Q1 2022 Trivago NV Earnings Call
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Good day, ladies and gentlemen, thank you for standing by welcome to the two fossil Q1 earnings call 2022.
This time all participants.
The only mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
I must advise you that the quarters be recorded today Wednesday, the fourth of May 2022.
We are pleased to be joined on the call today by actual Heathrow two <unk> CEO of <unk>.
Victor on Mathias Tillman, Chicago's <unk>, CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Wednesday may four 2022 only.
Chicago 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 Q1 2022 operating and financial review and the company's other filings with the SEC for information about factors, which could cause <unk> actual results to this.
Sir materially from these forward looking statements you will find reconciliations for non-GAAP measures to their most comparable GAAP measures discussed today in Chicago Operation 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 all comparisons on this call will be against results for the comparable period of 2021 with that let me turn the call over to access.
Thank you everyone for joining us for our Q1 2022 earnings call today.
We're living in turbulent times and the escalation of the conflict in Ukraine and sufferings on millions of people in the past few months have shocked to all of us.
Our teams have supported refugees whenever possible and we are all hoping for the conflict to answer them.
As a business we experienced a temporary drop in travel activity across many European countries at the end of February .
But since then we've seen a continuation of the strong improvement in travel sentiment and activity. We continue to expect very strong summer and believe that ultimate winter with the significantly higher travel activity in the last two years.
Two years of pandemic Lockdowns have led to significant staffing shortages in the industry contributing to rising prices.
We believe that the effect of this increase combined with inflation more generally will increase the value of price comparison that we can bring to our users in the months and potentially yes to come.
We are therefore, continuing to focus both of our messaging and product development on price comparison, as we believe that our core value proposition is more relevant than ever.
Our teams have worked intensively on developing our core product and rather than price features that will be tested and implemented as we head into the summer season.
As we have historically relied very heavily on brand marketing, we believe that the market will be ready this year to ramp up our brand marketing spending again across many markets.
After a very limited branding activities in the last two years, we are confident that we will be able to rebuild our brand the baseline over the years to come we believe that our investment into all Brian will be supported by an increasing relevance of meta search in the future.
Another potential tailwind that we're anticipating over the next few years as the increasing regulation of Mega platforms, and the resulting improvement in free and innovation based competition.
They didn't show markets Act in the European Union is setting new standards, and clearly states that Seth preference thing of own products will be restricted.
Particularly for accommodation meta searches we believe that this will make it much more difficult for search engines to steer traffic into their own meta search product.
To summarize we believe that we are in a strong position to meet travelers increasing need to compare prices and find great deals this summer and beyond.
Sorry, and beyond and that competitive dynamics, whether it be in favor of pure play meta players.
Thank you Ark and good morning, everyone.
Before I discuss our numbers in detail and talk about trend I would like to highlight that we are very happy with our financial performance in Hawaii and our underlying business.
In the first quarter, we achieved an adjusted EBITDA of $21 1 million.
Which is the highest since the start of the pandemic and only slightly below the $21 4 million in the comparative period in 2019.
On April 22nd the Australian Federal Court issued a judgment in the proceedings brought by the Australian competition and consumer Commission against Us.
During us to pay a penalty of $44 7 million Australian dollars.
We have recorded a provision of $15 million Australian dollar, which we had estimated for the probable and estimable.
The additional accrual in excess of previously established provision had a negative impact of $21 1 million Euro on our operating expenses, leading to a net loss of $10 7 million in the first quarter.
While we are disappointed with the outcome of the judgment. We are very encouraged by the current trends in our underlying business.
Even though you cannot see that in our net income in the first quarter for the reasons just mentioned.
With that out of the way, let me give you a bit more color on some of the trends in the different regions.
Macro trends continue to have a significant impact on the travel recovery in the first quarter in particular in Europe , the split of Omnicom and the war in Ukraine impact the traffic volumes on our platform.
However, as many countries start to lift related and other restrictions during the quarter.
Our qualified referrals relative to 2019 levels reached 53% on a global level.
And our second in developed Europe , we saw steady improvement every week since the beginning of the in qualified referrals at approximately 50% of 2019 levels.
Until the invasion of Ukraine by Russia, which led to a temporary decrease in traffic volumes in our core European market in the weeks following the invasion.
Since then we have seen a gradual recovery from post invasion levels.
And as of beginning of April traffic volumes fully recovered to pre conflict levels.
