Q3 2022 Trivago NV Earnings Call
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Good day, ladies and gentlemen, thank you for standing by and welcome to <unk> Q3 earnings call 2022.
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I must advise you the call is being recorded today Wednesday, the second of November 2022.
We are pleased to be joined on the call today by actual heifer Chewbacca steel go a managing director I'm a T S Tillman chewbacca as CFO and managing director.
The following discussion including responses to your questions reflects management's views as of today Wednesday November the second 2022 Chewbacca.
<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 2022 operating and financial review and the company's other filings with the SEC for information about factors, which could cause <unk> actual risk.
Hopes 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 <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 periods of 2021.
With that let me turn the call over to Axel.
Thank you everyone for joining us for our Q3 'twenty two earnings call today.
Looking back at the third quarter, we have experienced a very strong summer Colbert restrictions have been lifted in most parts of the world and people have used the opportunity to travel across the world.
Travelers, we're willing to spend even though prices have risen sharply this year.
In this inflationary environment, we are seeing strong demand for our services, helping us save money.
We are very happy with our strong operational performance as we exceeded our own adjusted EBITA protection.
<unk> will cover the details shortly and I would like to thank our customers and our employees for the strong quarter.
Looking forward, we believe that inflation and labor shortages will continue to drive prices of travel up.
We expect consumers to adjust that traveler behavior over the next 12 months.
Going for shorter trips cheaper destinations and comparing the accommodations more.
In Q3, we.
We are seeing first signs of this change in consumer behavior as the length of stay on our platform slightly contracted and consumer spotter choosing lower rates, especially in our developed Europe segment.
Nonetheless.
We expect the overall travel spending to grow in absolute terms and higher prices to compensate for a softer travel demand.
As a business that is helping gives us to save money. We are optimistic about our outlook for next year and we'll continue to focus on our core value proposition as we have done this summer with very positive results.
Great.
And good morning, everyone.
We are coming out of a very strong summer season.
In the northern Hemisphere, and that is reflected in our strong operational performance in the third quarter.
Just as EBITDA, which excludes an impairment of goodwill and intangible asset that we recorded this quarter.
More than doubled compared to last year.
With $33 5 million euros, the highest quarterly adjusted EBITDA in the history of the company.
Refer revenue increased 33% year on year as a result of higher average booking values.
Our focus on higher quality traffic and to have the auction.
The combination of those factors led to strong increases in our revenue per qualified referrals and all regions.
Given this there's some noise in the year over year comparison, let me give you a bit more color on our qualified referrals and revenue per qualified referrals in the third quarter by looking at the development.
In 19.
On a global level qualified referrals remained stable at about 60% of 2019 levels.
Sequentially qualified referrals increased approximately 20% and we reached the highest absolute qualified referral volume in July in line with our pre Covid seasonality.
Our revenue per qualified referral was up 16% versus 2019.
Mainly driven by an increase in our average booking value while both our conversion and monetization reached 2019 levels again.
So higher average booking value.
Drove the sequential improvement in recurring revenue from 64% in the second quarter to 73% in the third quarter, both relative to 2019.
Looking at the regions in developed Europe qualified referrals.
73% of 2019 levels slightly down from the 79% in the second quarter.
Let me remind everyone that in the third quarter in 2019, we optimized for traffic volume, particularly in our performance marketing channels.
This year, we remained disciplined with our spend optimizing our positive long term return.
And the sequential decline is largely driven by the comp effect.
In addition cost and performance marketing segments increased versus last year due to a higher competition in the auction and some of our core markets.
On the brand side, we were very happy with the performance of our new creators and in hindsight could have invested more into Brent marketing in some European markets.
However, due to the less flexible nature of Brent marketing spend and our disciplined approach high macro uncertainty we took a more cautious approach.
Revenue per quantified them increased by 8% versus 2019, mainly driven by higher booking conversion and an increase in average booking volumes.
The honest were up strongly in Europe , and the increase was only partly offset by shorter length of stay.
Monetization was roughly flat compared to 2019.
And America quantified remote remained.
Roughly stable at around 60% of 2019 levels.
We are happy with the results of our TV campaigns in this segment and believe we are on a good track to rebuild our brand baseline.
