldn't expect that.
To happen again next year.
I mean I think the key question is can you deliver high quality traffic.
You can offer that then there will always be someone willing to pay for that.
And that we think we are an attractive China and we have seen that this quarter we've talked about.
Offering different solutions for summit advertisers as well like CPA.
Because for some it's a bit more tricky in particularly in the current environment.
Bit efficiency efficiently and our CPC auction.
They don't have the same.
A depth and data as other players so the CPA. It takes out some uncertainty and we have increased the number of a number of partners on that product and received good feedback so that helps them to participate and we will continue that dialogue. So we will talk to our partners.
And try to understand what helps them to efficiently in the auction and whatever we can do support to support that be it with technology solution or something else.
To do that and then I believe that they are happy to participate and buy the quality traffic.
Okay. Thank you.
Thanks James.
Your next question comes from line of Doug and mid from Jpmorgan. Please ask your question.
Hey, This is David I'll sure Doug Thanks for taking the question.
The first one in the letter you talked about seeing an it.
And in your auctions.
And advertisers being more active in markets, where travel demand recovers.
Curious to hear if you could provide a little more detail on the overall advertiser participants' participation.
<unk> seen broad based improvement in advertiser participation, meaning is the auctions instead of recovering to pre pandemic levels.
Secondly, you talked about benefiting as much from planning and going forward.
Just curious to hear like how long do I suppose.
Okay. Thank you guys can recover to previous levels or brand efficiency I should think about.
Christian in your investments.
Next year.
Yeah.
Sure so on the on the auction dynamic.
So we have seen a significant as months he has had a significant improvement in the auction.
Really with the <unk>.
Recovery progressing.
And there we see very clearly that our partners are very eager to increase their their volumes and to participate very actively in the channel.
That being said, obviously, we have not seen a full recovery in our markets I mean, particularly rest of the world are so very problematic overall as a segment.
And also in the in the Western markets. There is still more uncertainty in the market. So I.
I guess the way to put it is we are very happy with the dynamic that we are seeing in the auction but.
And there is still some improvement potential that that's probably the best way to put it.
Yeah, and then on your second question on brand marketing.
So through the pandemic, we got some valuable data points like how much of the traffic is coming back direct after a long period with no rent advertising and what is the impact of ramping up again.
I would caution, though that theres still a lot of noise in the numbers in the next season or peak after the winter holidays will be very important to understand the long term effect even better.
But when thinking about the right investment for next year it.
It is important to flag.
Did in my remarks that we won't benefit in 2022 to the same extent from past investments as we did in 2019 as we significantly reduced our spend in the last two years, so with a similar investment as in 2019, we would not be able to get to the same contribution number.
How exactly we will balance our marketing investments.
Next year, then will depend on the additional learnings from winter campaigns.
Part of the recovery and our expected long term results.
At this point I can only say that we will remain cautious as I said in Q1, given the high uncertainty.
And that means that we will stay flexible and do not commit to any budget.
But if there is an opportunity to invest we will go for it and we will continue to optimize for long term value creation.
Great. Thank you.
Thank you.
Your next question comes the line of Kevin Kopelman from Cowen. Please ask your question.
Great. Thanks, a lot.
I'll follow up.
Are you seeing COVID-19 cases, increasing in Europe.
And that influence your view on what's going to happen here in the fourth quarter.
Are you.
Are you seeing that rising cases already lead to.
Reduced travel activity or impact on travel activity or to what extent.
Or are you seeing there or is it more that's what youre expecting in the future just being cautious on it.
Yeah. Thanks, Kevin.
So I mean I gave you.
An idea of the development in Europe in October and they're set.
QR level and.
Our referral revenue, it's been similar to the third quarter stable compared to the third quarter in terms of 2019 levels.
We haven't seen.
Steep decrease or anything like that.
It's more being cautious looking at what's going on right now I mean, we do see a number of cases are increasing and.
It's something that could lead to reduced activity in November and December.
I mean, right now domestic travel is mostly possible without restrictions.
Almost everywhere three redo it.
Rules apply so you have to be vaccinated recover we'll test it but if that's the case you can you can trevor.
For international travel most currently.
Countries still apply a traffic light system for high risk countries stricter rules apply.
You have to quarantine when entering from such a country.
For example in Germany, we have seen that during the autumn school holidays in October now more people traveled Ben.
Last year now so.
That we have seen had seen last year, some deceleration and we haven't seen that to the same extent. So that's why trends are stable.
