Earnings Call: Q4 2018

Feb 6, 2019

Ladies and gentlemen, thank you for standing by and welcome to today's trivago Q4 Earnings Call 2018. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Wednesday, February 6, 2019. And now, I would now like to hand the conference over to your first speaker today, Mr. Eli Mata, Head of Investor Relations. Thank you. Please go ahead, sir. Thank you. Good afternoon, everybody. Welcome to trivago NV's financial results conference call for the Q4 ended December 31, 2018. I'm pleased to be joined on the call today by Rolf Schromgens, trivago's CEO and Managing Director and Axel Hefe, our CFO and Managing Director. The following discussion, including responses to your questions, reflects management's views as of today, February 6, 2019 only. We do 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 today's press release and the company filings with the SEC for information about factors which could cause our actual results to differ materially from these forward looking statements. Will find reconciliations of non GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's IR website at ir. Trivago.com. I encourage you to periodically visit our Investor Relations site for important content, including today's earnings release. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2017. With that, let me turn the call over to Rolf. Thanks, Eli. Welcome, everybody. Many thanks for joining our Q4 and full year's earnings call 2018. 2018 was quite an intense year for us as a company and as a team. We had to deal with a situation in which our core advertisers had very significantly adapted their profitability targets. And as a consequence, we had to cope with a drop in commercialization of our referrals, which directly affected the efficiency of our marketing. After accepting negative EBITDA for the first half of the year that summed up to nearly €40,000,000 we had to conclude that this is no longer maintainable to keep our growth trajectory on the back of accumulating losses. We were very confident that Trivago can be run with healthy margins. And at the same time, we were seeing that it was important for the organization to get a proof of that. We thought that this proof was essential for the team to keep on focusing on the business and delivering the best possible experience to our users. Actually, we needed a step change. And during Q2, we decided for consistent adaption of our targets across all channels, including brand as well as performance marketing. As a consequence, this affected obviously our top line growth. But together with keeping our overhead costs in shape, it also brought us back to profitability in the Q3. Now looking back at the last month, from a more balanced and confident situation, we were taking again more risk. We actively invested into long term important iterations in the product. I direct the direction that we will keep up pursuing in the future pursuing in the future. With our Q4 results, we see already 1st payers of these investments. We're happy to say that this quarter again exceeded our expectations in terms of revenue and profitability development. I want to thank the whole trivago team for making this happen. We always claim speed of learning as our core value, but it's actually amazing to see it applied in this way. Looking at our top line results for the Q4, we see the impact as a reaction of our significant reduction in our advertising spend. Total revenue went down 8% from €180,500,000 to €166,800,000 This brings the whole year 2018 to €914,800,000 down 12% from the year before. The negative revenue impact was driven by decline in qualified referrals, which reached $112,600,000 in Q4, down 90% year on year, while revenue per qualified referrals improved markedly from €1.27 to 1 €44, a 13% increase year on year. Just to put this into perspective, as already laid out, Q4 was a quarter in which we have fully seen the effects of fast product iterations. Our aim is to raise interaction on our side rather than motivating for fast lead generation. This explains part of the losses in qualified referrals as well as the gains in revenue per qualified referral. But also please keep in mind that we experienced a very difficult market environment in the Q4 2017 with a significant drop in bid levels, high volatility and also large scale tests by our advertisers. Looking at the revenue by segment. The share of the rest of the world markets is consistently growing throughout the last year and keeps on growing for Q4 2018. We are very happy though with the trends in Developed Europe, where we see that due to our strong brand revenue sorry, due to our strong brand, revenue reacts less on the significant reduction in advertising spend that we did. To truly understand our full year financial performance, it is important to look at 2018 as 2 parts: before and after the optimization and recalibration of our advertising spend, which we started end of Q2 2018. Effective in June, we adapted our ad spends across all segments and channels. We raised very significantly our targets and performance marketing, but also reduced our brand marketing spend. This is reflected in our first half year and second