All right. Good morning, everyone, and thank you for joining us on day two of the Morgan Stanley TMT Conference in Barcelona. We are very pleased to be joined by Matthias Tillmann, CFO and Managing Director of trivago. My name is Sean Diffley. I'm the TMT Sector Specialist at Morgan Stanley, focused on Internet, Media, and Telecom. Before we dive in, I'm gonna give a quick run-through on the requisite disclosures. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley website.
Some of the statements made today by trivago may be considered forward-looking. These statements involve a number of risks and uncertainties, and actual results may differ materially. Any forward-looking statements made today by the company are based on assumptions as of today, and trivago takes no obligation to update them.
Please refer to trivago's 6-K for a discussion of risk factors that may affect actual results. So, with that, before we dive in, I wanted to give the audience that may be less familiar with trivago, a brief overview of the business and where you sit in the travel ecosystem.
Yeah, sure. So trivago is a global accommodation meta search platform. We have over 5 million accommodations on our platforms through over 200 booking sites. So essentially, through our marketplace, we connect those booking sites with travelers. We have invested a lot in building up a global brand over the last 15+ years, so we have very high brand awareness in most core countries.
And essentially, how the business model works is, it's a cost-per-click, CPC, or cost-per-acquisition, CPA, model, where we refer travelers to our partner site, where they can ultimately book an accommodation. So, it's focused on hotels, and that's our brand message. Our core value proposition is price comparison, so bringing transparency to the market, help travelers find the best hotel for the best price. Essentially what we want is when you hear hotel, think Trivago.
Great. I know the commercials well. The brand has resonated. So, let's start with the macro and travel trends. So, you know, summer travel season in the Northern Hemisphere was strong, maybe not quite as strong as 2022, but normal seasonality is kinda returning.
You know, I think people were a bit nervous about October, November trends, with some of the geopolitical uncertainty. Can you tell us what you've seen in the last few months from a demand standpoint? On the call, you had obviously spoken about, you know, stable trends from your bookings. So, walk us through how you're thinking about, you know, what the current travel demand picture looks like.
Yeah, sure. So, we have not seen a deceleration in October or November. I mean, if you take a step back, last year in summer, we have seen strong demand, pent-up demand post-COVID. So, I think the seasonality, at least from what we could see on our platforms, was a bit different compared to pre-pandemic years.
And now this year, we're seeing a normalization in seasonality, so making it a bit difficult to compare year-over-year. However, when we look at the third quarter, we think demand, travel demand was robust, and with a normalized seasonality, we saw what we expected. And now when I look at October and also the first two weeks of November, we see a continuation of that trend. Yeah, so for us...
And that, by the way, is in all regions, so there's no big difference between Americas, Europe, or Rest of World. Our revenue declined in Europe and Americas in the third quarter, and we saw that continuing at a similar rate in October, November, and we saw still a strong recovery in Rest of World, and that also continued, driven in particular by APAC. Japan is a market to call out, where we see a continuation of the recovery post-COVID. Yeah.
Excellent. So yeah, let's dig into some of the geographic differences that we're seeing, you know, mainly on the ADR front. Can you maybe quantify some of the different trends across Americas versus Developed Europe versus Rest of World?
Yeah, sure. So, ADRs obviously increased strongly last year, and I think last year there was a bit of a worry if that can continue this year or if we might see declines. We have not seen that. In Europe, we have seen in the last couple of months that ADRs continue to grow slightly, so low single digit. In Americas, on a euro basis, they declined slightly, but on an FX-neutral basis, we're also up low single digits. So, it's more currency effect for us as we report in euros.
But if you normalize for that, then we saw similar trends as in Europe. In Rest of World, we still see a strong increase this year-over-year, so like, low double-digit growth rate for ADRs, which I guess is reflecting the continued recovery in that segment.
Great. And so, can you talk about how the booking window may have changed? I think, you know, historically, you talk about kind of a 30-to-60-day booking window. How does it compare currently to what you've seen historically? And then obviously, it's still early, but, you know, how are we thinking about holiday trends, December and into 2024?
