trivago N.V. (NASDAQ:TRVG) Q3 2023 Earnings Call Transcript

trivago N.V. (NASDAQ:TRVG) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to the trivago Q3 Earnings Call 2023. All lines will be muted during the presentation portion of the call with an opportunity for question-and-answer at the end. [Operator Instructions] I must advise you the call is being recorded today, Thursday, 2nd of November, 2023. We are pleased to be joined on the call today by Johannes Thomas, trivago’s CEO and Managing Director, as well as Matthias Tillmann, trivago’s CFO and Managing Director. The following discussion including responses to your questions reflects management’s views as of today Thursday, November 2, 2023, 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 2023 operating and financial review and the company’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 the company’s IR website at ir.trivago.com. You are encouraged to periodically visit trivago’s Investor Relations site for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2022.

With that, let me turn the call over to Johannes. Please go ahead.

Johannes Thomas: Good morning, everyone, and thank you for joining our Q3 2023 earnings call. Following our last conversation, I'm glad to provide you with updates on our journey towards reigniting trivago's growth and presence in the market. Our mission is clear. When price savvy travelers think about booking a hotel, we want them to think trivago. We simplified our planning, help them safe and instill confidence in their booking decision. The quarter unfolded largely as we anticipated. The continued negative effects of reduced brand marketing during the pandemic, our normalized monetization and volatility in Google search ads continue to impact us. However, with major uncertainties now behind us and a robust travel outlook, we are encouraged by our TV campaign performance this summer.

A modern hotel suite showing off the latest in hotel accommodations.

This positive momentum has steered our decision to change course and prioritize growth in the upcoming years. As a result, we expect adjusted EBITDA to be close to flat in 2024. I will now detail four strategic priorities that we believe will propel our success. Our first strategic priority is to reignite our globally recognized brand. We are planning to revamp our brand marketing investments to get back to the forefront of travelers mind. Listing 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 winter campaign, we are optimistic that we can demonstrate initial results by the first quarter of 2024. It's essential to note that our brand marketing isn't just about campaign.

We treat it as a performance marketing channel that can be optimized over time. Growing from our summer learnings, there's a considerable scope of enhancement across multiple dimensions from media channel and country mix to stronger creative. As we find these elements, we plan to prioritize growth, as long as we see the anticipated incremental returns. Our second strategic priority is to provide a seamless hotel search experience. We are simplifying the search across hundreds of sites and millions of accommodations saving traveler a significant time. We are constantly enhancing the user journey by conducting experiments on all aspects of our products. In the past month, we have qualified a range of product tests 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. This step has improved the quality and selection of our images and will enable us to iterate faster on the visual experience for our users. Our third strategic priority is to deliver the best deal discovery experience. We want to be the short cast for finding great hotel deals and better prices. This is where we can play our strength and differentiate uniquely. Many travelers are price conscious and due to inflation that has become even more sensitive. Rate disparity has increased since the pandemic, which elevated the value of comparing prices, which introduced new ways of spotlighting savings and great deals in our search results. Getting price heavy travelers to return to trivago will be important for our future success.

Our fourth strategic priority is to empower partners to realize their full potential on trivago. We're enhancing our marketplace infrastructure with more bidding granularity and rolling out a second price auction test in three relevant markets this quarter. By co-creating and innovating with our advertising partners, we aim to unlock user value throughout our metasearch and their booking journey. We are deepening our key partnerships and are encouraged by the active engagements we observe. Our brand strategy supports our commitment to remain a relevant marketing channel for our advertisers, driving high-quality traffic to them. In addition to our strategic pillars, we are committed to accelerating our pace of execution and fostering a culture of rapid learning.

With increased velocity in our product development and have doubled the number of experiments 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, we are confident of showcasing our enhancement and growth in 2024. As a last point, let me express my gratitude to Matthias, who is 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 are looking forward to Robin Harris, who will join as the new CFO next year. His expertise will enrich the leadership team in executing our new strategy.

With that, I'd like to pass the floor to Matthias.

Matthias Tillmann: Thank you, Johannes, 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. I've 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 a smooth transition to my successor, Robin Harrier. Now, 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 are on a year-over-year basis, unless otherwise indicated. Our 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 favorable tailwinds during the first half of 2023 from higher average booking values and foreign exchange headwinds, which negatively impacted our monetization level. Billing dynamics in our auction remained stable, albeit at lower monetization levels compared to the prior year, and we continue to observe ad format tests in Google. The combination led to volume losses on our platforms. However, the dynamic improved slightly compared to the second quarter. The net loss of €182.6 million in the third quarter as a result of a cumulative impairment charge of €196.1 million in connection with our annual investment lift intangible asset and goodwill impairment analysis.

The impairment was primarily driven by adjustments made to our profitability outlook arising from the announced strategy shift to long-term growth and our share price declined during the third quarter of 2023. Adjusted EBITDA, which excludes the impairment of goodwill was €60 million, down from €33.5 million in the same period last year. Now, on to the dynamics in the different regions. We saw referral revenue declines in Americas and Europe, while referral revenue increased in our segment Rest of World, as most countries in that segment continue to recover post COVID. Referral revenue declined by 21% and 17% in Americas and Developed Europe, respectively. The decline was largely driven by a loss in performance marketing volumes as we continue to observe at Bonitas in Google, leading to fewer impressions of traditional tax adds for us.

We started testing the new ad format. However, it is still too early to conclude on its potential. Other indication is that the traffic quality seems to be lower compared to tax ads. And consequently, the new ad formats did not compensate for the loss in high-quality traffic from tax ad. Preferred revenue in our segment Rest of World continue to grow driven by the recovery in markets like Japan, Turkey or Hong Kong. Overall, our referral revenue increased by 24%, driven by an increase in traffic volumes in all channels and higher average booking values. This was partly offset by negative foreign exchange effects. Moving on to our operational expenses. Excluding advertising expenses and the impairment of intangible assets and goodwill our operational expenses decreased by 13%.

-- compensation expenses, including share-based compensation and commission and other fees related to noncore products that we stopped last year were the main driver for lower operational expenses. Our cash and cash equivalents balance at the end of the quarter was €299 million. We have taken steps to improve our capital structure and reward our investors with a special onetime dividend of €184.4 million, which reflects our confidence in the future. Our shareholders approved the distribution of the onetime dividend on November 1, and we anticipate the payment of the distribution to ADS holders to be made on November 13, 2023. Let me close with an outlook on the fourth quarter. The main travel trends remained stable in October. We continue to see robust travel demand and elevated average booking values on our platforms in all regions.

The dynamic in performance marketing channels remains volatile, while monetization levels in our own auction have normalized. As a result, the year-over-year referral 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 base and traffic over time and keep trivago on top of traveler's minds, which is crucial to achieve our goal of sustained long-term growth.

For the full year 2023, we expect our adjusted EBITDA to be around €50 million. With that, let's open the line for questions. Operator, we are now ready to take the first question, please.

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