We expect essentially that the in terms of 2019 levels that we will continue at the current.
A trend that we're seeing but we don't expect a further improvement.
Yeah.
Thank you Peter.
Thanks, Kevin.
Once again for any questions you May press star one on your telephone keypad.
There are no further questions at this time please continue.
Many thanks for taking the time to participate in today's earnings call and appreciate your continued interest.
After almost two years of living through one of the worst pandemics in our lifetime, we're looking forward to 2022 and the opportunities ahead of us.
We are dedicated to serve our users and customers better in the future to improve our existing products and provide more value through new offerings.
Thanks for your time stay safe and see you in 2022.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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Yes.
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Good day, ladies and gentlemen, thank you for standing by and welcome to the curve I go Q3 earnings call 2021 had met the device. It doesn't this call is being recorded today Monday. The first of November 'twenty 'twenty. One we are pleased to be joined on the call today by actual he for tobacco CEO and managing director.
And Matt just Hillman Survey group CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Monday November one 2021 only.
<unk> 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 2021 operating in.
Financial review and the company's other filings with the S. E T for information about factors, which could which could cost through Vegas Act what are thoughts to differ materially from the dish.
Forward looking statements.
You'll find reconciliations on non-GAAP measures to the most comparable GAAP measures discussed today into Ragus operating and financial review.
Which is posted on the company's IR website at IR <unk> com.
You are encouraged to periodically read it through brokers Investor relations site for important content finally, unless otherwise stated and comparison in this call will be against were sold for the comparable period of 2020 with that let me turn over the call over to Axel.
Thank you everyone for joining us today for our Q3 2021 earnings call I hope everyone is doing well.
Another quarter has passed and even though the pandemic is not all that it seems that things are slowly moving back to normal.
In Europe, and the Americas, most travel restrictions have been lifted more and more people are being vaccinated kids are going back to school and friends and family have reunited and business partners have met.
That being said the pandemic is not over yet and the winter in the northern Hemisphere is coming.
In some countries. The situation is deteriorating quickly and tough months are ahead of us.
However, we have come out of summer with confidence and we believe our strategic direction is right and offer significant opportunities for 2022 and beyond.
We believe that city of trips where return at scale. The segment that is very important for us as our value add is greatest when prices for many hotels are compatible.
Our teams have continued to work very hard on improving our user value proposition and our local travel product weekend, we have added ray packages in Germany and costs and activities in the U K.
We have successfully taken live our first partner for our B to B solutions and are very excited about the scale up of this new line of business.
By leveraging our technology data and connectivity.
We do believe that we will be able to offer unique solutions to existing and future partners over the years to come.
We continue to stay optimistic and believe the changes and enhancements we've made to our product offerings are setting up as well and we are very excited to see what the next year what brain.
With that I'll now hand over to Matteo.
Thank you Axel and good morning, everyone.
<unk> has been strong in our core markets in Europe, as we have seen a lot of pent up demand.
The positive trends, we highlighted in July persisted well into August before we started to see the usual seasonal decline in September.
Globally, our qualified referrals increased 26% year over year.
Our auction dynamics improved significantly as well in particular in markets where demand recovered strongly.
As a result, our referral revenue increased by 133% year over year in the third quarter.
Our segments are recovering at different paces, though sequentially, we saw the strongest increase in Europe with our referral revenue increasing by over 70% compared to the second quarter.
The region benefited from high pent up demand coming out of a lockdown early in the second quarter.
The recovery in our segment Americas continued at a more gradual pace by referral revenue in most countries in our segment rest of world improved only slightly compared to the second quarter.
With the overall increase in traffic volume, we ramped up our marketing spend in the third quarter, which led to a decline in our return on advertising spend sequentially from 145% in the second quarter to 139% in the third quarter.
As we have significantly reduced our advertising on TV in 2020, we believe that we did not benefit from past investments to the same extent as in prior years.
However, we managed to run Brent marketing campaigns with good returns in a few markets. This summer.
We believe that we can invest long term profitably to increase our baseline, but would need to do so in a disciplined manner as with almost two years of reduced advertising lever. Our starting point next year will be lower than in 2019.
Moving on to expenses, we increased our advertising expenses to $98 1 million euro in the third quarter compared to $30 6 million during the same period last year.
The significant increase was mostly driven by the travel demand recovery in Europe and Americas.
We continued with our brand TV campaigns that we started in June and increased our investment during the third quarter.