Yeah. So, the booking window has fully normalized for us. So, we see the 30-to-60-day window you mentioned across our regions. That's the nature of our business. People come to us when, yeah, they look for an accommodation one to two months out... During COVID, we had seen this booking window widening with the uncertainty near term, shortening with the uncertainty.
But now it's back and there's nothing to call out. So, and that, given where we are right now, we do have visibility into year-end, but not really into 2024 at this point. And what we are seeing is basically a continuation of what we saw in summer, obviously, adjusted for the different seasons.
What is interesting, when you take the US as an example, there's a slight shift in destinations. So what's popular for US travelers, you see that destinations in Japan and certain European destinations are back to the top of the list. I think that has to do with the reopening of Japan and some other Asian countries, and probably also with the currency. Given that the US dollar continues to be strong, and in particular, against the euro and the yen, it's quite attractive for US travelers to go there, and you can see that in our data for the upcoming winter season as well.
I went to Japan this summer, so you can count me in that category. How about length of stay? Has that shortened a bit, or is that fairly consistent?
Yeah, we have seen a shortening of the length of stay already in Europe last year, so it started really mid-summer. And since then, it has been stable on that level, so we have not seen a further shortening in Europe this year. Just if you compared to 2019, it's shorter. And we believe why we started to see that late summer last year was because travelers are trying to mitigate the effect of higher prices. And now we started to see that in Americas as well. Not as much as in Europe. So, when I look at Europe, I probably see around 10% decline in length of stay versus 2019. In Americas, it's rather around 5%.
And in Rest of World, we started to see now a slight decrease in length of stay as well. But again, I think Americas is catching up to what we have seen in Europe already last year. Europe has been stable since, so we have not seen a change, and Rest of World is a bit at a different point in the recovery anyways. But you're starting to see that now as well.
Okay. I think one of the value props of trivago versus other platforms is, you know, price comparison and value orientation. Maybe how do you think about inflation and consumer prices impacting kinda your relevance versus other ways to book?
Yeah, I think our value proposition in this high-price inflationary environment is more relevant than ever. And obviously, how I look at the business is two things will always be important for the consumer, and those are convenience and price. And when you look at our platform, that's what we have optimized for, yeah? So, it's a very lean user experience. There's no distraction.
You don't need to spend a lot of time to find what we are looking for. So that's the whole convenient aspect, yeah? We try to make it easy for you to identify what you want and where you want to book it, and that's the price component, so to give you transparency on the price.
So that historically, those have always been our core users, like, people who want to make sure they don't overpay. And I think, in the current environment, this group is growing as people try to find ways to mitigate the increase in prices and try to keep their average booking value, the basket value, constant or don't see a big increase for the same travel, kind of. And that is exactly what we are focusing on in our brand messaging.
I mean, it has always been important, but I think we are focusing on that even more now because we know it resonates with people, with travelers right now. And we want to make sure that people understand what we can deliver, what's the value, and yeah, to convey that message.
Great. I wanted to get your thoughts. You know, you joined the company in 2016. You're gonna be moving on to another opportunity next year. You helped navigate through a very tumultuous time through COVID. I'm curious what you think kind of the biggest changes are at the company pre- and post-COVID, and maybe one or two things, you know, from the business improvement side that you think might be underappreciated by investors.
Yeah. So obviously, the last couple of years have been very volatile, and we have seen a lot of changes, not only in the company, but also in the industry through COVID. When I compare trivago now to 2019, I think probably two things to call out that we have optimized for, in particular, during the pandemic. One is our overhead structure. So, we have restructured the company.
We have taken out quite a few costs, so I think we are a leaner business now and operate at a higher efficiency. And the second one is on the marketing side as well; we do things a bit differently. We optimized, in particular, performance channels quite a bit. We optimized the way we do brand marketing.
We experimented and tested different brand channels as well through the last couple of years, helping us to diversify the mix going forward. Yeah, those are two key things. And then overall, what we have also done on the product side is focus again on our core product.
We tested a few side projects and other products through the pandemic, and basically, we took the decision last summer to refocus again on the core, and there we see a big opportunity in terms of conversion improvement, sourcing deals, and making it transparent to users, showing better content and yeah, there we made quite some improvement through the pandemic.