half year comparison. While we had ran marketing spend a comparable level to 2017 previous to this change, ad spend in the second half of the year was 30% lower than 1 year before. This had consequently a direct impact on our return on advertising spend. While we were below 20 seventeen's profitability in the first half of the year, ROAS improved drastically in Q3. In Q4, we reached a marketing profitability of 163% compared to 118% the year before. With our changes in the marketing strategy, we also managed to rationalize our operating expenses. Of course, changes here have a certain time lag before FX become fully visible. So maintaining the levels of 2017 throughout the first half of this year still led to a very significant increase of 36%. With the 4th quarter, we managed for the first time to reduce our operating expenditures and go back to healthy levels even below the numbers of 2017. The changes in our marketing strategy as well as the optimization of our overhead cost consequently led to the last in the last quarter to improved profitability. While adjusted EBITDA was minus €8,700,000 in the last quarter of 2017, it is €28,600,000 in the current quarter Q4 2018. With €15,600,000 in adjusted EBITDA for the full year, we actually beat 20 seventeen's EBITDA of €6,700,000 And this after making up for leeway of €70,000,000 that we accumulated in the 1st 2 quarters. Looking at the year over year adjusted EBITDA trajectory by quarters, we see that while in the Q1 of this year, we were still performing €41,200,000 worse than a year before, we turned this around during the year and are performing this quarter €37,200,000 better than 1 year ago. Besides that, we see a slowdown in referral revenue decline in Q4 versus Q3, which indicates the resilience of our revenue in the context of our marketing reductions. We have been most resilient in developed Europe, where we have operated the longest and where we have the highest level of brand awareness. Now please also keep in mind that we have comparatively easy comps in the current quarter. Another continuing topic we have been updating you on is our ongoing efforts to onboard alternative accommodation providers. While we are very excited about this opportunity, we are also approaching the project with a gradual increase to keep market dynamics stable and improve via learnings given the complexity of the topic. We are proud to say that we have now crossed the 1,500,000 properties milestone, and we will continue on our path to gradually increase alternative accommodation visibility. We believe that alternative accommodation will improve our offering significantly by making it more exhaustive and by integrating them into a single coherent search experience. We also continue to update you on our advertiser segmentation. Q4 2018 is in line with the same period of the previous year, with a slight decrease for Expedia Group and a slight increase for Booking Holdings and other advertisers in the order of about 1%. Let me point out that we continue to invest into strong relationships with our advertisers, which again significantly improved. We believe that the more we cooperate and share learnings, the better for our users and our mutual growth. Axel will now follow-up with some more detailed financials. Thanks, Rolf. As Rolf mentioned already, in the Q4, our total revenues reached €166,800,000 down 8% from the Q4 of last year. Whereas for the full year, the revenues reached €914,800,000 down 12% compared to 2017. If you look at the adjusted EBITDA, the 4th quarter showed €28,600,000 as adjusted EBITDA compared to a loss of €8,700,000 in the Q4 2017, which represents a 17.1% adjusted EBITDA to total revenue margin compared to minus 4.8% in the Q4 2017. For the full year, our adjusted EBITDA improved from €6,700,000 in 2017 to €15,600,000 in 2018, representing a margin as a percent of total revenue of 0.6%, increasing to 1.7%. Looking at net income. The net income in the Q4 of 2018 reached €11,700,000 up from a €9,600,000 loss in the Q4 of 2017, which represents an increase of a minus 5.3% margin as a percent of total revenue to 7% total margin as a percent of total revenue. Looking at the return on advertisement spend for the Q4, we've seen a very significant improvement from 118% in the Q4 2017 to 163% in the Q4 2018, which is an increase by 45 percentage points. And also for the full year, we improved from 115% in 2017 to 123% in 2018 or 8 percentage points. If you look at our KPIs on a global level, the biggest driver obviously has been the optimization and recalibration of advertisement spend, as Rolf mentioned earlier, which had a significant impact both on the quarter and also on the full financial year. The second effect on the ROAS level that we've seen is the change in commercialization, which had a minor effect on the 4th quarter, but still a significant effect on the full year. This led to, as I mentioned before, an increase of 45 percentage points in the quarter and 8 percentage points for the full year of the global return on advertisement spend. Compared to a particularly weak Q4 2017, our revenue dropped only 8% and reached €162,400,000 in the Q4 2018. For the full year, the drop