Q2 2022 Trivago NV Earnings Call
Yeah.
Okay.
Good day, ladies and gentlemen, thank you for standing by and welcome to the trip I'll go Q2 earnings call 2022.
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I must advise you the call is being recorded today Wednesday, the 10th of August 2022.
We are pleased to be joined on the call today by axle Heifer, Czerwonka, CEO and managing director and Mathias Tillman Chewbacca as CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Wednesday.
August 2022 ugly.
<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 Q2 2022 operating and financial with you and the company's other filings with the SEC for information about factors, which could cause <unk> actual results to differ materially from these forward looking statements.
You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in <unk> operating and financial review, which is posted on the company's IR website at IR thoughts Triple AGA thought to come.
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 Axel.
Thank you everyone for joining us for our Q2 'twenty two earnings call today.
As COVID-19 measures have been lifted all over the world, we've seen travelers regaining confidence leading to significant pent up demand during the summer so far.
We have successfully launched our summer TV campaign, and ramped up performance marketing in a disciplined way leading to the highest quarterly adjusted EBITDA in our history.
However, the macroeconomic outlook has become less certain with rising interest rates and increased inflation, putting pressure on consumer discretionary spending.
As a result of the changing macroeconomic environment, we performed a goodwill and indefinite lived intangible asset impairment test, which resulted in our recording of an impairment charge driving or net loss of 59 point.
Euros for the quarter.
And that's driving prices, we believe that our core value proposition price comparison.
We'll be even more relevant to travelers as they will it become more price sensitive.
We have already taken steps to better meet travelers increasing needs to compare prices.
First we plan to fully focus our teams and our core offering of accommodation price comparison of saving money is already on top of Travelers' minds. This does not only mean that we focus on enhancing our price comparison offering but also that the messaging in our advertising with focus on showing the value we can bring in a world with lower disposable income.
And price inflation.
We see already that our brand of traffic is outgrowing our performance marketing traffic and believe that this is a sign for an improved market sentiment around our value proposition.
To reflect this focus we have discontinued some of RFID products and offerings, such as weekend dot com in display advertisement.
Second we have started to reduce our cost to counter cost inflation and a potential weakening of the market environment and plan to have full flexibility to invest in a market, where our value proposition is more needed than ever.
Through our cost saving measures we plan.
Overhead cost to be lower than 23 versus 2022.
With that let me hand over to Matthias.
Thank you Alex and good morning, everyone.
We're very happy with our operational and financial performance in our underlying core business in the second quarter.
As <unk> mentioned, our adjusted EBITDA of $30 3 million euros was not only an increase of more than 60% compared to the same period in 2019, but it also marks the highest quarterly adjusted EBITDA in the history of the company.
Our qualified referrals and refer revenue continued to increase throughout the quarter and in the last week of July we achieved the highest daily revenues since the start of the pandemic.
Sign of the continued recovery, but we are seeing in travel generally and in our business.
Let me give you a bit more color on our qualified referrals and revenue per qualified referral development in the second quarter.
During the quarter, we have seen a steady normalization of travel activity across many of our core markets is almost all COVID-19 restrictions have been phased out.
Consequently, similar to last year, we saw strong pent up demand going into the summer season, and particularly in Europe , leading to an increase in our qualified referrals of 15% year over year.
Our auction remained very strong with improved bidding dynamics, leading to an increase in revenue per qualified referral of 31% year over year.
The combination of higher volumes and better monetization.
An increase in referral revenue of 51% year over year.
Quantified referred increased strongest in our segment developed Europe at 20%.
Easier comps at the beginning of the quarter and strong summer travel trends across our markets.
The key driver.
Brendan qualified referrals grew faster than performance marketing qualified referrals for us.
We started to ramp up our brand campaigns at the end of May.
And continue to be disciplined with our profitability targets and paid search.
Revenue per qualified referral increased by 28% year on year due to the combination of higher monetization higher booking conversion and positive country mix effects.
And America qualified referrals increased 9% year over year, Brent was the fastest grow in China as we ramped up our brand spend as planned and saw good results from our summer TV creative and.
In performance marketing channels, we observed higher competition, leading to higher CPC is similar.
Similar to the development in our own auction.
As already mentioned, we remained disciplined and invested at our target Roes, Levered, which were unchanged compared to prior quarters and performance centers.
Revenue per qualified referral increased by 36% year on year more than in developed Europe , Despite country mix effects, which had a negative impact of close to 10%.
Those negative country mix effects were more than offset by positive FX effects, mainly due to the strong U S dollar relative to the euro.
