Q1 2023 trivago N.V Earnings Call
In an environment, where price comparison is on top of everybody's mind everyday we have ramped up our brand marketing activities and are preparing to continue to invest into our brand and the communication of our value proposition into summer.
In the first quarter, we have seen solid growth of our branded traffic and expect our brand marketing activities to continue to fuel the positive development of our direct traffic.
Our product development continues to be focused on our core value proposition comparing prices for recommendation.
We've made good progress on improving our coverage of directly bookable rates and have surpassed a 50% coverage threshold in our test markets.
Another focus area has been the improvement of our price comparison display across accommodations and travel dates.
We are excited about the improved value proposition to our users that these improvements will yield later in the year and expect to improve our competitive positioning.
Okay. Thank you Ark and good morning, everyone. Let me briefly walk you through our financial performance in the first quarter before we open it up for questions.
As I mentioned, we had a strong start to the year with year on year refer revenue growth in January exceeding 30% as a result of continued robust travel demand trends and elevated average booking values. The strong growth was largely driven by the recovery from Covid related travel restrictions in January 2022, and our segments.
Developed Europe and rest of world.
As a result of the cadence of the recovery in the first quarter of 2022 on a year on year growth rates decelerated in February and March.
In addition, we did not see the same uptick in monetization as last year, leading to a decrease in monetization year on year in particular in our segment Americas.
Our referral revenue growth in the first quarter was 11%.
Although revenue declined to $1 7 million euros, as we started to phase out certain b to b products like display ads.
Half of last year.
Our net income was $9 9 million compared to a net loss of $10 7 million euros last year, which was largely driven by the non recurrence of the incremental expense of $21 1 million in Q1 2022 in relation to the proceedings brought by the <unk> against us.
As planned we have ramped up our brand marketing investments earlier, this year, which led to a decline in return on advertising spend in particular in developed Europe and rest of world. The.
The increase in marketing expenses was partly offset by higher referral revenue and as a result, our adjusted EBITDA decreased only slightly from $21 1 million in the first quarter of 2022.
$218 6 million in the first quarter of 2023 in line with our expectations.
In summary.
Despite higher brand marketing investments and lower monetization levels compared to last year. We continued to achieve strong adjusted EBITDA margin of 16, 8%, while growing our referral revenue.
As mentioned in our shareholder letter, we have decided to stop providing qualified referrals and revenue per qualified referrals going forward.
As we continue to run protest that aim to increase the value of our referrals made significant volatility and click off behavior, which makes it difficult to compare these metrics to prior periods.
We believe that it is not helpful to look at these metrics to understand or model, our underlying business dynamics.
However, we will continue to comment on the key drivers of our referral revenue development.
So let me give you some color on the dynamics in the first quarter for the different regions.
Starting with our segment Americas, our referral revenue declined by 7% year on year. The decline was largely driven by a loss in performance marketing volumes as we did not observe the same uptick in monetization and our own auction as last year and we continue to focus on profitability.
In developed Europe , the recovery in travel demand from Omnicom related travel restrictions elevated ADR and successful brand marketing campaigns contributed to the referral revenue growth of 19% year on year in that segment.
We observed a deceleration in referral revenue growth rates throughout the quarter, reflecting the strong improvement in referral revenue from January to March last year.
The recovery was strongest in our segment rest of worlds referred revenue growth was 51% as we saw recovery in many Asian market, most notably in Japan.
We saw a strong increase in average booking values in that segment driven by elevated <unk> and an increase in booking conversion, while our monetization was roughly stable compared to the same period last year.
Now moving onto advertising expenses and.
In anticipation of a strong travel recovery in Europe , and rest of world, We ramped up our brand marketing investments early in the year we.
We are very happy with the results as we saw a nice acceleration in the brand traffic growth rate compared to the fourth quarter in 2022.