in referral revenue was 12 percentage points reaching €899,800,000 If we now look at the subcomponents of referral revenue, there is obviously the qualified referrals, which dropped from 139,300,000 in the Q4 2017 to 112,600,000 and a 19% drop. For the full year, the number in Q4 2017 has been 720 €7,100,000 down to €668,300,000 or an 8% reduction. Key drivers of this development has been the lower spend levels, which obviously had a negative impact on our qualified referral development and the platform optimizations, which led to a reduction in click outs and in qualified referrals in 2018. Looking at the RPQR, the main drivers that we've seen on a global level were positively the more targeted spend, which had a positive impact on the RPQR through the optimization and also the resilience of our branded users, which again increased average traffic quality. The product changes that reduced the QRs and at the same booking volume improved the revenue per qualified referral. As a negative driver, negative mix and currency effects. And for the full year also some effects through commercialization changes. All of this led to an increase of the RPQR in the 4th quarter, up from 2017 €1.27 to €1.44 or an increase of 13% and for the full year, up from €1.40 to down from €1.40 to €1.35 or a reduction of 4%. Now coming to the KPIs per segment. In Developed Europe, we saw a steep increase in ROAS in the 4th quarter from 136 percent to 202% in the Q4 2018 or up 66 percentage points. For the full year, up 13 percentage points from 131 in 2017 to 144 in 2018. The main driver of this development has been, as for the overall business, the optimization and recalibration of our advertisement spend. Referral revenue shrank from €69,900,000 in the Q4 2017 to €67,200,000 in the Q4 2018 or a 4% drop and for the full year €425,000,000 in 'seventeen to €378,900,000 in 2018 or an 11% drop. If we now look at the components of our referral revenue, the qualified referrals dropped significantly in the Q4 from $49,700,000 to $37,300,000 or 25 percent and for the full year from $295,500,000 to $246,700,000 which is a 17% drop. The big drivers as on the global level have been the reduction in our advertisement spend and the product optimizations that Rolf mentioned before. The RPQR, on the other hand, increased significantly in the 4th quarter by 28%, up from €1.41 to €1.80 and for the full year from €1.44 to €1.54 or 7%. In particular, in Developed Europe, you can see that the resilience of our branded users has significantly improved our average traffic quality and improved the RPQR. And also the product changes like in the other regions has reduced the number of QRs and improved the RPQRs. Coming to Americas. In Americas, we saw an increase of the ROAS by 36 percentage points in the 4th quarter, up from 123 in 2017 to 159 in 2018 and for the full year, up 5 percentage points, up from 116% in 2017 to 121% in 2018. Drivers of this development have been optimization and recalibration of our advertisement spend, slightly improved levels of commercialization versus the Q4 in 2017 on a quarterly basis, so just on the Q4. And also the yes, sorry, that's it. On referral revenue, the revenue in the 4th quarter went down from €65,800,000 to €53,900,000 or down 18%. For the full year, the revenue went down from €391,700,000 to €316,000,000 or 19%. The components of the referral revenue, QRs dropped from €41,600,000 in the Q4 2017 to 30 1,300,000 in the Q4 2018 or 25%. For the full year, the numbers developed from €203,400,000 to €182,300,000 or a drop of 10%, again driven by the reduction in our advertisement spend and product optimizations. Look at the RPQR, positive impact were positively impacted by our optimization and recalibration of our advertising spend, were positively impacted by our product optimizations that reduced QRs and increased RPQRs. And in the Q4, slightly improved commercialization. On the negative side on the Q4, there was a negative country mix effect with lower RPQR locales and certain Latin American currencies devalued, which also had a negative effect on the RPQR in the Q4. This led to a development of €1.58 in the Q4 2017, increasing by 9% to €1.72 in the Q4 2018. And for the full year, €1.93 in the full year 2017, down to €1.73 for the full year 2018 or a drop of 10%. Coming to Rest of the World. The ROAS increased by 34 percentage points, up from 93% in the Q4 2017 to 127% in the Q4 2018 and for the full year, up from 92% in 2017 to 100% in 2018 or up 8%. Again, main driver has been the optimization and recalibration of our advertisement spend. Looking at referral revenue, the revenue in the Q4 was basically flat, €41,500,000 in the Q4 2017 €41,300,000 in the Q4 2018. For the full year, there was a slight increase coming from €203,600,000 in 2017 to €204,900,000 in the full year 2018. We now look at the subcomponents of referral revenue. Qualified referrals dropped in the 4th quarter from €48,000,000 in the Q4 2017 to €44,000,000 in the Q4 2018 or an 8% drop. For the full year, there was an increase from 228,300,000 to 239,300,000 in 20 18 or a 5% increase. There has been a negative impact on the QRs, in particular coming from the reduction of