trivago N.V. (TRVG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the trivago's Q3 Earnings Call 2024. [Operator Instructions] I must advise you that the call is being recorded today, Wednesday, the 6th of November 2024. We are pleased to be joined on the call today by Johannes Thomas, trivago's CEO and Managing Director; and Robin Harries, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's views as of today, Wednesday, November 6, 2024 only. trivago 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 2024 operating and financial review at trivago's other filings with the SEC for information about factors, which could cause trivago's 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 trivago's operating and financial review, which is posted on trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2023. With that, let me turn the call over to Johannes. Please go ahead.

Good morning, everyone. Thank you for joining our Q3 2024 earnings call. In the third quarter of 2024, we delivered solid brand revenue growth in our Developed Europe and Rest of the World segment, maintaining their positive trajectory. While the Americas segment faced temporary market headwinds, including softer demand early in the quarter and reduced TV reach due to shifted viewership from major sports to political events. In Americas, we did demonstrated our agility by adjusting our brand investments accordingly. This technical response contributed to a better-than-expected adjusted EBITDA. Google ad format changes continue to be a headwind, which we expect to gradually normalize by Q1 2025. As we move into Q4, we are seeing a return to typical seasonality patterns and are excited to be approaching our turning point. We are well positioned for growth this quarter and aim for sustainable growth next year. Our disciplined approach keeps us on track to achieve breakeven on a full year basis in 2024. We remain confident in our ability to achieve double-digit growth in the medium term. Robin will share further insights on Q3 and our future expectations. Let me first give you an update on our strategic priorities. Our first strategic priority is branded growth. We strive to be top of mind for travelers booking hotels. We are encouraged by the positive returns on our brand marketing investments in 2024 and committed to advancing this trajectory. To further increase the effectiveness of our investments, we have secured a partnership with Jürgen Klopp as a face of our upcoming marketing campaign. As a globally recognized soccer coach celebrated for his remarkable leadership, Klopp guided Liverpool to trim in both the Premier League and the Champions League. Really known as the Normal One among the cycle of soccer legends, Klopp is celebrated worldwide for smart personality and authentic character. Qualities that perfectly aligned with what we stand for. Klopp has been carefully selected after comprehensive pretesting. His resonance with trivago's audience surpassed that of other potential candidates, making him an ideal ambassador for the brand. The campaign will kick off with a master spot recorded in English, which will then be localized into various languages using advanced AI technology. This approach builds on trivago's pioneering efforts in AI-driven marketing first introduced in our brand marketing campaign at the end of last year. Our second strategic priority is to improve our hotel search experience. We aim to help travelers find the ideal hotel. We've significantly expanded our AI-powered hotel highlights, increasing our coverage from 120,000 hotels to 250,000 models across 8 languages in 27 markets. In so doing, we are enhancing our users' experience by providing more relevant information and put a particular focus on surfacing unique selling points of hotels. We've also introduced new personalization algorithms improving the relevance of our hotel search results. Our third strategic priority is to offer the best deal coverage experience. We strive to help travelers find great deals and better prices, with enhanced deal visibility with the expansion of super saving deals to our app and the introduction of price drop deals, which highlight recent price decreases of a hotel. We have further improved rate accuracy in our platform by incorporating out our partners' full booking funnel, ensuring that deals we present are current and still available. This is an important initiative as we continue to surface more deals to our users. Our fourth priority is to empower our partners on our platform. We continue to improve our conversion rates by optimizing our marketing mix and enhancing our products. As a result, we anticipate that our advertisers will recognize these advancements and find us increasingly attractive as a marketing channel. This year, we successfully introduced a second price auction to mitigate economic risk and reduce complexity of our marketplace, particularly for small- and medium-sized advertisers. We will continue to support our advertising partners with optimizing their bid through our smart bidding solutions and aim to expand our trivago-branded Book & Go funnel to more advertisers in the course of 2025. In summary, our Q3 2024 results reflect solid growth -- brand revenue growth in Developed Europe and Rest of the World, demonstrating the effectiveness of our investments. At the same time, we demonstrated our acceptability in response to situational market headwinds in the Americas. We are diligently focused on executing our strategic priorities and expect to deliver a sustainable growth in the near term. My heartfelt thank you goes to all our employees, whose commitment and hard work have been vital to our success. Your efforts are the driving force behind trivago's progress, and we look forward to continued success together. With this, I'll hand over to Robin.

