$TRVG Trivago N.V. Q3 2024 Earnings Conference Call

Good day ladies and gentlemen, thank you for standing by and welcome to the trivago Q3 2024 earnings call. All lines have been placed on mute. After the speaker remarks, there will be a Q&A session. The call is being recorded today, Wednesday, November 6, 2024. We are pleased to be joined by Johannes Thomas, trivago CEO and Managing Director, and Robin Harris, trivago CFO and Managing Director. Please refer to the Q3 2024 operating and financial review for forward-looking statements. With that, let me turn the call over to Johannes. Please go ahead.

Thank you, Johannes, and good morning everyone. Q3 was an important quarter. We saw better-than-expected revenue growth in rest of world and notable improvement in developed Europe. In the Americas, temporarily unfavorable market conditions impacted revenue, and we made a tactical decision to adjust marketing spend accordingly. We have observed a positive start into Q4, with revenue growth compared to prior year. We believe we are on the verge of a sustainable turnaround and are confident we can return to growth in Q4. As of end of Q3, we held €18 million in cash and net working capital of around €140 million. Our current market cap is roughly as high as our cash position, highlighting a tremendous opportunity. We have a strong team of over 600 people, a stronger product, and the trivago brand remains one of the most recognized global travel brands. We are financially healthy and believe we can outperform the market in the midterm. Our focus on branded revenue growth continues to be fruitful. Additionally, our efforts to enhance booking conversions and lead quality are making us an increasingly attractive marketing channel. Let's delve into Q3 results. Total revenue was €46.1 million, a 7% decline year-over-year. Rest of world referral revenues increased 9%, developed Europe declined 8% (an improvement from previous quarter), Americas declined 14%. Brand investment efforts are yielding positive results, especially in developed Europe and rest of world with double-digit branded channel revenue growth. In the Americas, temporary market conditions affected ROAS, prompting a tactical reduction in brand marketing. Brand marketing investments are still at an early stage relative to pre-COVID levels, presenting significant upside. We continue to face challenges in performance marketing due to Google ad format changes, but we have observed stabilization over the past few weeks. We remain committed to a disciplined, opportunity-driven investment strategy. Monetization was softer but healthy and stable in Americas and rest of world. Net loss was €15.4 million, adjusted EBITDA of €13.6 million, moving us closer to full-year break-even. The net loss was largely driven by a €30 million impairment charge. Operational expenses decreased. Advertising spend decreased 12% in Americas, 15% in developed Europe, increased 28% in rest of world. Overall, we invested 7% less than Q3 2023. Global ROAS remained comparable to Q3 2023. Looking ahead, travel demand remains solid. We remain confident in achieving year-over-year topline growth in Q4 while maintaining disciplined marketing investments. For full year 2024, we expect adjusted EBITDA close to break-even. For 2025, we anticipate adjusted EBITDA levels similar to this year as we invest in brand marketing. We see substantial opportunities to scale brand marketing activities. We anticipate year-over-year revenue growth in 2025 with double-digit growth in the medium term. I plan to attend several conferences. With that, let's open the line for questions.

Your next question comes from Navid Kong with B Riley Securities. Please go ahead.

Okay, great, thank you very much. Good morning or good afternoon. My first question is on the return to positive growth in Q4. Should we expect Americas to turn positive? There were transitory issues in Q3. Also, developed Europe is seeing nice sequential improvement, should we expect it to be positive? Second question: on rest of world, you mentioned non-Google sources driving traffic. What kind of marketing channels are those? Social? Thank you.

Thanks for your questions. Regarding Q4, so far we see growth in this quarter, which is encouraging. Americas is back positive, rest of world positive, developed Europe still a little bit negative but improving. Overall, Q4 so far is positive. Regarding rest of world performance marketing, Google is still negative compared to prior year, but non-Google performance marketing is positive, so overall performance marketing is positive. Non-Google channels include Yahoo in Japan, which is an important market, and social channels.

Got it, thank you guys.

Your next question comes from the line of Doug Anmuth with JP Morgan. Please go ahead.

Great, this is for Doug. Thanks for taking the questions. I have two. First, you said Americas is back to positive growth. What happened in the quarter that caused the temporary unfavorable market conditions? Does that mean you've moved beyond that condition? Second, in the prepared remarks, you talked about brand intensity not being close to pre-pandemic levels. With Jürgen Klopp as brand ambassador, does this mean you plan to step up marketing investments in Q4 and into 2025?