As expected our return on advertising spend decreased as a result of higher brand investments in both segments. However, absolute contributions to increase compared to the same period last year due to the increase in referral revenue.
And Americans, our overall marketing expenses and contribution decreased slightly as the decrease in monetization year on year was stronger compared to the other two segments.
The decline in advertising spend was largely driven by an algorithmic reduction in performance marketing expenses as we continue to focus on profitability.
Overall, our marketing expenses were 59, 5% of revenue up from 55, 4% in the previous quarter and 52, 7% in the same period last year.
I will now discuss our operational expenses, excluding advertising expenses and the penalty imposed by the Australian Federal record in Q1 2022 relative to last year.
In the first quarter, our operational expenses decreased slightly compared to the same period in 2022.
Compensation expenses, including share based compensation decreased mainly as a result of head count reductions compared to Q1 2022.
Further we recorded lower commission fees for acquiring traffic as a white label product is fading out.
This was partly offset by an increase in TV production costs.
Related costs, mainly due to the setup fee for the on boarding of independent hotels.
And higher expected credit losses on trade receivables.
We further improved our cash position and remained well capitalized was approximately 297 million euros in cash cash equivalents restricted cash and short term investments.
Finally, let me give you some color on early trends in the second quarter.
I'll refer revenue declined by a low single digit percentage rate in April as our monetization was very strong in the comparable period last year.
However in the last week of April we have seen our referral revenue growing again year on year.
The main trends remained stable, we continue to see elevated average booking values in all regions driven by higher ADR and slightly offset by shorter lengths of stay.
Demand continues to be robust while auction dynamics are stable.
We remain optimistic about our ability to ramp up our brand marketing investments in the upcoming months in order to further grow our brand based on traffic across all three segments.
With that we expect a decrease in return on advertising spend and contribution in the second and third quarter year on year as we continue to invest into future branded traffic growth.
We further expect that the increase in marketing expenses in the second quarter relative to the first quarter will be compensated by a seasonal increase in revenues and consequently, we expect that our adjusted EBITDA in the second quarter of 2023 will be similar to that in the first quarter.
For the full year 2023, we continue to expect that despite the ramp up in marketing investments and a normalization auction dynamics, our adjusted EBITDA will exceed that of 2019 as a result of our cost discipline and more efficient marketing investments compared to pre pandemic, yes.
In summary, we are committed to delivering higher adjusted EBITDA margins compared to pre pandemic and believe that we are well positioned to increase our brand investments, thereby growing our direct traffic.
With that let's open the line for questions.
Thank you operator, we are ready.
If you would like to ask a question. Please press star followed by one I'll go to that thank you.
Pat.
Oh a question. Please press star followed by one.
To ask a question for you lately.
And our first question today guys.
While <unk> of UBS.
Please go ahead your line is open.
Thanks, guys two questions if I can first.
The shareholder letter it talks about kind of referral revenue growth in the quarter being in line with expectations. So just curious if.
The shift in marketing from customers was something you had seen earlier in the year and kind of expected and I guess more broadly like how much communication and visibility to that.
Customers and then the second one.
Staying on this topic the focus of increased profitability from Otas.
Are you seeing this across your clients or is it really driven by one client and.
Do you have any sense of whether this is Sam.
Rod this is versus just shifting shifting.
Shifting priorities among your clients marketing.
Anything you could share there would be helpful. Thanks.
Thank you Lloyd.
Yes, let me let me start with your first question and then pass it onto <unk> for your second question.
I mean, obviously the monetization.
It is something we.
We can control leased so we do make assumptions and we do look at the.
Cadence we saw in prior years.
And based on that we model different scenarios, but ultimately that's something we have to take as it as it comes in then.
Our marketing expenses.
The comment in the shareholder letter was basically relative to when we last spoke in February and by then we hinted at auction dynamics already so it's something that we that we saw and we expected monetization to be a bit soft up but then again the exec.
That's nothing.
We know.