Great. I think on this earnings call, it was clear that you're gonna reprioritize growth. Maybe walk us through the decision to do that. You know, what do you think is required to get back to 2019 revenue levels?
Yeah. So, to be honest, that's not the way we look at it. 2019 is now four years ago. We changed and optimized everything I just mentioned. So, for us, the baseline is 2022.
Mm.
That's our post-COVID baseline, and our ambition is to grow against that baseline. Yeah. So that's how we look at it. So recently, we announced a shift in strategy, if you want so, where we said, "Okay, we showed last year that we can deliver healthy margins and that we are a profitable business."
At the same time, we saw that our investments, in particular in brand, were showing good results, and we believe there's an opportunity for us in this environment currently to invest more in brand and grow the pie bigger. And that's exactly what we want to do, and we repeated that this summer with our brand campaign, so we again saw good results.
And, now we said, "Okay, let's be more consistent with our brand spend again." This year and last year, we focused mainly on the peak summer season, and we believe, we have a better chance to rebuild the baseline and, deliver sustainable long-term growth by being more consistent in investing outside that peak, period as well. Plus, now that we're seeing the recovery in some Asian markets as well, get back into markets where we have been, silent basically for four years. Yeah.
We decided to start early, already end of this year, probably in December, and then continue and with that tailwind, go into 2024 and start investing in January, and then again, be more consistent throughout the year, with the ambition to go back to double-digit growth over the medium term.
Got it. Okay. Talking about the advertising strategy a little bit further, maybe you could talk about some of the near-term investments you're making on the brand marketing side. Obviously, TV has been a primary channel for you. You know, why brand versus performance marketing? And when do you think we should really start to see the benefit of these investments flowing through?
Yeah. So, brand has always been our focus. That's the DNA of the company. That's how we started in 2009 running TV campaigns, and the rationale has actually not changed through the years. Yeah, we want people to come to trivago direct. We want to be top of mind and be recognized. We don't want to compete in performance marketing channels with our own partners.
There's a certain group where it makes sense that we acquire that user from performance marketing channels and increase the booking conversion and add values for users and our partners, and that's fine. But we don't want to go beyond that. That's why we are focusing on brand.
I think for us, it is important to tell a story, yeah, and make people convey a message, make people understand, like, what is the value proposition, and then everybody can decide, "Okay, is that for me or not?" You mentioned TV. TV has been our number one channel on the brand side. I think in the past, in certain years, it was 100% of our brand investment went into TV. And obviously, everybody knows TV is not a growing channel, but still, in absolute terms, it's the biggest brand channel, and that's why it will play a very important role for us, next year as well, and probably in the years to come.
However, we also acknowledge that there are newer channels emerging, like Connected TV, and that certain audiences are difficult to reach with TV, in particular, younger demographics. So that's why, as I mentioned, we started to diversify and started to look at other channels, and they will, I'm pretty sure, become more important over time in the mix. But again, when I look at 2024, you should expect that the vast majority of our investments go into TV.
Got it. Okay, and maybe you can talk about Google's, you know, changes in travel over the years, how they're impacting you, how you see that going forward.
Yeah. So, we called out the dynamics in performance marketing channels. Quite interesting right now, given that they have started to test different ad formats, and obviously, it's a dynamic environment, and we have seen quite a few changes over the years. It really started in 2017, when they pushed their own meta search product, Google Hotel Ads, and rolled it out globally. So that certainly has been a headwind for us and meant that there's more competition on the meta side.
And right now, what we are seeing is that they are testing different ad formats, and maybe that is related to the new regulation that is coming next year, the Digital Markets Act, where the regulator in Europe decided that Google, as a gatekeeper, cannot self-preference their own products like GHA. And that's why we see more volatility right now. We are testing new ad formats. Hard to tell how exactly it will shake out and what they will change.
We will watch that, and for us, it's important that we stick to our philosophy, and that is acquiring users where we can add value for our partners and for them. And we do that at our profitability targets. In the current environment, that means that we lost some volume there, but I think that over the medium term, I'm not worried about it. I think it might come back, and we will continue to focus on that because that's the, yeah, that's the way to increase the value on our platform for our partners.