our advertising spend and our product optimizations like in the other regions. Our PQR went up through the optimization recalibration of our advertisement spend in the 4th quarter, the impact of our platform optimizations and was negatively impacted by a country mix effect towards lower RPQR locales in the 4th quarter. As a result, the RPQR increased by 9% in the 4th quarter, up from $0.86 in 2017 to $0.94 in 2018 and for the full year, down from $0.89 in 2017 to €0.86 in 2018 or a 3% drop. Summarizing our overall performance in the Q4 2018, there are 4 points that are standing out. The first one is that we continued on our track of optimizing and recalibrating our advertising spend, which has resulted in a significant improvement of our profitability in the Q4 year over year. 2nd point, we benefited from a stable and improved place dynamic compared to the same period last year when some of our largest advertisers were conducting significant tests, and we had an overall very volatile situation, which has helped us. On the referral revenue, we've seen that the business has been pretty resilient in developed Europe despite significant reductions in advertising spend, which reflects our very strong brand position and our long history in those markets. And 4th point, our strategic focus on alternative accommodation continues. We believe that we are on a good trajectory and have surpassed the threshold of 1,500,000 units available on the platform. Now coming to our guidance for 2019. On adjusted EBITDA for the full year 2019, we expect €50,000,000 to €75,000,000 On total revenue, we expect to see a decline in the first half. And due to the difficult comparable period and significantly more in the Q1 than in the second quarter. And in the second half, we expect total revenue to return to growth. So I think with that, we can open the floor up for questions. So operator, can you open the floor for Q and A? Sure, sir. And our first question comes from the line of Tom White from D. A. Davidson. Your line is now open. Great. Thanks for taking my questions. 2, if I may. Just on RPQR trends, look like very strong growth in Europe in the 4th quarter, kind of outpacing our PQR growth in the U. S. And Rest of World. I'm just trying to understand make sure I understand the difference, kind of the factors driving the difference there. Is there any difference in kind of the timing of when some of the more impactful kind of traffic optimization stuff was rolled out different geographies? Or are there other kind of structural differences maybe driving that, maybe brand recognition? And then just on alternative accommodations, just curious if you can comment on kind of how that's impacting your monetization? It seems like there are fewer advertisers on your side for those types of listings, that type of inventory. So just curious on how this is impacting monetization. Okay. Sure. So on the RPQR trend in developed Europe versus the rest of the business, we believe that the big difference in the development is really coming from our history and the strength of our brand in Europe. And as a result, when we optimize our spend, we saw that we lost less booking volume and fundamental value compared to the other regions, which shows that our core users and our core users are more resilient than in markets where we don't have an as long history and the brand has not been present for an as long time period. And that is, from our perspective, the key driver. The optimization logic is the same globally. There are obviously different targets that we feel are appropriate market by market. But the logic and the activities are comparable and also the product changes are global. So the main difference is really the history and the strength of our brand and the core user base. Yes. Regarding our approach to alternative accommodation, I think it's important to note that our approach here disses from other market participants. So we do not see that we substitute leads. So we don't substitute leads that we had in hotel now with leads that we have in with alternative accommodations. Actually, our approach is that we enrich the results that we had before through alternative accommodations. And we do that in a way that we improve the overall conversion. And that is happening because users now see like offers, which are they're more likely to book because it's an additional offer, Additional offer and additional inventory usually gets you also higher conversions. So we see a positive impact on commercialization, and we think that it's confirming our approach. At the end, you cannot have like different tabs on your website. You have really to bring it into one search result and to really significantly improve the user experience. But let me also say that this is still we are still experimenting a lot around that, right? And personalization has a major impact. So the better we get in personalization, the more we will also have we are able to currently also convert users which are maybe mainly booking hotels into users which are also booking alternative accommodations. Okay. Our next question comes from the line of James Lee from Mizuho Securities. Your line is now open. Yes, thanks