Revenue per qualified referral increased by 32% compared to 2019 significantly more than in other regions.
The main drivers were higher ADR and positive currency effects, which together led to an increase of around 25% and the average booking value.
Length of stay was roughly flat compared to 2019, and hence had no effect on our average booking value in that segment.
In addition, slightly higher levels of monetization also contributed to the increase in revenue per qualified referral.
On a segment rest of world continues to lag in the recovery, mainly due to a slower recovery in some Asian markets compared to with the market and the disruptions in eastern Europe .
Qualified referrals were at 52% of 2019 level slightly up from 50% in the second quarter.
Revenue per qualified referred to at 88% of 2019 levels further down mainly due to currency headwinds of around 10%, while the increase from higher average booking values was offset by monetization levels that are still slightly lower compared to 2019.
Moving on to advertising expenses with the increase in travel demand during the peak summer season, Investor market, we ramped up our marketing expenses by 43% sequentially, reaching 61% of 2019 spend level in the third quarter.
Global Ross.
148% compared to 123% in the same period in 2019, the result of our improved marketing efficiency and our focus on long term attractive rois.
We saw strong results in many core markets with our television campaign and increase our investments into connected TV.
Coming out of the summer season in the Northern Hemisphere, we started to decrease our brand investments and plan to invest only selectively in brand marketing in the fourth quarter in line with our pre Covid seasonality.
Excluding advertising expenses operational expenses increased $2 5 million euro in the third quarter or by 8% compared to the same period in 2021.
The main drivers for the increase were higher compensation and people related costs.
It expenses and professional fees and insurance costs.
In the third quarter, we reduce some complexity in our business by shifting our focus in product development on our core product. Consequently, we stopped certain projects that we consider to be noncore like all weekend product.
Reduction in headcount would start to impact our cost structure towards the end of this year and had no effect on our Q3 expenses at.
At the same time, we incurred cancellation fees related to ICT services for products that we have discontinued.
Going forward. Despite the inflationary pressure, we expect to be able to reduce our operating expenses in 2023.
The 2022, mainly through the reduction in head count by focusing on our core product by de prioritizing.
Projects.
Cash cash equivalents and short term investments amounted to $281 5 million Euro as of September 30th.
Third to $229 5 million at the beginning of the period.
The increase of 52 million was mainly driven by a shift of 25 million euros.
<unk> from long term to short term deposits and cash contribution of approximately $27 million from strong operational results in the third quarter.
We continue to be debt free and given our strong cash position and future expected positive cash flow.
We're currently looking at different ways to return capital to our shareholders in the future.
As an example, and as noted in the subsequent events section in our financial statements. We agreed to purchase from <unk> into my out one of our Fone. The 20 million class a shares for an aggregate price of 20 million U S. Dollar.
Despite our strong operational results, we had a net loss in the third quarter of $67 1 million.
Due to the continued deterioration of macroeconomic conditions, including rising interest rates increased inflation and more uncertainty in respect of the overall economic environment. We recorded an impairment charge of $100 4 million euros as a result of our annual impairment test.
Intangible assets were impaired by $52 8 million in goodwill been important pet by $47 6 million euros.
As mentioned, our adjusted EBITDA was $33 5 million and $84 eight.
In the third quarter and the first nine months of 2022, respectively compared to $11 3 million and $51 5 million in the same period in 2019, an increase of 196%.
64% respectively.
During the last 12 months, our adjusted EBITDA was $104 4 million with a margin of 20% achieving our long term margin goal of over a 12 month period for the first time.
We now expect our full year 2022, adjusted EBITDA to exceed 100 million euro significantly higher than our pre pandemic full year 2019, adjusted EBITDA of $69 9 million Euro.
For 2023, we expect our adjusted EBITDA again to exceed 2019 level and.
And we would share an updated view and more details on our 2023 outlook during our next earnings call in February .
Looking at the recent trends.
October a qualified referred as percentage of 2019 remained around 60%, so roughly flat compared to the third quarter.
Our revenue per qualified referrals continues to be around 15% above 2019 levels at auction dynamics remained healthy.