The biggest driver for the increase in revenue per qualified referral was an increase in our monetization due to the strong auction dynamics.
In addition, our average booking value increased around 15% while conversion rates increased only slightly year on year.
The performance in our smallest segment rest of World was mixed eastern Europe continues to be impacted by the war in Ukraine and the recovery in APAC is still lagging.
They will also green shoots like for example, an increase in travel activity in Australia and Japan.
Overall qualified referrals increased 14% year on year and remain at relatively low levels compared to pre pandemic.
Our auction develop nicely, though similar to the other regions with a significant improvement in monetization leading to an increase in revenue per qualified referral.
37% year on year.
Moving onto advertising expenses with the increase in travel demand in most of our core markets, we ramped up our marketing expenses by 32% in the second quarter year on year, and still reaching or exceeding our target growth levels across all channels.
Overall, our Ros improved to 166% or by 21 percentage points compared to the same period last year.
While we have not seen any significant drop off in lodging trends in Q2 or in July the macroeconomic outlook has burdened our near term visibility remains relatively low.
Rising interest rates high inflation in a contracting economy in the U S and Europe are waiting on consumer sentiment.
As a consequence, we took a cautious approach with our brand marketing investments and did not increase our target budget.
It's higher than expected returns.
Our overall advertising expenses were roughly half of 2019 spend levels as we continue to focus on high quality traffic with higher long term returns.
Excluding advertising expenses, our operational expenses increased $1 4 million in the second quarter or by 4% compared to the same period in 2021.
The increase was mostly driven by the impairment of capitalized software assets belonging to discontinued projects and products.
Expenses incurred to acquire traffic in connection with our <unk> solutions that we did not incur in the same period in 2021.
And hire people and office related costs as we introduced a hybrid working model and move back to a campus.
As we prepare for continued high uncertainty and travel demand we plan to keep our operational expenses, excluding advertising spend stable in the second second.
Second half.
Despite inflationary pressures.
We expect to be able to further reduce our operating expenses in 2023 versus 2022 by focusing on our core product and de prioritizing noncore projects.
Cash and cash equivalents decreased by 64 million in the second quarter compared to the beginning of the period, mainly driven by a shift of 50 million from cash to term deposits and the payment of the penalty imposed by the Australia in Federal Court in the first quarter of approximately 30 million euros.
Which we paid out in June .
We remain well capitalized with the cash position in fixed term deposits of over 250 million Euro and continue to be debt free.
Our net loss in the second quarter was $59 8 million due.
Due to the deteriorating macroeconomic conditions, including rising interest rates and increased inflation we.
We performed a goodwill and intangible assets impairment test during the second quarter of 2022.
As a result.
Result, we recorded an impairment charge of $84 2 million.
Our intangible assets were impaired by $27 2 million and our goodwill balance was in pet by 57 million, which outweighed the strong operational performance in our core business.
As already mentioned, our adjusted EBITDA was 31.
<unk> 3 million and $51 4 million in the second quarter and the first half of 2022, respectively compared to $18 8 million and $40 2 million in the same periods in 2019, an increase of 61% and 28% respectively.
During the last 12 months, our adjusted EBITDA was $86 5 million at a margin of 18% close to our long term margin goal of 20%.
We now expect our full year 2022, adjusted EBITDA to exceed our pre pandemic full year 2019, adjusted EBITDA, which was $69 9 million.
Looking at recent trends in July qualified referred to as a percentage of 2019 were above 60% slightly lower compared to June while our referral revenue slightly improved versus June is our revenue per qualified referral continued to improve due to a strong auction dynamics.
Our brand qualified referrals continue to grow nicely year on year at Brent spending levels comparable to those of last year in July .
And Europe qualified referrals decreased from around 80% of 2019 levels in June to around 75% in July while refer revenue was stable at around 75%.
Let me also add here that the second half of July was slightly stronger than the first half.
And Americas qualified referrals were around 60% of 2019 levels in July is slightly down from June by referral revenue improved further from 70% to around 75%.
We continue to see a very competitive auction in Americas in particular in the U S driving higher revenue per qualified referrals.
And our segment rest of World qualified resource and referral revenue roughly flat in July versus June at around 50% and 45% of 2019 levels respectively.
We do not expect a significant change for the rest of the quarter. We will continue to be disciplined with our marketing spend while keep investing into brand to rebuild our brand baseline traffic.
As we mentioned in prior quarters. This will take time and we plan to do it in a sustainable way by focusing on long term returns.
With that let's open the line for questions.
As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
Please standby, while we compile the Q&A queue.
