Q3 2023 trivago NV Earnings Call

November 2nd 2023 only.

Trivago does not undertake any obligation to update or devices information as well as some of the statements made on today's call. A forward looking typically preceded by words such as we expect we believe we anticipate or similar statements. Please refer to the Q3 2023 operating and financial review on the comp.

<unk> other filings with the S E C for information about factors, which could close <unk> actual results to differ materially from these forward looking statements.

Will find reconciliation of non-GAAP measures to the most comparable GAAP measures discuss today <unk> operating and financial review, which is posted on the company's website at <unk> Dot <unk> Dot com.

You are encouraged to periodically visit tobacco's Investor relations site for important content finally, unless otherwise stated all comparisons on this call will be against results that are comparable periods of 2022 with that let me turn the call over to Janice. Please go ahead.

Good morning, everyone and thank you for joining R Q3, 2023 earnings call.

The last conversation I'm glad to provide you with updates on our journey towards <unk> and presence in the market.

Our mission is clear.

When price savvy traveler think about booking hotel, we want them to think <unk>.

We simplify the planning have them safe and instill confidence in their booking decision.

The quarter unfolded, largely as we anticipated contingent negative effects of reducing Brent marketing during the pandemic are normalized monetization and volatility in Google search at continue to impact us.

However, with major uncertainties now behind Us and Roebuck travel outlook, we are encouraged by our television campaign performance system.

This positive momentum had stirred our decision to change course, and prioritize growth in the upcoming year.

As a result, we expect adjusted EBITDA to be close to flat in 2024, I will now data for strategic priority that we believe will propel our <unk>.

Our first strategic priority is to reignite are globally recognise brand.

We are planning to revamp our brand marketing investments to get back to the forefront of travel of mine.

Lifting our branded visitor baseline will be key to return to growth and we expect it to be a multiyear effort.

As we approach the launch of our <unk>. We are optimistic that we can demonstrate initial results by the first quarter of 2024.

It's essentially to note that our brand marketing isn't just about campaign.

Retreated as a performance marketing channel that can be optimized overtime.

Borrowing from our summer learnings, that's a considerable scope of enhancement across multiple dimension.

From media channeling country mix two stronger creative.

As we refine these elements we plan to prioritize growth as long as we see the anticipated incremental return.

Our second strategic priority is to provide a seamless hotels search experience.

With simplifying the search across hundreds of sites and millions of accommodation savings.

Saving travel a significant time.

We're constantly enhancing the user journey by conducting experiments on all aspects of our product.

In the past month with qualify the range of productivity with positive impact on our user experience and conversion.

We are glad to share that we have completed our image migration to the Google cloud.

Step has improved the quality and selection of our images and will enable us to iterate foster on the visual experience for our users.

Our third strategic priority is to deliver the best deal discovery experience.

We want to be the shortcuts for finding great hotel deals and better prices.

This is where we can play or strength and differentiate uniquely.

Many travelers are price conscious and due to inflation that become even more sensitive.

Right. This priority increased since the pandemic, which elevated the value of comparing prices.

With introduce new ways of spotlighting savings and great deals in our search results.

Getting price 70 travellers to return to <unk> will be important for our future success.

Four four strategic priority is to empower partners to realize the full potential on tobacco.

We're enhancing our marketplace infrastructure with more bidding granularity and rolling out a second price auction test and three relevant markets this quarter.

Co, creating an innovating with our advertising partners, we aim to unlock user value throughout our metasearch and they're booking journey.

With a deepening our key partnerships.

Courage by the active engagement we have the.

Our brand strategy support our commitment to remain relevant marketing channel for our advertisers driving high quality traffic to them.

In addition to our strategic pillars, we're committed to accelerating our paths of execution and fostering a culture rapid learning with increased velocity and our product development and have doubled the number of experiment we run on our website.

The positive momentum within the organization is very tangible.

Now our operations are becoming more streamlined around the aforementioned strategic priorities.

As we look ahead to we're confident of showcasing all enhancements and growth in 2024.

Is the last point, let me Express my gratitude to Martin was outstanding service to Trivago in the last seven years.

His leadership was instrumental in navigating the challenges of the pandemic and maintaining our financial stability.

We're looking forward to Robin Harris, who will join us in new CFO next year.

His expertise will enrich the leadership team and executing our new strategy.

With that I'd like to pass the floor 20th.

Thank you and welcome everyone on the call.

Before I walk you through our third quarter results I would like to thank our leadership team Supervisory Board and all employees for supporting me during the last seven years.

Learned a lot and enjoyed working with amazing people.