As a result, our referral revenue also remained stable at around 70% of 2019 levels in October .
In Europe , both qualified referrals and revenue per qualified referral remained stable in October compared to the third quarter at around 73, and 105% of 2019 levels respectively.
Trends in our segment the Americas will also roughly stable in October relative to the third quarter quantified referred slightly decreased to around 55% of 2013 levels. While revenue per qualified referral improved slightly to approximately 35% above 2019 levels.
The dynamic of slightly lower volume, but higher revenue per qualified referrals, what influenced by Alaska processed in 2000 and America as.
As a result referred revenue was roughly stable around 75% of 2019 levels.
And the picture is similar in our segment rest of qualified.
Qualified referrals and revenue per qualified referrals continue to be around 50, and 90% of 2019 levels respectively.
Overall, while the near term macro outlook remains uncertain, we do not see significant changes in consumer behavior in October .
Europe consumer team to try to mitigate the effect of increasing ADR.
By searching for more affordable accommodation recommendation and choosing shorter length of stay competitive 2019.
Started to see this behavior in the third quarter and this trend continued in October .
Length of stay is roughly flat in America was 2019, while we also see a tendency of consumers to search for cheaper Foundation.
We believe that we are well positioned as consumers shift their focus on cost savings and are excited to help our users during the upcoming winter season, and in 2023 to find great deals on our platform.
In summary, coming.
Coming out of the pandemic, we are much more profitable business and are encouraged to see that our shift in focus towards profitable growth is paying off.
Going forward, we are determined to grow our business at sustainable rates from current levels.
With that let's open the line for questions.
Thank you 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 stand by while we compile the Q&A queue.
Thank you we will now take our first question.
This is from the line of Nova to Cod from tourist Securities. Please go ahead.
Yeah, Hi, thanks, Thanks, a lot.
So a couple of questions from me.
Question on this.
Shortening the length of stay.
Can you maybe quantify that for us.
Also when we talk about.
Have you seen any change in the.
The downstream conversion.
When people click on the links.
The other question I have is is that RMB.
Marketing.
I think you spoke about increasing competition and some of the markets.
Can you be more specific as to.
Which market you are seeing.
<unk>.
Mr. Further intensify or just give us your thoughts there.
Yes, thank you and have it.
Good question.
So on your first question length of stay.
I gave some.
Data points on the average booking value and it's reflected in that but just just to be clear.
As I said in America, there was no change really to 2019, so it's rather flat.
And then we saw a decrease in Europe and.
And rest of world and it's.
I mean to give you a range.
<unk>, 5% and 50% is a bit volatile, but that's kind of the ballpark, where we see it for both regions.
On the downstream downstream conversion.
In the third quarter in Americas and rest of world.
<unk>.
The conversion was roughly stable with 2019 versus in Europe . It was slightly higher and then in October and will.
Similar with the difference in Americas, where we saw relative to 2019 and increase in the conversion rate.
And then on the marketing side.
My comment there.
Referred mostly to Europe , where we have seen it.
And.
Why is that we've seen in <unk>.
Not every country, but in couple of our core markets in that segment.
That local advertisers stepped up in particular compared to last year.
Maybe some advertisers.
Bit cautious.
They entered the auction.
And beat it.
Higher levels, driving our cost and as I said.
We didn't adjust our targets.
We continue to optimize for.
Absolute contribution and that meant that while maintaining our profitability.
Some volume there.
Got.
It is it is not one thing I can call out for every market. So it's a bit different market by market, but in some markets. They will play out when we look at that we don't think it's sustainable.
Because I think they are not bidding at profitable levels.
Obviously, let's let me speculate what will happen going forward.
But in some market my expectation would be that it could ease a little bit on what we see there.
Okay, that's very helpful.
A follow up question, if I may so.
And in.
And talking about the long term projects.
Talk about directly Bookable hotels.
And increasing the coverage on those.
What kind of timeline should we be thinking about there.
Just give us some more detail in terms of.
How you kind of expect to drive monetization.
Yeah.
So on our.
Direct hotel coverage we.
As we said in the shareholder letter we have.
Launched a couple of new initiatives that we are quite confident on that will make a difference to our coverage relative.