Given the different levels of recovery in different markets. The only selectively invested in markets, where we had high confidence of achieving our long term ROI target.
Excluding advertising expenses operational expenses increased by one 8% compared to the third quarter last year.
The increase was mostly driven by higher share based compensation and but items, let's gave with the traffic on our platforms like cloud related costs or digital says, Texas.
And G&A cost slightly increased due to higher share based compensation and a reduction of expected credit losses in the third quarter last year, which was a one off decrease in expenses that did not repeat this quarter.
The increase in the selling and marketing category was mostly driven by an increase in digital search, Texas like cost of revenue increased due to higher cloud costs.
Those increases were partly offset by a decrease in the TNC related in TNC related expenses.
Adding mainly from lower personnel costs and the non recurrence of restructuring cost compared to the same period in 2020.
Overall, our expenses remained stable at a significantly lower run rate compared to pre pandemic levels.
We also remain well capitalized with a cash position of 194 million at the end of the third quarter, which is stable compared to the beginning of the quarter.
The increase in accounts receivable and a decrease in accounts payable offset the positive impact on our cash position from other operating and investing activities.
I would like to highlight again that we did not have to raise any capital during the pandemic.
Our net loss of 2.3 million Euro in the third quarter last year turned into a net income of $5 5 million, while our adjusted EBITDA increased from $6 1 million.
To $15 5 million, an increase of 154% year over year.
Looking at the latest trends on our platform, we can observe the usual seasonal decline as we are now post the peak summer season in Europe.
In most European countries. The number of new Covid cases is increasing again with the spread of the Delta Varian and consequently, some travel restrictions are still in place.
In particular in countries, where the shale vaccinated people relatively low the situation is getting worse as we are approaching winter.
And while travelers are getting used to rules and restrictions uncertainty is still high.
On the other hand, some intercontinental routes opening up again for example, the U S will allow Europeans to enter the country again as of November eight.
And as of today vaccinated people traveling to Thailand, do not need to quarantine anymore.
As a result, we have seen that in some regions growth rates was 2019 have improved further but for others. They are stable.
In the following I will share a few more data points on recovery trends in our respective segments.
All comparisons refer to the period from October one to October 29th versus the same period in 2019.
Despite a few positive signs overall travel activity in our segment rest of World is still muted qualified referrals and referral revenue remained around 50% and 30% of 2019 levels respectively.
In developed Europe qualified referred continued to be approximately at 80% of 2019, Levered and referral revenue around 70% with a rising number of new cases in most European countries. We do not expect a further improvement for the remainder of this quarter.
And our segment Americas quantified referred further improved from 58% in the third quarter to around 70% of 2019 levels.
While our referral revenue improved from 51% to around 60%.
In particular in Latin America, and in the U S travel demand picked up further coming out of the third quarter.
That brings me to our guidance as we are approaching the low season.
The period of the year, we are reducing our marketing activities in most countries and consequently expect a return on advertising spend to increase sequentially.
With the seasonal decrease in travel demand and resulting lower revenue base, we expect our EBITDA to remain positive in the fourth quarter, but to be lower than in the third quarter.
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, if you have questions over to Colin you May Press Star one on your telephone keypad.
Our first question comes from the line of Brian Fitzgerald from Wells Fargo. Please ask your question.
Thanks, guys.
Maybe ripping off your last comment on ROE as it was set to compress as I recall in <unk> and then was it was going to rebound in Q4.
<unk>.
I'm wondering if that transpires to the degree you expected and.
What's your outlook for rollout as we progress through Q4 into next year. You just said, it's going to be up but is it is it going to be up to the extent that you surmised it was going to be when we.
Got it unpacking.
The unlocking of travel restrictions.
Yeah sure Thanks, Brian.
So we said last quarter.
We will invest into the recovery bye bye ramping up <unk>.
TV and also online video spend and other brand marketing campaigns.
And that is exactly what we have done during summer now.
This naturally leads to lower raws compared to periods, where we significantly reduced our brand marketing investment.
So coming out of the summer peak season.
We reduced our marketing spend as we have always done historically.
With a lower shelf brand spend.
And that will lead to an increase.
In raws again.
That's what we expect for the fourth quarter. So what we see now in Q3 is broadly in line with what we expected.
And I think we are on track to delivering what we expected for the fourth quarter.
I mean, it's too early to talk about next year really.
But usually what we what we do is going into.
Q1 <unk>.
Coming out of the winter holiday season, we ramp up our investments again, it's the first <unk>.