I will continue to support the company as a consultant during the first quarter.

To ensure smooth transition to my successor Robinhood risk.

No turning to our results.

I will review our results for the third quarter as well as our thoughts for the year.

All comparisons for 2023.

Yoga year basis, unless otherwise indicated.

All revenue development in the third quarter was in line with our expectations.

Revenue declined by 14% or at the same rate as in the second quarter. Despite the loss of favourable tailwind during the first half of 2023 from higher average booking venues.

And foreign exchange headwinds, which negatively impacted our monetization levels.

Moving to an <unk> an hour auction remained stable, albeit at lower monetization levels compared to the prior year.

And we continued to observe at format tests and Google.

The combination led to volume losses on all platforms. However, the dynamic improved slightly compared to the second quarter.

The net loss of 182.6 million Euro in the third quarter as a result of accumulative impairment charge of 196.1 million Euro in connection with our annual investment lift intangible assets and goodwill impairment analysis.

The impairment was primarily driven by adjustments made to our profitability outlook arising from the announced strategies shift too long term growth.

Our share price decline during the third quarter of 2023.

Adjusted EBITDA, which excludes the impairment of goodwill will $60 million Euro down from 33.5 million Euro in the same period last year.

Now onto the dynamics in the different regions.

We saw refer revenue declines in America, and Europe were referred revenue increased in our segment rest of the World is most countries in that segment continued to recover post COVID-19.

Referred revenue declined by 21% and 17% in America and develop Europe, respectively.

The decline was largely driven by a loss in performance marketing volumes as we continued to observe it formed the tests and Google leading to fuel impressions of traditional text ads for us.

We started testing the new at four months. However, there is still too early to conclude on its potential.

Early indication is that the traffic quality seems to be lower compared to text.

And consequently, the new at four months did not compensate for the loss in high quality traffic from Tech steps.

Refer revenue in our segment rest of World continued to grow driven by the recovery of markets like Japan, Turkey or Hong Kong.

All are referred revenue increased by 24% driven by an increase in traffic volumes and alternatives and higher average booking values.

This was partly offset by negative foreign could change effects.

Moving onto our operational expenses <unk>.

Excluding advertising expenses and the impairment of intangible assets and goodwill.

Operational expenses decreased by 13% <unk>.

Compensation expenses, including Chavez compensation and commission and other fees related to non-core products that we stopped last year, where the main driver for lower operational expenses.

Our cash and cash equivalents balance at the end of the quarter was 299 million Euro.

We have taken steps to improve our capital structure and reward our investors with a special one time dividend of $184 4 million Euro which reflects our confidence in the future.

Our shareholders approved for distribution of the one time dividend on November 1st and we anticipate the pay men of the distribution to ADSL orders to be made on November 13th 2023.

Let me close with an outlook on the fourth quarter.

The main Trevor trends remained stable in October we continued to see robust Trevor demand and elevated average booking venues on our platforms in all regions.

The dynamic and performance marketing <unk> remains volatile monetization levels in our own auction have normalized.

As a result, the year over year refill revenue development in October was in line with our third quarter results for all regions.

During the third quarter, we announced a shift in strategy, which aims to fuel long term growth.

We intend to start intensifying our brand marketing investments already in the second half of the fourth quarter.

We expect the short term effect on traffic volumes to be limited. However, we are confident that the investments will help us to increase our brand based on traffic overtime and keep trivago on top of tremulous minds, which is crucial to achieve a goal of sustained long term growth.

For the full year 2023, we expect our adjusted EBITDA to be around 50 million Euro.

With that let's open the line for questions.

Operator, we are now ready to take the first question. Please.

Thank you if you would like to ask a question. Please press staff followed by one on your telephone keypad.

If for any reason you would like chimneys that question. Please christoff followed by two again to ask a question. Please press start followed by one.

As a reminder, if you aren't using a speaker find peace of mind to pick up your research before asking you a question I'm pleased to ensure that you have on mute locally.

Our first question today comes from the line of <unk> Com B Rally Securities. Please go ahead. Your line is now.

Yeah, Hi.

Thank you I just had a couple of questions maybe maybe the first one.

For your Hornets.

You kind of start on your.

Brandner Crazings tragedy honest, you'll also see compression on the promise channels then.

I'm wondering if you think you can you can offset depression and performance.

Benefited were taking and it ended up in.

The brand channels or do you think it can.

More than offset that just give us a talk to their also you know if I look back historically marketing span as a percentage of revenue has been.

As high as in the eighties percentage.

Should we expect to.

Kind of go back to those logos on them.

<unk> optimization from those levels are.