Thank you, Johannes, and good morning, everyone. Q3 was an important quarter for us. We saw better-than-expected revenue growth in our Rest of World segment and a notable improvement in Developed Europe. In the Americas, temporary unfavorable market conditions impacted our revenue, and we made a tactical decision to adjust our marketing spend accordingly. We have observed a positive start into our fourth quarter. So far, we see revenue growth in Q4 compared to prior year. We believe that after about 1.5 years of challenges, we are on the verge of a sustainable turnaround and are confident that we can return to growth in Q4. This turning point could represent a major milestone in our journey to restore trivago's position in the market. As of the end of Q3 2024, we had EUR 108 million in cash and had a net working capital of around EUR 140 million. Our current market cap is only roughly as high as our cash position, highlighting what we see as a tremendous opportunity in trivago. We have a strong team of over 600 people. We see that our products are stronger than ever, and the trivago brand remains one of the most recognized global travel brand in a huge and growing market. We are financially healthy and we believe that we will be able to outperform the market in the midterm. We are optimistic about the potential for our market cap. We reflect our intrinsic value as our performance begins to demonstrate sustainable growth. Our focus on branded revenue growth continues to be improved. Year-over-year, we have seen positive developments here, which remains our top priority. Additionally, our efforts to enhance booking conversion and lead quality are making us an increasingly attractive marketing channel for our partners. Let's now delve into our Q3 results and our outlook for the remainder of 2024 and into 2025. Unless I state otherwise, all comparisons for 2024 are on a year-over-year basis. In the third quarter, our total revenue was EUR 146.1 million, representing a 7% decline compared to the same period in 2023. In our Rest of World segment, Referral revenues increased by 9%, while Developed Europe showed an 8% decline, which, although negative, is an improvement from the previous quarter. The Americas experienced a 14% decrease. Our brand investment efforts are yielding positive results, particularly in Developed Europe and the Rest of World segments, where we achieved double-digit revenue growth from branded channel traffic year-over-year. In the Americas, temporary unfavorable market conditions affected our return on advertising spend, ROAS, prompting a tactical reduction in brand marketing investments for this quarter. It's important to note that our brand marketing investments are still at an early stage and relatively low compared to pre-COVID levels, presenting significant upside potential in the coming years. Despite the positive branded revenue growth, we continue to face challenges in our performance marketing channels, primarily due to the changes in Google advertising format. These changes have introduced volatility and resulted in traffic volume losses. However, we have observed stabilization over the past few weeks, which is encouraging. We remain committed to a disciplined opportunity-driven investment strategy and will not compromise long-term brand investments to offset performance marketing volume losses. While monetization was softer this quarter compared to the prior year, it remained healthy and stable in the Americas and Rest of World segment. To summarize, the Americas segment had challenges due to lower branded revenue growth and headwinds in performance marketing. Developed Europe showed an 8% decline, which is an improvement from the previous quarter. The Rest of World segment delivered strong revenue growth driven by branded revenue and healthy monetization. During the third quarter, we reported a net loss of EUR 15.4 million and achieved an adjusted EBITDA of EUR 13.6 million, moving us closer to our full year goal of breakeven adjusted EBITDA. This performance exceeded expectations primarily due to a conscious reduction in brand marketing spend in the Americas. The net loss was largely driven by a EUR 30 million impairment charge related to our annual intangible asset impairment analysis. Operational expenses decreased by EUR 176.5 million, totaling EUR 165.7 million for the third quarter, primarily due to the goodwill impairment of EUR 196.1 million in Q3 2023, partially offset by the current trademark impairment of EUR 30 million. Additionally, we saw reductions in selling and marketing expenses, general and administrative expenses and a slight increase in technology and content expenses. Advertising spend decreased by 12% in the Americas and 15% in Developed Europe, while increasing by 28% in the Rest of World. Overall, we invested 7% less than the same period in 2023. This reduction was driven by Google ad format changes and consciously reduced brand marketing investments in the Americas. Brand marketing investments in Developed Europe and Rest of World were higher than in Q3 '23. Globally, our return on ad spend, ROAS, remained comparable to Q3 2023, with improvements in Developed Europe due to efficient brand marketing and the decrease in Rest of World due to optimistic high marketing investments. The ROAS in Americas was just slightly below Q3 '23. Looking ahead, the travel demand remains solid and healthy. We continue to provide high-quality traffic to our partners, and we are optimistic about regaining advertiser appreciation over time. We remain confident in our ability to achieve year-over-year top line growth in Q4, while maintaining a disciplined result-oriented approach to our marketing investment. For the full year 2024, we expect adjusted EBITDA to be close to breakeven levels. Looking forward to 2025, we anticipate adjusted EBITDA levels similar to this year as we remain dedicated to investing in our brand marketing efforts. We see substantial opportunities to scale our brand marketing activities, enabling us to reach a larger audience and positively impact overall revenues long term. We anticipate achieving year-over-year revenue growth in 2025 with double-digit revenue growth in the medium term. I plan to attend the Morgan Stanley European Technology Conference in November, as well as the UBS Global Technology Conference and Wells Fargo Annual TMT Summit conferences in December. I look forward to meeting you in person, so please feel free to reach out. With that, let's open the line for questions. Operator, we are now ready to take the first question.[Technical Difficulty]