But roughly I would say it was in line and then monetization obviously is only one piece the other is demand.
And average booking values conversion rates. So this all goes into referral revenue and as I said trends were stable throughout the quarter.
And.
That is roughly what we expected.
Hence overall.
Referral revenue were in line with our expectations.
On your second question.
Focus on profitability versus versus growth of the balance between the two.
If we go back.
One year I mean, there was <unk>.
The vast majority of travel companies was focused on volume on capturing the recovery of the returning traveller.
And winning over the returning traveled as a customer.
This year the sentiment is obviously a bit different I mean, there is a lot more geopolitical instability. There is more economic instability uncertainty at in times of uncertainty.
Some advertisers choose obviously to focus more on profit but it.
It's really it's really a case by case decision I mean every every partner is taking a different decision on that trade off and.
Our expectation is with.
What was the general environment stabilizing.
And uncertainty.
Fading that the balance will shift further.
To growth again.
And then just to add to that I think that.
What <unk> said.
Right and then one other point.
I mentioned it.
Basically in my remarks, but historically it has not been uncommon for us to see an increase in monetization going into the peak season.
Last year, the seasonal effect was just more pronounced going into April and in a way we see a normalization now.
So we did not see an increase in monetization to the same extent this year and that is contributing to the year over year decrease so I guess in addition to what <unk> said Theres also a comp effect here.
Yeah.
Okay, Okay, so a little bit of optimism things things will start to move back to growth.
That's helpful. Thank you guys.
Thanks.
Thank you. The next question go to Doug Anmuth of Jpmorgan. Please go ahead. Your line is open.
Okay.
Thanks for taking my questions.
So first of all I was wondering if you had any more color you can provide on how we choose shaping up so far in terms of seasonality for us.
Every year for revenue how do you expect that to play out and then secondly, I missed that.
On slide rules are going in.
'twenty two we'll hire them.
And if you were to go back with the margins that you have now how should we think about where loss should shake out relative to putting solvency levels.
But rollouts this year to be closer to putting some one or should it be closer to 2019 of anymore.
Any more color on that as providers.
Providers will be helpful. Thank you.
Yes, sure so yes.
Yeah, Let me, let me give you a bit more color on referral revenue I mean, we don't guide revenue specifically.
I think we provided more guidance around EBITDA for the second quarter also for the full year.
And the simple reason for that is that it's more controllable from our perspective and there is some volatility not only in the absolute levels, but in particular in the year over year comparisons.
But.
Starting.
Some more color starting on a global level.
I mean, what I said is that our referral revenue grew more than 30% and generate and growth rates decelerated in February and March so we.
We ended the quarter at 11%.
In the quarter in the quarter, we grew 11%.
In April as I said referred revenue was slightly negative.
The deceleration in referral revenue growth rates was largely gluten.
And by the strong uptick in monetization during that period last year.
As we are lapping this effect comps are getting easier again and refer revenue was already up as I mentioned year on year in the last week of April .
When we look at the different regions. The cadence was very similar just at different levels.
To give you an idea refer revenue in Europe was roughly flat in April year on year in Americas retail revenue declined in April .
By a high teens percentage and rest of world It was still up over 30%.
And again in all regions, we saw an improvement in the last week of April .
So that overall referral revenue grew again I.
I hope this gives you a bit of color.
<unk> and <unk> and how to think about.
Referral revenue maybe for the rest of this quarter.
Now on raws.
<unk>.
We expect the quarterly distribution of our AD spend to be similar to last year, just with a slightly higher share of spend in Q1 at the expense of Q3 and Q4.
As we said overall, we plan to increase our AD spend we.
We see in particular, an opportunity to ramp up brand investment relative to last year.
As we plan to add some markets there, where we have not been active last year and rest of world and given the strong performance last summer.
And you've seen that in Q1 already.
So yes.
Ross I mean, when we talk about margin and relative to 2019 and last year. We said, we expect that will be down a little bit and that is reflected by by lower raws.