Got it. And how do you think about alternative accommodations? And, you know, Airbnb, obviously, I think is one of the travel companies that made people a little nervous about a deceleration. How do you think about, you know, hotels versus OTAs, you know, versus alternative accommodations and how that fits into the travel landscape currently?
Yeah, I think through the pandemic, we have seen more awareness for alternative accommodation. A lot of people tried alternative accommodation for the first time. I think that category grew more than hotels during that time period.
We also saw that on our platform. I mean, I mentioned we have over 5 million accommodations on our platform, of which 3.8 million are alternative accommodations. So, we have that as well, and we have seen a shift towards that category during the COVID years. Now, we have seen a shift back, so now we are basically in our mix. We are back to the same ratio we had before, and the vast majority is hotels.
That's why I said, when you think trivago, when you see through hotels, you should think trivago. That's our brand claim, and that's our big focus, yeah? So, for us, obviously, you want to have comprehensive inventory. We want to provide you with decent choices across all your searches. Reality is that the vast majority of clicks and revenue for us is in the hotel category.
Got it. Okay. And I did want to ask about AI. Obviously, a big debate on how it will impact travel and, you know, obviously at the OpenAI Dev Day, they, they did a few travel examples. I'm curious, you know, what do you think the impact of artificial intelligence will be on, on the booking process and how, you know, Trivago fits into that?
Yeah, I think it's super, super exciting. There are lots of opportunities, and that's how we look at it. For us, it's really multiple opportunities in different areas and not like one big project. We are testing and experimenting with content generation. For example, we rolled out a trip planning assistant in the app. That's another example. But it's also outside the core product. Obviously, in functional areas like finance and audit, we also look at ways to enhance productivity, and I think that is quite exciting, and there's quite a few things we can do.
Got it. Okay, and I wanted to turn to profitability and EBITDA outlook. On the call, you had spoken to EBITDA close to flat in 2024. Maybe walk us through what's getting us there and how you think about balancing growth versus profitability.
Yeah, I think so that is important, because that is a change from last year and also this year. And we announced it in September with a shift in strategy and the refocus on growth. I think we have shown last year that this business can deliver healthy margins that we talked about already in 2016, that we set long-term margin goal is around 20%.
So that's where we were last year, and for this year, we said, yeah, a sustainable range for us is likely 15% to 20%. And I still believe long term; that's the right view. We have now made the decision to, in the next couple of years, focus more on growth and reinvesting our profitability, if you want so.
That's why we said for this year, we, we expect an Adjusted EBITDA of around EUR 50 million in absolute terms. So that would push you below the, the range of 15% to 20%. And then for next year, we want to be more aggressive and, invest more, and, really, the, the goal is to, to, as I said, is to get back to double-digit growth.
On the Adjusted EBITDA side, we said, "Okay, we don't want to get into negative territory," so we will stick to the philosophy that we had already pre-COVID, and that is being disciplined, not burning cash, but being closer to breakeven and reinvesting because we see this opportunity in the current environment to rebuild the brand and then get back to the margins we've seen before in later years.
Okay. Do we have any questions from the crowd? And I wanted to close out with what you think are the biggest opportunities are for trivago that, you know, maybe investors are not focused on or not thinking about, and what would you say are kind of the one or two things that keep you up at night from a risk standpoint?
Yeah, good question. So, I think, and you can see that, with, with our shift in strategy, we, we believe there's a lot of headroom in, in the core product, and I think that is a bit underappreciated. There are people who always ask about: What's the next big thing? How will you revolutionize travel? What can you do? I don't think we need to do that.
Yeah, I think given where we are, for us, it's, rather a, a journey of multiple smaller steps, how we can improve conversion, add value to, to users, and if we do that consistently over time, I think we will be in a good position. And the combination of, of doing that and gaining market share through our brand marketing initiatives will get us back on a sustainable growth path.
That is what we are focusing on. So, we are really doing our homework. Big focus is on content, on the overall search experience, how you find deals, and then sourcing deals and making that transparent to the users, in itself. I think if we do those three things well, then we have plenty of room to grow in that area and deliver value to both travelers and our advertisers over the next couple of years.
Great. That's a good place to end it. Thanks so much, Matthias, and good luck in your next endeavor.
Thank you. Thanks for having me.