Thank you for staying on the line. The operator is working on fixing technical problems, we will open Q&A very shortly. Thank you.

Your next question comes from Naved Khan with B. Riley Securities.

Great. My first question is just on the return to positive growth in the fourth quarter. If I just look at the different regions, should we expect Americas to turn positive? I understand there were some transitory issues in the third quarter. Just maybe talk about that. And even Europe, Europe you're seeing pretty nice significant improvement sequentially. Should we also see Europe to be positive? Just give us a little bit color there. The second question I have is just on your commentary around sources in Rest of the World that -- not Google, but some other sources that you kind of are helping drive traffic. Can you just give us some better sense of what kind of marketing channels these might be? Are they social marketing channels or something else?

Naved, this is Robin. Thanks for your questions. Regarding Q4, so far, we see growth in this quarter, which is encouraging. We see that Americas is back is positive. We see Rest of World is positive. We see improvements in Developed Europe. Still a little bit negative, but overall, very encouraging in Q4 so far with positive growth. Regarding Rest of World performance marketing, so Google still a headwind, still negative compared to previous year, the prior quarter -- the quarter prior year, and the non-Google performance marketing is positive. So that overall performance marketing is positive. And non-Google marketing, Japan is an important market for us, and there, Yahoo! is pretty strong. And then, of course, we also invest into social channels. But yes, that's it.

Your next question comes from the line of Doug Anmuth with JPMorgan.

Great. This is a Dae on for Doug. I have 2. The first one, I think you just said U.S. Americas is back to positive growth. I'm wondering what happened in the quarter that caused the temporary unfavorable market conditions. And does Americas return to growth means you've moved beyond that condition? So if you could explain that a little bit more, that would be helpful. And I have a follow-up.

Yes. Thanks. I will do that. So we saw -- in Q3, we saw softer demand at the beginning of Q3, and we saw viewership shifts in TV advertising due to major sports events and political events. So -- and we performance focused, we look at the numbers and then we saw that it was not as good as expected. And then we reduced our spend so that we said we had a better adjusted EBITDA than expected, but this also led to the situation that revenues declined.

And maybe to -- Johannes here, so maybe to explain the dynamics a little bit. What you see -- what we mean with viewership shifts if there is more political events and you had situations of the attacks of Trump, you had a Euro Cup, you had Copa Americana (sic) [ Copa América ], you had the Olympics, all of these things basically move viewership from rather normal programs into political viewership, news and so on, as well as well as sports program. And that shift basically means where we usually do TV, the effectiveness is lower. We see this rather quickly, and we expect this effect to continue, and therefore, technically adjusted the spend there, basically.

My follow-up question is, in the prepared remarks you talked about brand intensity is not being close to where you guys were pre-pandemic levels. So we're looking ahead and with Jürgen Klopp coming in as your brand ambassador, does this mean you plan to step up marketing investments in 4Q and going into 2025 as well?