If you look at the range 2019 to 2022, then I think we were still.
Planning to be closer to 2022, then to 2019, but again with the ramp up in <unk>.
Brand investment.
We expect growth to be down.
In the coming two quarters relative to last year.
Great. Thank you <unk>.
Thanks.
Thank you. The next question does she Brian Fitzgerald of Wells Fargo. Brian . Please go ahead. Your line is open.
Hi, This is Stan.
<unk> for Brian Thanks for taking our questions.
Actually I have two questions related to the softness in auction bidding that you saw in Q1.
Yes.
Why do you think it was more pronounced in the Americas and second.
What are you seeing in auction dynamics this quarter across various regions.
Yes. Thank you I can start with the second part of your question.
I mean and that makes it a bit more complicated. So there are two things to look at it one is <unk>.
Sequentially in <unk> year over year, and I think.
The one comment I made is that sequentially auction dynamics are relatively stable and so historically, we have seen a slight increase in monetization.
Going into the summer months.
Last year, there was just more pronounced and this year, we see a normalization of that which means.
Monetization is slightly picking up.
And roughly but roughly stable.
What we have seen so far from generate to APRA.
In the year over year that led to a bigger decline in March and April and now we're seeing it starting to.
Get a bit better as comps are getting easier.
And then.
So we want to take the first part of the question, Yes, sure I mean, so it's actually it's a good question, but it's difficult to answer because you obviously see.
Overall regions that are then.
Makes effect of different countries within the region and then mixed effect after different advertisers within those countries.
So it's more an advertiser by advertiser decision rather than a country by country decision and.
Depending on the market share makes in the country mix you have been a different outcome.
And then the Americas.
The outcome was greater than in other regions.
Alright, great. Thank you very much.
Thank you. The next question James Lee of Mizuho. James. Please go ahead. Your line is open.
Great. Thanks for taking my questions. Two here first of all in ADR trends and I think you guys mentioned the shareholder letter is elevated across all regions.
Do we can maybe break it down by region, a little bit and what is your outlook for the rest of the year and also number two.
Can you give us a sense of what the demand is for summer travel for Europe . It looks like based on the search results and any changes in terms of booking windows any change in length of stay.
Any incremental color would be helpful. Thanks.
Yes sure.
James.
Let me start with the booking value so.
In the first quarter year on year, the average booking value for us increase around 10% globally.
ADR as you probably know we were up slightly more than that.
With the highest increase in rest of world.
Yeah.
Offsetting effect from slightly shorter length of stay there was very similar in all regions and globally was around let's call it 5%.
In April we observed a deceleration in the average booking growth rate.
Low single digit as we start lapping the increase from last year.
If you look at the different regions in Americas and Europe .
Average booking values.
<unk> slightly higher compared to April last year, and then in rest of world, We still see.
A higher increase in the mid teens.
And there was no notable change in length of stay and therefore compared to the first quarter.
Now to your first question on demand.
On a on a super high level, we saw a nice recovery in Europe and rest of world as you can see in the numbers in the first quarter.
In rest of World demand continued to increase in April is in particular in Asia markets. We continue to observe a recovery post COVID-19.
In Europe I believe the market demand was similar in April compared to last year.
We in terms of booking windows.
There is no big change so I think we see that.
Normalized compared to.
Two pre pandemic, so booking windows from what we see are pretty normal again with an average booking window for us being between 30, and 60 days slightly different by region.
But not vastly different.
Yes and.
I think that is true for our regions.
Nothing really to call out.
The booking window 30 to 60 days.
Add to that in Europe , we just started to see.
Summer demand.
It's a bit early to talk about trends.
In general what we have seen is that.
So called.
Tier two destinations increasing in demand we've seen.
That internet the share of international travel is going up.
In certain European countries also in the U S net.
Net increase was even stronger than in most European markets, which might also be driven by the strong U S dollar relative to the euro and other currencies.