Is that an argument sure, let's say I, probably should we think about that.

Nassau.

Thank you for your question I.

<unk> cover the the first one.

I think what we clearly see that we can offset.

The current drops I think Google is volatile it's unclear whether that is a long term.

Volume lost in Google, we are experimenting with a new format. So it's not that that will be gone forever exploring it and.

Google will do changes in there.

And their preference thing in Europe and that is also something that's hard to predict how this plays out but this is until Q1, where we expect changes and volatility and then hopefully things get a bit more clear from a brand marketing, we we substantially invest into brand and we do believe.

That we can turn to growth.

Next year, so offsetting that also in the short term rent is brand has compounding effects. So it's a multiyear effort of consistently investing into brand and then you have people coming back in campaign and the first year and then also in the following years and that's why it's a multiyear effort and brands were you <unk>.

<unk> the invest built you branded visitor baseline overtime and.

You see the stronger impacts later down down the line.

Yeah, let.

Let me take your second question.

So Johann is mentioned that.

For next year with.

With the shift in strategy, how you should think about profits.

<unk> ability and adjusted EBITDA is that.

It will.

Better to be positive but.

We focus on growth.

S. As we have done in the past has done pre COVID-19 and when you look at that if you look at our cost structure.

You'll see that as a percentage of revenue that's.

Likely to be above just above 20% for 2023.

An absolute terms we.

Believe it will be similar next year and then.

We indicated already that we expect to grow next year again.

We will give more more specific guidance.

At the beginning of the <unk> report, the fourth quarter, but let's assume we grow and at Ah.

Stable.

Stable operational expenses.

Brings that down to like 20%.

And if.

If you it should take that together then you know that you need to achieve around 125% Ross.

To be at.

Adjusted EBITDA breakeven.

And that is something that.

Can think of the lower bound and when you do the math then you see that's getting you close to the 80% that we had.

One thing I would mention as well as.

It's still early I mean, that's the direction, we want to take for next year, but obviously it depends also on what we see.

I mentioned that we will start.

Ramping up brand towards the end of the year.

We plan to invest early next year as well and obviously, we take the learnings that we see.

That will inform what we continued to do throughout the year 2024.

But I guess S yep.

High level, how to think about the dynamics, that's that's probably good starting point.

Okay. So just a quick clarification on the part plenty of good down there. So when you say flash talking.

In terms of just margin on just absolutely daughter-in-law tortured I think about that.

Exactly enough so dollar months we.

We historically.

To discipline ourselves to not run EBITDA losses, and that is what we.

We think about it as well now, but you shouldn't expect us to deliver significant positive EBITDA.

Okay. One one quick follow up so.

On the on in terms of plans in October I think I've commentary suggest.

Is that dangerous table in October in terms of.

<unk>.

Is that a fair cause I'm shown on BBC any volatility or sign of weakness.

In terms of consumer demand.

I think we see stable demand and not no concerns that we have on on queue for impact or even on long term.

Just to add to that some other centers on a regional level.

When you look at volumes and also pricing.

That makes them similar to what we recorded for the third quarter. So no really changed and there was consistent across all three regions.

Understood. Thank you very much.

Thank you have it.

Thank you.

The next question today comes from the line of James Lee from the Zoo. Please.

Please go ahead, you're lying there is no way.

Great. Thanks for all my questions and I. Thank you so much for the tears for all your help and you'll be guilty Miss a couple of questions here.

Talk about in the past that.

You're seeing the length of space, you know by region and May be.

Slowing down a decreasing and it <unk>, maybe consumer trading down wondering maybe you can comment.

About that metric, where you can and also be helpful. Maybe you could comment the transfer you seeing maybe quantify side the increase or decrease you sang in Adr's, especially in Europe, and North America. Thanks.

Yeah. Thank you James.

On length of stay.

Let me go through that by region, starting with Europe.

We saw in the third quarter is that.

Length of stay only slightly decreased compared to last year.

But we will lapping the effect of the larger decreased during summer last year now so when you look at it relative to 2019 levels.

Length of stay was down in my mid teens and developed Europe and.

In America, we didn't see the same decrease last year and.

This year, we saw a slight decrease but only slightly lower so low single digit and then the rest of the world. We don't see a meaningful change. So there was roughly stable.

So there wasn't the first question was can you remind me repeat the second question was on <unk> right.

Yes.

Per cent takes by region.

Yeah sure no.

So starting list with Europe again, we saw.

Slight increases throughout the quarter like low single digits.

And with the slide decrease in length of stay.

That led to <unk>.

Stable average booking venues for the basket value was roughly flat in Europe, and again, driven by a slightly higher idea.