Our first question comes from the line of <unk> Khan from truly. Please go ahead. Your line is open.
Yeah, Hi, Thanks, a lot.
A couple of questions from me so.
The caution around.
On the macro.
And because of inflationary pressures.
But it looks like.
On July trends.
Are holding up.
If I could think about the back half.
This year for you for the business.
And the clearing seasonality should Q3 be.
It's actually a bigger versus Q2, if I layer there Dan.
And then obviously it depends on their marketing activity relative to kind of maybe give us some more color on how we should think about that.
And then I have a follow up question.
So none of it.
Let me, let me take that question so.
I do agree Q3 should be bigger in terms of revenue was in the second quarter. So that that is our normal seasonality and we don't expect that to change.
Maybe let me give you a bit more color on what we saw in July .
So as I said, we saw continuous improvement week on week, and our referral revenue as a percentage of 2019 levels in Europe for example.
Around 70% of 2019 revenue refer revenue at the beginning of July but above 80% in the last week of July .
In Americas, the trend was very similar starting the month below 70% of 2019 revenue and improving to around 80% at the end of July and that is for the months an improvement from the second quarter.
I think other companies have reported similar trends.
I assume it's more macro driven than anything we did specifically.
We have seen it in core European markets like for example, Italy or the U K. The first two weeks of July were in particular, very hot which tends to have an impact on travel demand.
So yes, so that might have affected demand temporarily and we are all efforts stories around chaos at airports was flights being cancer et cetera as well.
However, just looking at the bidding behavior in auction, we cannot call out an increase in cancellation rates recommendations.
As I said the auction continues to be very strong in Americas in particular, but also in Europe .
And so we do expect a further improvement in Q3 versus Q2 for referral revenue as a percentage of 2019.
That's helpful.
And then the follow up I had to just around.
Commentary around.
Maybe increased competition I think you referred to the U S.
Performance channels.
Can you maybe.
You bet.
What are you seeing.
The CPP.
Higher because.
People are bidding more aggressively or are there more players in these performance.
Perhaps you might be seeing a lot of competition.
Yes, I think.
So first of all yes my comment.
Referred.
Sure.
The auction overall, but then specifically we see that in America and in the U S.
And there is.
It's probably a combination if you compared to last year, so more players being active.
But then obviously the auction is.
Mostly driven if you look at Google by.
Large players and there we see an increase in CPC bps.
So it's very similar to what we see in our own auctions, so I wouldn't say that.
The competition increased more than other performance centers and one auction.
But it's.
Similar so consistent with what we are seeing and.
Plus obviously the decision has been do we want to bid up against that.
Do we where do we fit in the auction and what does it mean for our own bidding levels and that we decided to keep our profitability targets.
Maybe sacrifice a little bit of volume.
But.
Focusing on traffic that is either.
Directly profitable for us or where we do expect long term positive return returns, but we didn't bid for traffic, where we have low conviction that it would give us a nice return.
Over a certain period and yes.
That was my commentary there.
Got it thank.
Thank you Mike.
Yeah.
Thanks Noel.
We have again taken next question.
Please standby.
Our next question comes from the line of Lloyd Walmsley from UBS. Please go ahead. Your line is open.
Alright, Thanks, two if I can first.
Maybe you can give us a sense of what is changing in the auctions at Google They have changed around their travel.
How do they do free versus paid.
In Madison I was wondering if you can just comment on like how that's changing whether it's pricing or volume or both just what youre seeing there.
And then and then secondly, it looks like Expedia share on the platform came down a little bit sequentially its down a little bit versus 19. It sounds like they are talking about focusing more on.
Brand ads and App install things like that so yes.
I'm curious how that may or may not impact your auction and then.
May or may not.
Cause some deflation in your own customer acquisition channels that they stepped back a bit it sounds like that's not the dynamic overall.
In performance channels, but wondering if you have a view on how that may change as they kind of change their priorities. Thanks.
Sure. So on on the introduction of free lengths and Google Hotel ads.
So that is from our perspective.
It's something that that is actually interesting so because theres a certain percentage of the traffic going to the.
The lowest price.
Which is coming from the hotels directly or from Otas, but given that we have are.
We believe that we have the broadest coverage of online.
Travel players and a lot of cases actually benefit from that that free traffic.
So for us.
It is a net positive from our perspective.
But it obviously is a big change and depending on the volume that Google ascending on the main paid auction versus the free listing.
That that could actually change over time.
The second question on the.
Interpretation of the Advertiser mix, there you have to be a bit cautious because it is global the global mix in there. They are obviously big mix effects in there of that.
