trivago N.V.

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Trivago's Q3 Earnings Call 2024. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. To withdraw your question, press star again. 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 Harris, Trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's views as of today, Wednesday, November 6th, 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 and 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 segments, maintaining the positive trajectory. while the America segment faced temporary market headwinds, including softer demand early in the quarter and reduced TV reach due to shifted viewership from major sports and political events. In Americas, we 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 break even on a full year basis in 2024. 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 Jurgen Klopp as the face of our upcoming marketing campaign. As a globally recognized soccer coach celebrated for his remarkable leadership, Klopp guided Liverpool to triumph in both the Premier League and the Champions League. Renown as the normal one, among a cycle of soccer legends, Klopp is celebrated worldwide for his smart personality and authentic character. Qualities that perfectly align with what we stand for. SOAP has been carefully selected after comprehensive pre-testing. Its 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 their ideal hotel. We have significantly expanded our AI-powered hotel highlights, increasing our coverage from 120,000 hotels to 250,000 hotels across eight languages and 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 discovery experience. We strive to help travelers find great deals and better prices. We've enhanced deal visibility with expansion of super saving deals to our apps, and the introduction of price drop deals, which highlight recent price decreases of a hotel. We have further improved rate accuracy on our platform by incorporating out our partners' full booking funnels, ensuring that deals we present are current and still available. This is an important initiative as we continue to service more deals to our users. Our fourth priority is to empower our partners on our platform. We continue to improve our conversion rate by optimizing our marketing mix and enhancing our product. 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. will continue to support our advertising partners with optimizing their bids through our smart bidding solutions and aim to expand our trivago branded book and go funnel to more advertisers in the course of 2025. in summary our q3 2024 results reflect solid brand 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 adaptability and response to situational market headwinds in the Americas. We are diligently focused on executing our strategic priorities and expect to deliver sustainable growth in the near term. A 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. 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 one and a half year 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 108 million euros in cash and had a net working capital of around 140 million euros. 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 product is stronger than ever. And the Trivago brand remains one of the most recognized global travel brands 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 to reflect our intrinsic value as our performance begins to demonstrate sustainable growth. Our focus on branded revenue growth continues to be a fruit. Year over year, we have seen positive developments here, which remains our top priority. Additionally, our efforts to enhance booking conversions 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 146.1 million euros, 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. And the Americas' temporarily 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 formats. 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 West of World segments. To summarize, the America segment faced challenges due to lower branded revenue growth and headwinds in performance marketing. Develop Europe showed an 8% decline, which is an improvement from the previous quarter. The West of World segment delivered strong revenue growth, driven by branded revenue and healthy monetization. During the third quarter, we reported a net loss of 15.4 million euros and achieved an adjusted EBITDA of 13.6 million euros, moving up closer to our full-year goal of break-even 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 30 million euros impairment charge related to our annual intangible asset impairment analysis. Operational expenses decreased by 176.5 million euros, totaling 165.7 million euros for the third quarter, primarily due to the goodwill impairment of 196.1 million euros in Q3 2023, partially offset by the current trademark impairment of 30 million euros. 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 the 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 Develop Europe and rest of the world were higher than in Q3 2023. Globally, our return on ad spend, ROAS, remained comparable to Q3 2023, with improvements in Develop Europe due to efficient brand marketing and a decrease in rest of the world due to optimistic high marketing investments. The ROAS in Americas was just slightly below Q3 2023. 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 by maintaining a disciplined, result-oriented approach to our marketing investments. For the full year 2024, we expect adjusted EVDA to be close to break-even levels. Looking forward to 2025, we anticipate adjusted EVTA 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.