But largely looking at these trends like urban Trevor.
City trips domestic international I think by now we have largely recovered and it's not that we see.
Very different mixes to what we saw pre pandemic.
Great. Thanks, Thank you.
Thank you Ben.
Yeah.
Thank you. The next question go to Nick Joseph of Citi. Please go ahead. Your line is open.
The point in time later in the year when our coverage is sufficient to really launch.
Features that then differentiate the product for though.
So we are happy with the progress, but but from a user perspective, you will you will start to see some changes later in the year. So it will still take some time.
Yeah, and just to quickly add to that I mean, as we said before we we don't think that this would have financial significant.
Notable financial impact.
One way or the other for 2023 so.
We do incur some costs and on boarding independent hotels, but that's all included in the numbers and outlook I shed, but on the revenue margin side. There's nothing you should be available at this point.
And then on your second question.
I mean, obviously, it's hard to predict how this will continue but I think lastly already with the start of going week in Japan, we saw a nice recovery in that country and obviously given the size of the country.
It's it has a bigger share and dig a wait for a second and rest of the world, but equally we have seen a very nice recovery and smaller countries like Singapore Hong Kong.
Malaysia, So I think it's starting now in.
Across the region really and we.
We have we have started already to ramp up.
Investments compared to last year, and so far I have seen a nice response.
So I think the trend continues to be there and it is a growth opportunity for us.
We haven't been active for over two years during the pandemic and some of these markets and.
It's just very very nice to see that with the <unk> of in particular brand marketing during that period that once you start come back that day as a positive response and yep.
Yep I expect that we will continue to see that region recovering and if.
If we do that we will continue to invest into that and we think it's an opportunity for us to grow the rest of of what segment fast relative to the other two segments.
Great. Thank you.
Thanks.
Thank you and actually I find that if you would like to ask a question. Please press stop by why not telephone keypad.
And the next question cause she kept in a couple of <unk> Kevin Kevin. Please go ahead. Your line is a pain.
Great. Thanks, a lot can you give us more color on that consumer reaction, you're saying so far from the investment in brand advertising and maybe have that as compared to break campaigns watched in the past.
Yeah sure. Thanks, Kevin.
I mean, we talked about.
The the.
The change in messaging before and what would we change I mean, the call messages price comparison, obviously, but we set in the current environment with high inflation everybody's focusing on saving money and it's on everybody's mind top of mind, so to speak and.
That's why we tried to shop and that's message a little bit more and it's not only the brand message, but it's also the combination with product features we launched price of Lewis.
We we focus on that and our email marketing et cetera. So it's really.
Stick approach and I think that's showing effects.
Can we see that in.
In the so a and the brand traffic, we see on our platform.
That's visible it's also visible in the response and the direct response, we see from from our.
Particular television complaints in there when we compare our current campaign and I mean, obviously, we are now as we have and May we start to ramp up so the exciting time is only starting now.
But if I compare that to last year and the year before we do see that the response is greater than what we have seen before and that makes us confident that we should scale up and ramp up all investment and that is what we are planning and that is why.
The guidance on Ross that's been inhibitor is what it is because we think it's an opportunity for us.
Great and and one other one.
Can you remind us on.
How <unk> like named Jan compared to April is do you think about the rest of the quarter.
On a year over year basis.
Yeah. So I think the way to think about it if you look at the first half then comes fast.
<unk> in March and in particular, APRA and then we'll be slightly easier in May and June .
Great. Thank you I guess.
Thank you Kevin.
Can we have nice out of the questions are now how 'bout attack feels any taking <unk>.
Thanks for taking the time to participate in today's earnings call.
The next quarter son, yes will it be decisive further metasearch industry as we believe that a clear value proposition then it's communication will be key to succeed many thanks and have a good day.
Think he the faculty today's call. Thank you so much for joining you may now disconnect your lines.