Driven by different developments in different markets. So you can't just infer from that a one to one change in bidding behavior.
We we don't really comment on individual advertisers, but what we can say and.
I think that he is I've mentioned it before the auction is very healthy and.
Is that in our case means that.
Our big partners are very keen on growing their business and attracting a lot of travelers to their websites, but also that strong regional players are very active. So there is nothing that we see today that would concern us in the car.
Dynamic.
Okay.
Okay. Thank you.
Thank you we'll move on to our next question.
Please standby.
Our next question comes from the line of James Lee from Mizuho. Please go ahead. Your line is open.
Great. Thanks for taking my questions two here I was.
Looking at your U S growth versus 19 recover about three points, maybe underperforming compared to other regions.
Maybe explain why a little bit there.
And you also talk about your concerns on consumers potentially.
Potentially.
Lower discretionary spending I'm just curious are you seeing any consumers trading down or more focus on pricing for example, looking at lower ASB hotels shorter stay so on and so forth. Thanks.
Yeah.
Thanks James.
So on.
You said <unk> I assume you mean Americas Q on Friday.
I mean, if you compare that to Europe .
And then a couple of effects so.
So if you look at the overall referral revenue.
Our recovery with 2019, both reasons I actually quite similar both in Q2 and what we are seeing right now.
But there are if you look at the price and volume components.
Differences Thats true.
In Americas.
As I said, we see a bit.
A bit stronger auction, so a bit better pricing.
That is also reflected in other channels.
And then it depends on what we do with our marketing expenses and how aggressively we drive <unk> to a website and as I said, we focus on high quality traffic and.
We do.
Don.
Pacific We look at growing our QR based but we look at the long term return and there you can see again in the second quarter that would be.
Absolute contribution for both regions is actually quite similar.
For Europe .
You'll see that when.
When you look at the year over year.
But there is a comp effect and therefore April last year was a bit weaker there. So that is reflected now in a slightly stronger.
Q grew.
Growth and.
Venezuela in Europe .
We do have a stronger brand and some of the market. So given our current brand spend level.
<unk>.
The recovery in Q R is not as dependent on that as it might be in other markets in America.
Yeah on your second question, so so just to be clear.
I mean, the that the summer so far very strong and that's also what we've expected and because its the summer is benefiting from a couple of things. Obviously, there is a lot of pent up demand people have not been able to travel for quite some time freely.
So a lot of trips have been pushed back to.
<unk> friends and family to see cities that you want to go to to see Disneyland etcetera. So that is clearly what you can see there is also and we've done Donald Thompson research around that.
Our clearly savings coming out of the pandemic where.
People were not spending as they usually do on going out on traveling et cetera. So there is quite quite some money that was available to be invested into the summer travel season.
On the other hand, what what he has mentioned before you can clearly see that theme the staffing issues that you see many many sectors is.
Most severe in the hospitality and travel industry.
Because obviously in the pandemic people have reduced desktop and levels and are now struggling to re higher so the experience in many cases has been poor so.
So that's what you see in the summer and that the business is very strong, but our outlook for the next 12 months is actually.
A more negative in terms of volume and why is that because the costs and travel have to go up I mean to increase staffing levels, you need to increase salaries to attract more people to the sector.
Disposable income is coming under pressure in two different extends in different regions, obviously and at different points in time, but the inflation is hurting the disposable income.
And so that's why we think the travel volume overall.
Is likely to come down on the other hand for us specifically in the travel industry that is not necessarily a bad thing because we we bring more benefit to the travelers we help to save money. So the more you are concerned about saving money.
Better hour.
Value proposition is in the better the fit of our product and service is with the with the current market sentiment and we've seen some of that.
And sentiment.
Through.
As I mentioned through the development of our brand of traffic development, which has outgrown our performance traffic.
Even in this summer.
Okay, great. Thanks, so much.
Thank you.
Now move on to our next question. Please.
Please standby.
Our next question comes from the line of Brian Fitzgerald from Wells Fargo. Please go ahead. Your line is open.
Hi, This is Michael <unk> on for Brian Fitzgerald I appreciate you taking the questions.
Airlines are still.
The capacity I was hoping you can just put a finer point on the impact in the quarter from flight disruption.
And do you have a sense for the extent to which those are hampering cross border travel.
And then lastly, I guess are you see using constrained capacity in basket added.
Thanks.
Yeah.
I mean, you see some effect.
I mean for US I think what's important to point out I mean for our overall business. It's about <unk>. So if there is a shift from truck.