In the last week of March qualified referrals.
165% of 2019 levels in developed Europe .
Revenue per qualified referral also steadily improved during the quarter and we did not observe notable change since the start of the conflict in Ukraine.
In the first quarter, while revenue per qualified referral in developed Europe was approximately 20% lower compared to the same period in 2019.
In America I think volumes during the first quarter are relatively stable with qualified preferred at 60% of 2019 levels.
Revenue per qualified referral reached pre COVID-19 level, mainly driven by an improvement in our monetization year over year in the largest market in this segment the U S.
There were no notable improvement in our segment rest of world.
If I could first remained significantly below 2019 levels at 39%.
We are seeing new COVID-19 related lockdowns in some Asian countries during the first quarter and the one Ukraine had a significant negative impact on our eastern European platforms, which are part of our rest of world segment.
This was partly offset by signs of recovery in countries like Australia or Japan.
As quantified with first recovered from Omnicom and auction dynamics continued to be healthy across many of our core market. Our global referred revenue increased significantly year over year and was at around 50% of 2019 levels in the first quarter of 2022.
Although revenue increased to two three.
$3 2 million euro or by 52% year on year.
This is driven by revenue from new B to B offerings we.
We are onboarding, a few more partners since beginning of the year and we are happy with the progress so far as we continue scaling up that offering.
Moving onto advertising expenses.
With the increase in travel demand in most of our core market, we ramped up our marketing expenses by 187% in the first quarter year over year.
As we have improved our marketing efficiency and performance marketing center, and we are still cautious with brand marketing campaigns in the first quarter.
<unk> expenses were still significantly below pre pandemic levels at around 35% of 2019 levels for the same period.
Consequently, our return on advertising spend increased by 47 percentage points to 184% compared to the same period in 2019.
In the following discussion of our operational expenses, excluding advertising expenses.
Also the penalty imposed by the Australian Federal Court, which led to an increase of $21 1 million and our G&A category as we consider this chance to have a distorting effect.
On the understanding of our underlying cost structure.
Excluding advertising expenses and the penalty or operational expenses increased $3 4 million or by 11, 8% compared to the first quarter in 2021.
The increase was mostly driven by items that scale with the traffic on our platform like cloud related cost our digital sector.
Expenses incurred to acquire traffic in connection with our <unk> solutions that we did not incur in the same period in 2021 and the non recurrence of a gain realized in the first quarter of 2021 on the modification of the lease for Odyssey Court.
Our operating expenses, excluding advertising spend independently and caused by the Australian Federal Court remained significantly below pre pandemic levels. We expect to continue to benefit from most of the cost savings, resulting from our restructuring that we conducted in the second quarter of 2020.
We further improved our cash position remained well capitalized with a cash position of 269 million euro and continue to be debt free.
Our net loss increased from $6 7 million in the first quarter of 2021% to $10 7 million in the first quarter of 2022 due to the negative impact of the penalty.
Dependency is excluded in our adjusted EBITDA due to its size and unusual in nature and hence we achieved an adjusted EBITDA margin of 28%.
Looking at recent trends in April qualified referrals continue to improve and we're around 60% of 2019 levels.
Referral revenue was also around 60% of 2019 level as our revenue per qualified referrals approach 2019 levels again.
We have seen the strongest recovery in Europe . We're qualified reverse we're about 70% of 2019 levels in April closely followed by Americas at around 65%, while rest of the world recover to around 45%.
Europe continues to improve nicely and we're excited to launch first TV campaigns in may and some of our core market.
We also plan to add complaint in the U S and Canada soon.
While the recovery is still muted in most of the countries in rest of World. We started to see a nice recovery in Japan mid April ahead of the Golden week, We ran regional television campaign the first.
The first time since the start of the pandemic in the country with very encouraging results.
Historically, we have invested significantly into our brand had benefited from high quality brand traffic in subsequent periods.
Since the start of the pandemic, we cut our brand marketing spend significantly and only invested selectively in a few markets at reduced levels.
Consequently, we will not benefit from prior year's marketing investments in 2022 to the same extent as in pre pandemic, yes.
As mentioned before we are confident that we can rebuild our brand baseline. However, it will take time and require us to invest.
We plan to ramp up our brand marketing investments in the following months in market, where we expect the silver recovery to continue.
To continue growing into the peak summer season.
With that let's open the line for questions.
Operator, we are ready to take the first question. Please.