Slightly lower length of stay.

In America it's.

Very similar with.

To let ish.

And slightly lower length of stay.

And.

But then we had a negative foreign exchange affect us and that's why all the all the average <unk> slightly donny over a year.

And then and rest of words and images.

Different as we saw a strong increase an atheist, let's call it around 10%.

Length of stay roughly flat and then also some foreign exchange headwinds leading to still.

Mm.

Higher average basket values average booking values.

Around 10%.

Does it if I can yeah, great. Thanks for your help and last question here are you seeing any changes as you're looking at bookings into four Q.

Help us understand the booking window, obviously, you show a little bit you longed gateway look booking window in the first half of the year.

Are you seeing like booking window kind of normal life than just curious how much visibility I'll bookings you you're looking at into 2024.

Yeah at this point, we don't have great visibility into 2024, because our booking renewal tends to be between.

Third in 60 days, depending on the region and time of the year.

And at this time I mean, what we do see some some bookings for the end.

End of year holiday season.

So there we see no big change so as I said dynamics.

Fairly fairly flat calm.

Compared to the third quarter.

And overall booking windows have abnormalize for us So there's no big difference to 2019.

And I think they have always been rather consistent with outbreak changes over the last year.

Alright, great. Thank you so much.

If you would like to ask the question. Please press star followed by one on your telephone keypad.

Next question today comes from the line of <unk> from UBS. Please go ahead. Your line is now open.

Thanks to if I can first just.

Can you help us understand the just the dynamic where you are seeing increased competition and performance channels on one hand, but reduced bidding dynamics on your platform on another is that is that all a function of changing AD formats in Google and there's just more competition for fewer texts that there or do you feel like you.

Customers are.

Leaning out of the Metasearch more towards Google anything you can you can share their would be helpful. And then the second one just to you all have a sense for what the changes are going to be I think you mentioned in Q1 from Google in Europe around South South Preferencing, and how that might might impact you any any sense of how that will impact.

Thanks. Thanks.

Hey, Lord Yeah, Let me let me take the first question and then you can comment on a second.

So I think it's.

I mean, it's a good question like why are we seeing.

Lower monetization levels and auction bought more competition or.

More competition and performance marketing Senate let.

Let me first comment on I'll auction.

Consistent with what we have seen in the second quarter already so how we look at it as that.

Monetization level not 11th normalized so we see that there is healthy competition auction and what we are seeing in terms of bidding dynamics makes sense and I think it was rather last year that.

The auction was a bit hot and.

We saw inflated levels and that's why we are saying, it's it's normalized now and.

Yeah, that's what we have seen in the third quarter what.

Why we see competition increased competition on performance marketing channels, I think it's more related to.

The tests that we mentioned because what is happening there is.

That we see different formats being introduced.

At the expense of the traditional Edwards.

And because of that you see few impressions and then if you have the same number of advertisers fighting for.

Few of slots, that's where it where you see more competition not necessarily that <unk>.

People increase their bid because traffic quantity changed or something.

But that is the dynamics and I don't think it's.

Related to what you're alluding to that advertisers are leaning out of meta and <unk>.

<unk> to Google.

I think it's really the volatility that we see they're related to those tests.

And then then optimizing.

The campaigns on on our platform and other major platforms, but again.

I think what I see makes sense and.

It's actually a healthy auction right now.

And let me maybe address the South branch Preferencing. So.

We expect to changes until Q1 next year in Europe.

And at what in essence, our understanding is that there will be less entry points to Google at a hotel.

Which means.

Add that banking the price comparison uncle with less visible, which in the long term and short.

Adapt the habit of users of comparing prices of Google and people more as a sexual hotel they'll look.

The the the local images and stuff and then they also compare prices on Google natively and that is changing their prizes will be much less visible from our interpretation is.

In the short term and it's difficult to understand what this is going on and I think it's hard to speculate I think we will adapt and and try to learn as much and how we can we can embrace performance Google has at the same time.

Will be curious to see out in the mid term.

Might be a tailwind for us.

Okay. Thank you.

Thank you.

As a reminder, if you would like to ask a question on today's call police <unk> followed by one on your telephone keypad.

There were no additional questions wasting. It this time, so I'd like to <unk>, but you can imagine symphony closing remarks.

Thank you for your continued <unk> joining us today, we are energized by the journey that we have a hat and I'm very focused on executing on our strategic priorities.

Stay safe and remember when you think hotel it's trivago. Thank you.

This concludes today's conference call. Thank you for your participation you may now disconnect your lines.

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Please call. Thank you.