Yes. So we are planning to do a similarly impactful campaign that we did this year. So leaning into brand into that year. And the idea with Klopp is -- and the only reason why we can do it, is that we can leverage AI. We take one celebrity, localize this celebrity into different languages. So we haven't done this in the past because if you have basically very known people in every market, it would become very expensive. So we have one person that we bring global, that is feasible in terms of investment we make there. And he will basically air in European markets, in American markets. We will test in many different markets. And depending on how good it works, we will roll them out to certain markets or not. And we also have done pretesting. So if we take a testimonial, if we take a speaker, we do very thorough testing whether it resonates with our audience. And we saw very good results with him. One because he's known. And second, even if people don't know him, he resonates very well with the audience. And that can have a very substantial effect of how efficient our TV spots are and how activating our TV spots are. So that can -- we see this as an upside for the campaign and increasing the efficiency of our campaign.

Our next question comes from the line of Jeremy Liu from UBS.

This is Jeremy on for Stephen. I have 2 questions. So the first is you called out increased booking conversion across all geos. What drove this? And how much more room for improvement do you see here? And second, the commentary regarding 2025 return to growth, what is underpinning that? And are you anticipating an improving backdrop? Or are you starting to see more meaningful impacts from brand advertising?

Yes. So let me take the first one, the conversion. So we do continuous improvement in the product and we do hundreds of tests every quarter, and we see a ton of positive tests and we continue to see it. So there is a continuous upside on the conversion rate from a product perspective also that we can carry into the future. And one, the conversion rate is a proxy for [ recent ] better quality of leads to our users, but also users have a better experience on trivago and there's a high likeliness to come back at a later point or talk about us. And that's why we also think there is a sustaining effect for a segment of the users. And then at the same time, we are more efficient in how we do marketing. And also, if we look at brand marketing, that drives conversion rates as well. So both product improvements as well as brand marketing improvements impacted. Given we want to see branded revenue growth, the share of branded business will increase, and that can also further drive conversion rates basically.

And to the second question regarding the outlook, we believe that we are reaching the turning point in Q4. We expect that there will be growth in '25. Growth -- revenue growth will be closer to the 10% than to the 0%, so high single-digit growth. And the drivers are branded revenue growth. So we see that the things that we do, they bear fruits. We are happy about the development. We see huge room to further scale the investments. And secondly, we have better comps next year. Because Q1 this year, there, we had experienced heavy Google drop, so the comps are better next year. So in a nutshell, it's positive brand revenue development and better performance marketing comps.

And you can also look at how much we spent pre-pandemic. It was substantially higher than what we did today in brand. So there's quite an upside in how much brand investment we can do efficiently, which is making us confident about comps becoming better.

[Operator Instructions] Our next question comes from the line of James Lee from Mizuho.

Hello. This is Jack for James Lee. I have 2 questions. So first, what are you seeing in terms of the average booking value and any particular regions to call out? And the second question, on the broader travel environment, how would you describe user trends into holiday bookings? And how are these trends translating to auction bidding demand?

Thanks, Jack. Happy to take the question. This is Robin. So ABV Q3, we can describe what we see in our internal data, and this can be influenced by marketing mix and product changes, and doesn't need to reflect necessarily travel trends. But on our internal data, overall, ABV in Q3 was relatively stable versus prior year. In Americas, ABV was slightly down, driven by a decline in ADR and stable length of stay. Developed Europe, ABV was slightly up driven by stable ADRs and high length of stay. And in Rest of world, ABV was stable, driven by higher ADRs and lower length of stay. Regarding an outlook of Q4 in terms of ABV, from our internal search requests for Q4, we see a solid -- we see solid ABV outlook. In Americas, ABV might be slightly down. Our click prices for Q4 are slightly down. Length of stay are slightly up. Rest of World, ABV might be slightly down. And Developed Europe, ABV might be slightly up. So there, we see click prices and length of stay slightly up. So in terms of demand for Q4, we think Q4 will be solid. Travel trends local, yes.

Our next question comes from the line of Ron Josey from Citi.

I wanted to talk a little bit more about the hotel coverage. I think you mentioned, Johannes, of extending that to 250,000-plus hotels. So just wanted to understand the progress there from where we're coming from, I think, 125,000 or so to that 250,000. So any insights on greater supply and how you're trying to do that would be great. And then just a quick follow-up. We talked about Google ad format changes impacting results for the better part of a year or so, comps get easier in the back half or -- sorry, in 2025. Are you seeing things improve sequentially? I'm wondering where things are with these ad format changes.