Thank you.
A reminder, if you wish to ask a question. Please press star one.
Sean.
If you wish to cancel your request please press the husky.
Once again, please press star one if you wish to ask a question.
And the first question comes from the line of comes from tourists. Please go ahead.
Yes, hi.
Thanks, a lot.
A couple of questions. So maybe just on the on the outlook for this year I know youre not guiding for a specific number but should we expect.
EBITDA to be positive for the year, given that youre going to be spending.
<unk>.
More.
And to our brand spending, which you have not done in the past.
Yes.
That was spending at the same level youre going to be spending at a higher level.
The other question I had is just on the.
On the performance and efficiency that you called out in your shareholder letter and versus 2019, I think you said you saw more.
<unk>.
What's the driver of that.
Yes sure.
So on the outlook of EBITDA, yes.
Do not give specific guidance I mean, you are seeing the strong EBITDA in Q1, which was similar to Q4.
When you think about 2022 I would say.
Our historical seasonality is a good starting point and where you have seen that normally.
EBITDA went down in the second and third quarter as we.
In the second quarter start to invest.
To the to the summer season.
Then during Q3.
<unk> quarter for us and everybody in the industry.
Continue to push in particular on the brand marketing side, and then cut back in Q4, so that will not change so pronged approach to that will not change.
And what I mentioned is in Q1.
Just look at the EBITDA it looks.
Better than what you have seen historically relative to other quarters.
Because we did not invest significantly into into brand given episode of the year. We had the input from omicron in most European countries than mid quarter, we had the impact of the war in Europe . So that's why we.
Did not.
Push our marketing activities to levels that we had anticipated before so now everything that I said on trends in April and what we expect for the summer. We we've seen improvement in Europe , we are back to pre conflict levels and we saw a continuous improvement in April .
And.
Now.
With.
With the summer in front of us.
Plan to change that in May we will start with the first television campaign.
In selective markets and then plan to ramp up our investment significantly so that will.
<unk> pushed on raws in EBITDA compared to Q1 in Q2 and Q3.
And you won't see the.
A positive effect of that brand campaign immediately given the long term nature of it but obviously, we do that because we do expect a positive long term return from that.
So I hope that gives you a bit of an idea of how we think about.
Cadence for the rest of the year and then.
On your second question, what's driving the efficiency and marketing so.
<unk>.
The fingers between performance and brand marketing.
So if I start with performance marketing.
It always depends.
What you compare it to a variety of if you look at 2019.
It was a year, where we were pushing more aggressively pushing more for topline growth.
Yes.
We're not.
S as.
As much focused on.
<unk> and <unk>.
What we have done now.
Already last year and performance centers actually great teamwork.
The performance marketing team over the past three years since the start of equipment than it is.
We're looking for pockets changing.
Our way of how we look at different segments and market finding high traffic quality and focus on that and that is paying off so when I say efficiencies higher than if I look at the return on advertising spend numbers.
That is up compared to 2019.
And I think that is in performance marketing because of the work the team is putting in there.
On the brand marketing side.
We have some data points from summer when last year. When we ran first campaigns into one as I said, we didn't spend as much.
But.
The past two years again very insightful for us in terms of learning given that we had to cut back.
<unk>.
<unk> started in some countries to invest again and that gave us valuable learnings.
How we spend.
What what we spend and where we spend and.
Those learnings we were.
We will now take for the next couple of months and optimize our brand marketing campaign and from that we expect higher efficiency, obviously at a lower absolute level of spend compared to 2019.
But.
Hi, a higher ROA efficiency than what we've seen before.
Got it.
Quick.
Quick clarification anytime minutes so.
Sure.
I think you said.
You raised three times level.
Subsequently in Europe . After you saw the dip.
So that the improvement you're seeing is that that would be.
The new AD campaigns and without the benefit of the campaign. So is it fair to assume that your traffic would actually be exceeding those levels. When you have your campaigns out.
For the peak summer season.
So what I said is in developed Europe that.
The beginning of April we reached pre.
<unk> levels again, so we saw an improvement.
Beginning of the year as countries in Europe , we are lifting restrictions.
So week by week realm.
Relative to 2019 levels, our qualified referrals were improving and then we saw the dip.
From the impact of the wall and then it took a couple of weeks until we saw an improvement again.
At the beginning of the second quarter.
<unk>.
Basically we recovered.