Transportation means that is something that is not really affecting us, but just to give you. Some some anecdotal evidence I mean in the UK. For example, there is a significant increase in stays around the airports in the summer, which is clearly coming from the fact that it is.
Is less predictable what other waiting times and people are just are quite a few people are just staying.
If they have to fly out in the morning, which I think is quite interesting is and then what you would expect.
The other half.
We have quite a few markets, where the share of international travel is not back to where it used to be in 2019 to some extent driven by Asia and still the.
The complication of some of the attractive destinations to add but also because of air travel.
Ill.
The complication of some of the attractive destinations there, but also because the air travel.
<unk> is actually not back to where it used to in terms of convenience staffing levels pricing as well.
Et cetera, So yes, we do see some of that effect, but we don't see a negative impact on our business.
Which.
Wouldn't necessarily expect.
And just to add to that so I mean, we have seen overall that for example, CD trips recovering quite nicely and international International City trips recovered significantly faster than domestic city trips year over year.
At least on our platform what we have seen our clinical data so taking the U K as an example, click outs for our top 10 international cities in June more than four times higher compared to June last year.
<unk>.
And if you look at our U S platform, we saw an increased interest in international destinations with Mexico, Turkey, Italy, Dominican Republic in the UK on top of the list and for the U S, Mexico, Australia and international destinations with domestic was higher in 2009, and then in 2019 June So overall I think we.
We do see a decent recover of international travel.
And it's nothing I could confirm from just looking at our clinical data.
Thank you.
Thank you we will now move onto our next question.
Please standby.
Our next question comes from the line of Ron Josey from Citi. Please go ahead. Your line is open.
Hi, This is Jeff Steiner and for Ron Josey, Hi, Thank you for taking the question.
If I could just follow up on that last one.
<unk> travel.
Yeah.
Growing faster year over year.
Recently.
As it lagged previously does that impact at all the pricing that you're getting is it was that a factor in why you were able to drive revenue.
Qualified referral.
<unk>.
The growth was so high this quarter and then also just kind of clarifying on the marketing spend in the back half should we expect one your comments around kind of cost controls would that be means that you are spending incrementally less on your on your brand advertising campaign and how should we think about kind of the seasonality of that of that spend in the second half.
Beatrice ignore the kind of a normal cadence in Q3 and Q4. Thank you.
Yes sure. So on your first question.
I mean, we've talked about it in the past Citi trips has been very important for us historically.
And.
<unk> represented a high share of our overall click out revenue and.
Last year, we said that we believe with the recovery CD trips were will recover as well and they will catch up as we saw first a shift to more.
Rule nature of destinations and we said when that happens that should benefit our auction. So obviously, it's very difficult to.
Pinpoint exactly the effect and.
You don't have a perfect correlation, but what we do see is that the sale of Ctrip is increasing.
And we do see that our auction is improving.
And.
That is the biggest driver in the improvement in revenue per qualified referrals.
On your marketing question.
So first of all.
We will continue to invest into into our brand as we said before in Q2, we were at 50% of our overall 2019 marketing expenses, so performance and brand.
For the same period in 2019.
And I mean, we do not provide the split of performance and brand spend but given we started to ramp up our brand campaigns end of May you can guess that we were closer to 2019 spend level performance centers compared to Brent in Q3, now this could be or should be a bit more balanced and as a percentage of 2019.
Marketing spend we expect to be above the 50% that we saw for the second quarter.
But as I said many times before we won't go back immediately to 2019 brand spend levels. It will take time to rebuild our brand baseline after very limited branding activities in the past two years now.
Now the impact will be that as.
As we ramp up our brand marketing spend our Ros will come down compared to the first two quarters.
But we do expect to remain above 2019 levels.
As we expect to benefit from continued leverage on the marketing side in both performance and brand channels in Q3, and then in Q4.
As we have always done.
We tend to decrease our brand marketing activities given its low season quarter, given the pricing on TV becomes more expensive.
Thats why historically.
In Q4, we had.
Higher raws and I wouldn't expect a change in seasonality therefore for Q4 this year.
Great. Thank you that's very helpful.
So thanks.
Thank you there are no further questions at this time I'll hand, the conference back to you.
Okay.
Yes, thanks for taking the time to participate in today's earnings call. We appreciate your continued interest.
Looking back at the past quarter, we are satisfied with our results as we head into Q3, we're confident that our core value proposition is more relevant than ever before.
We are confident that we are in a favorable position to empower travelers to find great deals despite rising prices and inflation.
Our teams have worked incentive intensively on developing our core product and relevant price features and will continue to do so with even more focus as we head into autumn. Many thanks and see you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Speakers please standby.
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