Yes, thanks. In Q3, we saw softer demand at the beginning of Q3 and viewership shifts in TV advertising due to major sports events and political events. We are performance-focused, so we looked at the numbers, saw it wasn't as good as expected, and reduced spend, leading to better adjusted EBITDA but also revenue decline. And maybe Johannes can explain the dynamics further.

Got it, that makes sense. And my follow-up: with Jürgen Klopp as brand ambassador, does this mean you plan to step up marketing investments in Q4 and into 2025?

Got it, thank you.

Thank you. Our next question comes from the line of Jeremy New from UBS. Please go ahead.

Hey, good morning everyone. This is Jeremy on for Steven. I have two questions. First, you called out increased booking conversion across all geos. What drove this and how much more room for improvement? Second, regarding 2025 return to growth, what is underpinning that? Are you anticipating an improving backdrop or more meaningful impact from brand advertising? Thank you.

Let me take the first one on conversion. We do continuous product improvement with hundreds of tests every quarter, and we see many positive tests. There is continuous upside on conversion rate from product perspective. Conversion rate is a proxy for better quality leads and better user experience, which also drives return visits. Additionally, brand marketing drives conversion rate. Both product improvements and brand marketing improvements impact it. As branded revenue grows, the share of branded business will increase, further driving conversion rates. On the second question regarding the outlook, we believe we are reaching the turning point in Q4. We expect growth in 2025, with gross revenue growth closer to 10% than to 0% – high single digits. The drivers are branded revenue growth – we see the things we do are bearing fruit, and we have huge room to scale investments. Secondly, we have better comps next year because Q1 this year had a heavy Google drop. So it's positive branded revenue development and better performance marketing comps. Also, pre-pandemic brand spend was substantially higher than today, so there is quite an upside in how much brand investment we can do efficiently.

Great, thank you.

Thank you again. Should you have a question, please press star one. Our next question comes from the line of James Lee from ISU. Please go ahead.

Hello, this is Jack for James Lee. I have two questions. First, what are you seeing in terms of average booking value and any particular regions to call out? Second, on the broader travel environment, how would you describe user trends into holiday bookings and how these trends are translating to auction bidding demand? Thanks.

Happy to take the question. This is Robin. On ABV in Q3, overall it was relatively stable versus prior year. In Americas, ABV slightly down driven by decline in ADRs, stable length of stay. Developed Europe, ABV slightly up driven by stable ADRs and higher length of stay. Rest of world, ABV stable driven by higher ADRs and lower length of stay. Regarding Q4 outlook, from our internal search requests, we see solid ABV outlook. In Americas, ABV might be slightly down, click prices slightly down, length of stay slightly up. Rest of world, ABV might be slightly down. Developed Europe, ABV might be slightly up, click prices and length of stay slightly up. In terms of demand for Q4, we think it will be solid. Travel trends look healthy.

Our next question comes from the line of Brown Jie from Citi. Please go ahead.

Great, thanks for taking the question. I wanted to talk about hotel coverage. You mentioned extending AI-powered hotel highlights to 250,000+ hotels. Any insights on greater supply and how you plan to do that? Also, a quick follow-up: we've talked about Google ad format changes impacting results for the better part of a year. Comps get easier in 2025. Are you seeing things improve sequentially? Thank you.

Thank you.

Thank you. Our final question comes from the line of Tom White from Dave Davidson. Please go ahead.

Oh great, thanks for taking my questions. A couple on the branded channel commentary. There are a few different things that go into that. Could you maybe rank which of the various drivers you think is driving the most success? Is it investments in app downloads, SEO? And you've referenced the upside in how much you can invest relative to pre-pandemic brand spend. Can you remind us what the dollar amount or percentage of marketing spend was pre-pandemic?

This is Robin. Brand marketing includes TV, connected TV, YouTube, and social campaigns. We don't disclose a breakout. Overall, brand marketing investment is just a small portion of what it was at pre-COVID levels. We started at the end of last year in around 20 markets, tested, scaled in some, started new markets. In the past, we did TV advertising in 50 countries; now we do TV in a little more than 20, and there is still room to scale within those countries. We test a lot. The creative is super important, and the deal with Klopp can uplift campaigns. We are confident we have enough room to grow for the next couple of years. You can look at pre-pandemic marketing investment, which is public, to get a sense of the room. We optimize across channels and shift investments between markets. Adding new markets is also something we are exploring.

Okay, that's very helpful, thanks. And just a quick follow-up: on the 2025 guidance, did I hear correctly that the target is closer to 10% than low single digits? Thank you.

Yes, it's closer to 10 than to zero.

Thank you.

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

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