From that dip and then I gave you a data point on April so for the full month, we were at 70.
Percent of 2019 levels.
That was not driven by.
Brent marketing spend that is correct. So now that we are ramping up I would expect that this will further drive volumes to our platforms how much.
We seem to be honest.
But.
Yes.
We expect obviously.
Further improvement from from marketing activities.
Understood. Thank you.
You.
Thank you next question comes from the line of Sheila <unk> from <unk>.
Please go ahead.
Hey, guys, it's Ryan on for Sean.
So you guys talked about.
Inflation and rising wholesale prices I'm.
Driving more and more customers, that's a matter for price comparison.
Generally do you view that.
As a tailwind for your business because of that because of that dynamic or could it be.
A bit of a headwind as well because.
Reduced demand at price it becomes too expensive.
Yes.
Yeah sure so.
It is a very good question and the way we are looking at it and we've also done.
Right.
Market research that.
So our view is that.
General inflation.
Outside of travel is leading to more cost consciousness. Overall, so because you can you can feel that prices are going up pretty much in your daily life and cost consciousness is something that is very very positive for us So and we've also seen it in.
In previous recessions have people are more price conscious and then obviously the value that we contribute to the search process is going up.
So so that we see as a big opportunity and then as I said Thats also the focus of our brand communication and also of our product development.
On the volume side.
I think you had.
Principal right. If there is high inflation if there if the projects are getting getting tighter then obviously people can span cannot spend as much as they have done before having said that we are right now coming out of a pandemic and there is still a big backlog in a way of experiences and spending time with friends and spending time with family.
Families.
And really doing the trip that you wanted to do now for a few years.
No. We don't think that it would have an impact on the volumes for this year.
For the year to comment the trajectory I guess, that's a bit too early to tell but but but we think that that overall it is in our favor and it will be in our favor for quite a while.
Great. Thanks for the color.
Thank you.
Our next question comes from the line of Doug Anmuth from Jpmorgan. Please go ahead.
Hey, this is David on for Doug Thanks for taking the questions two so number one.
As I've talked about increasing spending it doesn't cover it just was curious if youre seeing this increased activity on your platform.
And how the bidding intensity it looks like relative to pre pandemic levels right now.
And then secondly.
Could you elaborate on the on what kind of or what level of marketing efficiency or targeting into cure.
Two answers and the marketing investments.
Roy level that you guys are targeting.
Yes.
Sure. So on your first question. So it's something we talked about last quarter as well.
<unk> seen that.
The competition auction increased.
Large advertisers, but other advertisers as well.
Became more active and increase their bids.
So auction dynamic from all perspective are very healthy.
Compared to 2019.
We are roughly on similar levels.
So.
That was very different at the beginning of the pandemic, we talked about that you could see that in.
And our revenue per qualified referral.
They dropped quite significantly because many advertisers cutting back and then we're slow to recover.
To come back to the auction.
And that has changed.
In Q1, when I look at <unk> I mentioned.
You can see that it's close to 2019 levels again looking at a product we approached 2019 levels again as well and.
Yes, part of that is because our monetization levels, which which is a result of the auction is back to those levels.
So on your second question in terms of targeting.
We do have.
Targets for our performance standards.
<unk> executed against that in a disciplined way for the last couple of quarter.
It's not a fixed target, though we obviously always look at the elasticity, we look at the traffic quality.
And based on that we change and make decisions, but obviously, we want to invest at profitable levels.
With regard to brand marketing.
It's slightly different so.
Obviously, the first dollar you invest at.
<unk> hundred <unk>, so it's paying back over time, and we have our models, where we estimate.
The payback period, how long that is.
It's different by market and based on that we determined the short term rewards so let's.
Let's say income pain.
For the period to run the campaign, what we'd like to see in terms of return. So that we think is long term profitable for us.
So there we have targets and then.
On a global level.
We don't have a specific target but.
We want to rebuild our brand based on as I said in.
As long as we see opportunities, we are happy to invest and we'll push for it.
Got it thank you.
Thanks, Dave.
Thank you there are no more questions at this time I would like to hand back over to the speakers.
Yes. Thank you for taking the time to participate in today's earnings call.
We believe that in the months to come we will see strong demand for our accommodation at an increasing need to compare prices to save money and to find good alternatives.
Excited about this outlook and are very much looking forward to the summer take care and see you next quarter.
That does conclude our conference for today. Thank you for participating you may all disconnect.
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