Smaller peak season for us when when people start looking for summer and start booking some vacations et cetera. So that's when we normally ramped up brand marketing as well.
At this point.
We plan to do that as well.
To what extent.
It's still a bit early given the uncertainty I mean, I mentioned that we are now seeing that the number of cases in particular in Europe are going up again.
And we will see over the next two months what will change in terms of travel restrictions et cetera, and that were to some extent determined than the start to the next year and.
For us what is important right now or how we look at it is to stay flexible.
To not commit any bunch it but then react quickly when we see how things are playing out.
And that is for sure a different comps.
Compared to pre pandemic Legg in 2019, we usually committed.
Some budget already for the first quarter.
We did not do that in 2020, we did not do that last year and we won't do that for Q1.
Next year.
To keep the flexibility.
And then invest into opportunities that we're seeing.
For some of them I mean at this point I would be.
I wouldn't be a bit more confident given what we have seen last year and this year already.
But then again the exact level of.
Spent et cetera will also be a function of what we see in Q1.
And.
The performance in particular in Europe, So that's probably something we can talk about.
Early in Q1.
Okay, great. Thanks.
Thank you.
Yeah.
Your next question comes from the line of <unk> Chen from <unk> Securities. Please ask your question.
Yeah. Thanks, a lot a couple of questions.
Sure.
Et cetera.
Can you talk about the that had gone up could be perhaps.
How are you thinking in terms of timing in terms of what are you seeing on the ground.
And then maybe also touch on the adoption curve.
We can't have the local travel offering.
And the last question I had I just wanted me to be maybe expand on that a little bit.
What are the different draw cranes and.
Sure.
What's the time line how are you thinking about the launch of these products.
And then on the monetization.
Sure.
On the city trips.
As I said the sales reps are for us extremely important because they the value that we offer is to compare prices and that's where where the value is greatest Arab theyre, most options and the price discrepancies are greatest.
And what we've seen so far in the pandemic that.
And we talked about it on on some of the previous earnings call Stat.
The travel that has returned first as obviously friends and family about then.
Leisure as ours are really getting a break coming out of some very very long lockdowns in very difficult situations, where a city of trips.
They have not come back to the same level I mean, partially early in the pandemic because the a.
A lot of the attractions in the cities. We're not open right now we do believe that there is still some hesitancy now entering the winter now would actually be the time to do it to Citi trips.
And that's why we are we still not seeing the same recovery than we've seen in other trip types.
However, obviously with some risk and depending on what would happen over the next couple of months in the northern Hemisphere, We do believe that it is very.
Very likely.
That we will see a normal.
Travel behavior in most of our major markets next year.
And there it is very difficult to to.
To estimate when exactly that will start we think that spring as where we will see a change in mindset with a lot of people, whether it's early or late spring.
I mean, we don't know, but let's say I mean, its latest starting next summer and then the second half of next year and most of the main markets. We do expect a normal travel behavior.
On the leisure side business travel.
We'll be a bit different obviously still.
Your second question on a weekend.
And so we were doing a lot of work on the product we are adding more and more features and we are.
We are benefiting from the fact that we we are global so we launch different test different features and different markets.
So in a way in terms of adoption and we are we are still in at focusing on adding feature that testing feature and then bringing all of those are results together really for next year. So the adoption is not our key focus it's more an improvement of the product and a more complete feature set while we've seen some.
Far Nevertheless has been has been positive and in summer I mean, there. We've also brought in some marketing test.
Net debt debt that are giving us good indications of where the product can go to.
But as I said the key focus is on adding more features and testing them in different markets to accelerate.
Yeah.
The speed of development there.
On the <unk> side I mean, we've we've robyn.
A few test Akshay immuno tested with a few partners I think that's probably the better way to put it.
In the last.
A couple of months or even quarters and.
And we are now very excited because we actually moved into and through life stage with our with a few partners in the beginning obviously the revenue as Estelle scale scaling up but we do think that there is a very bacon also very exciting opportunity for us by providing our services and also our data.
And connectivity to other partners.
More specifically.
The first product that that we are offering.
Is it basically in access to to a full meta search accommodation meta search experience and we offer that currently through an API. So.
Our partners are basically able to integrate.
The comprehensiveness of our offerings in terms of hotels, but then also in terms of pricing options into their existing front end in a very seamless way.
But that's that's that to us that's more of a start of a long journey rather than at the end and we are very excited about the opportunity ahead of us.