So on the hotel initiative, I want to highlight, this is not a supply topic. This is a content topic. So what we have been using is AI in order to identify what's the hotel really unique about, what are the highlights and things to know about a hotel. So instead of just skimming what you can see in our search results list, we have now, in our search results, 2, 3 sentences that summarize the key qualities of the hotel. This is something we have rolled out, I think, beginning of the year. And we have further rolled this out, expanded it to more languages and platforms. And the algorithms behind it have improved. So you're not seeing has a nice location on all hotels, but really unique things that differentiate hotels. So that's really a content initiative. And I think this is what excites us here is we are the ones that are on the front line here. And it's really, from what we see, a great engagement from users to consume content, but you don't need to read tons of reviews to really get the summary in a nutshell. And that's a great way of differentiating and being, as a matter, an aggregate of content as well and not just -- not prices. And then your second question, can you repeat your second question, please?

Just if we're seeing improvements in performance marketing as we lap or get to lapping the Google format changes.

Yes, we expect that the comps will normalize. We are embracing the new formats in Google. We have seen the new formats stabilize and have reach an exposure level that's rather stable now. In these new formats, we are expanding our coverage, our participation with an opportunistic mindset. So we are not trying to regain shares through that format, but rather take opportunities that we see there. And we see that, gradually, our teams become more and more competitive in those formats as well.

And just real quick on a follow-up to the content side and the aggregation and the summary. Just talk to us a little bit about the conversion rates as a result given it's been in market for the better part of this year.

So we have -- overall, it's an accumulation of many tests we are doing that have moved conversion rates substantially over the whole year. So we gradually but substantially increased conversion rate over the year. And this has been one of the initiatives that we call out because we see relevant conversion improvements through this, which is an indicator for we help users to take better decisions basically. So this is one specific activity that drove conversion, and there are others as well that are happening on a continuous basis.

Our final question comes from the line of Tom White from D.A. Davidson.

Just a couple on the branded channel commentary. There's a few different things, I guess, that go into that. Could you maybe just maybe sort of rank which of the various kind of drivers of that you think is driving kind of the most success? Is it some of the investments in kind of app downloads? Is it SEO? And then you've made reference a couple of times to kind of the upside in terms of how much you can invest like relative to where brand spend was, this branded channel spend was, kind of pre-pandemic. Can you just sort of remind us like what the dollar amount of that spend or percentage of marketing spend that was pre-pandemic?

Yes, this is Robin. Brand marketing, we do brand marketing in several channels. So this is TV advertising. This is connected TV. This is YouTube. We also do social campaigns. We don't disclose the breakout of it. So -- but we are testing all. And yes, so overall, the brand marketing investment is just a small portion of what it was in pre-COVID level. And we started -- in the end of last year, we started in around 20 markets that we tested. We scaled investments in some markets. We test -- we started new markets. So in the past, we did a TV advertising, for example, in 50 countries at the same time. So at the moment, we just do TV advertising in a little bit more than 20 countries. And in those countries, there are still room to further scale investments. So it's -- there are several channels where we can scale investments. We test a lot. And yes, of course, besides the media buying itself, it's also the spots where we see opportunities to improve the spot. That's why we the deal with on Jürgen Klopp, we are -- we saw quite good results. And the TV spot or the creatives for your marketing campaigns, they are super important. They can really uplift campaigns. And looking at all our opportunities there and the amount of investments or the amount -- how much we can scale the investments, we are quite confident that we have enough room to grow for the next couple of years.

Okay. And then just a quick follow-up...

And at pre-pandemic marketing investments, they are public. We are not breaking them out, but that gives you a feeling of how much room there is as well. So in markets, we optimize across channels. And we are -- in markets where we are already investing, we are investing across different TV channels, shows. We are investing into between markets. So if Americas doesn't work for us, we take money and invest it in other markets, as an example, And then adding new markets is something we are also exploring.

Okay. That's very helpful. And just -- I just had a quick follow-up on the answer to the 2025 debt. Did I hear you correctly that kind of the hope or the target is closer to 10% than kind of low single digits?

Yes, yes. Closer -- as I said, it's closer to 10% than to 0.

That concludes our Q&A session. I would now like to turn the call over back to Johannes Thomas for final closing comments.

We greatly appreciate your questions and continued interest. I want to reiterate our confidence in the path ahead. Our team remains committed to delivering value to our users, partners and shareholders. We are excited about the opportunities in the coming quarters and look forward to updating you on our progress. Thank you again for joining us, and have a great day.

This concludes today's conference call. You may now disconnect.