There's going to be on the B to B can.
Can you give me a sense of the types of partners. These are all good.
Our smaller.
And are there.
The type of partner.
At this time.
Thanks, Greg.
Yes, so I.
I mean, we are the partners that are there are still in testing I mean, where there. We are we are not in a position to give the names obviously, but one partner that we've just announced last week as.
It's Huawei and there in particular their search product pet out search so for search engine.
It is obviously very interesting to get access to two hour service has to offer and owned hotels stretch product, which.
Without a partnership with us would require a lot of scale and a very very high upfront investment and the partnership is as much much easier to launch and to scale by basically benefiting from from our existing scale, but they are also a partner of stat to have completely different offerings.
Have a more targeted product offering.
And are focused on price conscious users that prefer a meta search product than a normal otas integration, which.
A lot of websites use for their affiliate business.
All four additional affiliate revenues.
Understood.
Thank you.
Thanks.
Your next question comes from the line of James Lee from Mizuho. Please ask your question.
Great. Thanks for taking my questions, maybe help us understand maybe the puts and takes on QR and RP QR.
When the travel mix start to returning back to normal, meaning and mix shift to urban international travel. It seems like QR, you should be able to get back to.
Pre pandemic level.
How should we think about RP QR that seem to be a little bit more challenging in my view what needs to happen for that to get back to prior levels.
Thank you.
Okay.
Okay.
Yeah.
Hello.
Thanks, James Yeah, So I'll take that question.
So on a P QR.
In general it's the product of the average booking value the conversion or monetization.
I think we've talked about all three in the past.
At the beginning of the pandemic, what we've seen is that the monetization dropped significantly as.
Some partners.
Completely stopped.
Being active in our auction others just been down there was high uncertainty around cancellation rates future cancellation rates, which are also reflected in the CPC bps then.
And what we have seen that over the last couple of quarters that with travel volumes coming back and confidence coming back and cancellation rates coming down a little bit again.
Monetization has improved we we commented last time already that in some markets in Europe, we saw towards the end of the second quarter and in July <unk>.
<unk> are approaching 2019 levels again.
So in general and we've seen a continued improvement in Q3.
I mentioned that the improvement in auction dynamics, we still see a difference in countries.
Like in rest of World was Europe to peak extremes Ware.
<unk>.
On the one hand in rest of world traffic volumes are still significantly below 2019 levels more restrictions.
And all of that and that resides in less active and less active and competitive auction and you can see that in the RP QR.
As in Europe.
We have seen that.
With traffic coming back that our partners became more active again.
And similar in Americas, India, and Latin America, whenever we saw volumes coming back.
Dynamics in our auction improved as well.
With regards to <unk>.
Conversion.
I think.
We have seen a similar pattern in our estimated was the toboggan. That's important so we don't have full visibility, but estimate estimate.
Downstream booking conversion, but.
We have seen a similar pattern compared to pre pandemic.
Levels during the summer months.
And.
Yes, there is clearly you can clearly see the year over year improvement.
And not be QR, if you look at that together.
From what we can see it be a combination of.
The improvement in monetization and conversion, but monetization for sure is the bigger driver.
And then if I can ask a follow up question as we head into next year and then you guys looking at in a normalized travel pattern at least for the western hemisphere in the summer time.
What do you expect your hotel partners to do do you expect them to drive the traffic directly are more relying on third party channels like Otas.
I remember from the financial crisis, Hoteliers shifting more to Otas and third party channel just curious what you're thinking and how you're positioning your business accordingly.
Yeah, I mean, we.
Again, we have seen it already this year in Q3 that our partners are happy to to buy incremental traffic when its available.
And they did better on our platform enhance we saw a significant improvement in our auctions. So I wouldn't expect that.
To happen again next year.
I mean, I think that the key question is can you deliver high quality traffic. If you can offer that then there will always be someone willing to pay for that.
And we think we are an attractive China and.
We have seen that this quarter, we've talked about.
Offering different solutions for some advertisers as well like CPA.
Because for some it's a bit more tricky in particularly in the current environment.
Two bit efficiency efficiently and our CPC auction.
As they don't have the same depth and data as other players. So the CPA. It takes out some uncertainty and we have increased the numbers.
A number of partners on that product and received good feedback so that helps them to participate and we will continue that dialogue. So we will talk to our partners.
And tried to understand what helps them to efficiently in the auction and whatever we can do support to support that.
With technology solution or something else. We are there to do that and then I believe that they are happy to participate and buy that quality traffic.
Okay. Thank you.
Thanks James.
Your next question comes from the line of Doug Anmuth from Jpmorgan. Please ask your question.
Hey, This is David answer Doug I missed.
The question.
First one in the letter you talked about seeing it.
And in Europe.
And advertisers being more active in markets, where travel demand has recovered.
Curious to hear if you could provide a little more detail on the overall advertiser participants' participation.
<unk> seen broad based improvement in advertiser participation, meaning is the auction density recovering to pre pandemic levels.
Secondly, you talked about benefiting us much from prior per head spend going forward.
Just curious to hear like how long do.
Okay. Thank you guys to recover to previous levels of brand efficiency as you think about it.
Christian in your investments.
Next year.
Sure so on the on the auction dynamic.
So we have seen a significant elements. He has had a significant improvement in the auction.
Really with the.
Recovery progressing.
And there we see very clearly that our partners are very eager to increase their their volumes and to participate very actively in the channel.
That being said, obviously, we have not seen a full recovery in our markets I mean, particularly rest of the world to sell very problematic overall as a segment.
And also in the in the Western markets. There is still more uncertainty in the market. So I.
Yes, the way to put it is we are we are very happy with the dynamic that we're seeing in the auction but.
There is still some improvement potential that that's probably the best way to put it.
Yeah, and then on your second question.
Brand marketing.
So through the pandemic, we got some valuable data points like how much of the traffic is coming back direct after a long period with not rent advertising and what is the impact of ramping up again.
I would caution, though that there is still a lot of noise in the numbers in the next season or peak after the winter holidays will be very important to understand the long term effect even better.
But when thinking about the right investment for next year.
It is important to flag as I S.
I did in my remarks that we won't benefit in 2022 to the same extent from past investments as we did in 2019 as we significantly reduced our spend.
In the last two years, so with a similar investment as in 2019, we would not be able to get to the same contribution number.
How exactly we will balance our marketing investments.
Our next year, then will depend on the additional learnings from from our winter campaign.
Part of the recovery and our expected long term results.
At this point I can only say that we will remain cautious as I said in Q1 and given the high uncertainty.
And that means that we will stay flexible and do not commit to any budget.
But if there is an opportunity to invest we will go for it and we will continue to optimize for long term value creation.
Great. Thank you.
Thank you.
Your next question comes from line of Kevin Kopelman from Cowen. Please ask your question.
Yes.
Great. Thanks, a lot I had a follow up.
You're seeing Covid cases, increasing in Europe.
And that influence your view on what's going to happen here in the fourth quarter.
Are you.
Are you seeing that rising cases already lead to <unk>.
Reduced travel activity or impact on travel activity to what extent.
Or are you seeing there or is it more that's what youre expecting in the future just being cautious on it.
Yes, thanks, Kevin.
So I mean I gave you.
An idea of the development in Europe.
In October and they're set.
QR level and.
Referral revenue, it's been similar to the third quarter stable compared to the third quarter in terms of 2019 levels.
So we haven't seen.
A steep decrease or anything like that it's more being cautious looking at what's what's going on right now I mean, we do see a number of cases are increasing and.
It's something that could lead to a reduced activity in November and December.
I mean, right now domestic travel is mostly possible without restrictions.
Almost everywhere three redo it.
Rules apply so you have to be vaccinated recover to test it but if that's the case you can you can trevor.
For international travel most currently countries.
Countries still apply a traffic light system and for high risk countries, a stricter rules apply.
Like you have to quarantine when when entering from such a country.
But for example in Germany, we have seen that during the autumn school holidays in October now more people traveled Ben.
Last year now so.
There we have seen had seen last year, some deceleration and we haven't seen that to the same extent, that's why trends are stable.
We.
<unk> essentially that B in terms of 2019 levels that we will continue at the current.
The trends that we're seeing but we don't expect a further improvement.
Thank you Peter.
Thanks, Kevin.
Once again for any questions you May press star one on your telephone keypad.
There are no further questions at this time please continue.
Many thanks for taking the time to participate in today's earnings call and appreciate your continued interest.
After almost two years of living through one of the worst pandemics in our lifetime, we're looking forward to 2022 and the opportunities ahead of us.
We are dedicated to serve our users and customers better in the future to improve our existing products and provide more value through new offerings.
Thanks for your time stay safe and see you in 2022.
This concludes today's conference call. Thank you for participating you may now disconnect.