for taking my question. Maybe if you can you guys can help us understand your marketing plan, maybe geographically going to 2019. Do you want to maybe continue invest to defend your developed European markets, which shows some resilience resiliency during 2018 or the focus on your marketing maybe spend on North America where your revenue mix actually declined 4Q 2018? So in general, we don't look at marketing spend as a kind of strategic way where we say, okay, we overinvest here to defend or to progress. So I think the way we look at marketing spend is really on a case by case perspective. So we're really looking at, okay, where do we see that our investments might be the most efficient. We reduced our investments where we thought they were less the least efficient. And when we invest more, we will also reinvest where we see the most efficient buckets, yes? And that is true for performance marketing as well as for brand marketing. So we don't have this like local territorial approach to marketing at all. Okay. And maybe can you give us an update on your cloud migration there specifically and maybe help us understand how that plays in your optimization, your cost base for 2019? So we did a lot of progress actually during the last couple of months moving core parts of our application in the cloud. But we don't see a heavy impact on our operating expenses, yes? So I think we have been very efficient in doing that, very fast and very efficient. So we don't see an impact there. All right. Thank you. Okay. Our next question comes from the line of Douglas Anmuth from JPMorgan. Your line is now open. Hello. This is David on for Doug. Thanks for taking our question. The question is on your guide. So I appreciate the color you provided on the revenue trajectory in 2019. But could you help us better understand the magnitude of the growth that you expect for the full year or maybe the rate at which you expect to exit the year? Yes. So we don't guide on the overall net effect for the full year. But yes, as we said, we expect a negative growth in the first half and positive in the second half. And the overall magnitude for the full year is unclear. Got it. And then just as a follow-up, what stage are you in optimization and recalibration of your advertising spend? Do you feel like it's at a level that more closely reflects the commercialization level of your platform? Or should we expect more improvement ongoing? I mean, you will see, of course, in the first half of the year, you will see an improvement to the previous half the year because there is a big step change still to happen, right? In the second half of the year, I think you will not see that. So there will not be another calibration or recalibration of that spend. So we will rather end up where we are right now or we also want to go back to a growth trajectory, right? So there will be rather more investments. Okay. Our next question comes from the line of Lloyd Walmsley from DB. Your line is now open. Hey, guys. This is Chris on for Lloyd. Maybe if we could just kind of focus back in on the Americas section. I know you guys had called out that there has been a negative mix impact associated with more click volume coming out of lower monetizing regions in Lat Am. Could we maybe just is there any color that you guys could provide on like a like for like basis specific to the U. S. Just to get a sense for how those RPQRs are trending? And just as we're thinking up to 2019, are you guys expecting this mix to start to stabilize or is this something that we should continue to expect to be a headwind? Yes. So I mean, we don't comment on individual markets. But generally speaking, the northern part of our Americas segment obviously has a higher RPQR than the southern part. So the comment on a shift towards lower RPQR regions in Americas mean that the North has shown a weaker QR development than the South in Americas, broadly speaking. And we believe that the reason for that is similar to the positive development of Developed Europe that there is just a different strength and history in the market. And that effect should lap once we are through seeing the full implementation of our recalibration and optimization initiative. The second effect that you see in Americas is obviously the FX effect, which is in particularly in Latin America. There are are some currencies that devalued very significantly, which dragged it down further. But the key thing you see there within the segment is the same that you see between the different segments that there is a different reaction to the optimization on the QR and the RPQR metrics. Got it. And if I could just ask one follow-up here. I think you guys have called out that some of your key advertisers were seeing their average bids rise in your auction. Just how should we be thinking about this impacting your propensity to invest in marketing in 2019? So I think we have year on year, we have not seen a big change in commercialization in the Q4. So we neither plan in an improvement nor we think that we will go down from this level. I mean the guidance implies the commercialization level that we see today as we have done in the past, we don't think that it would be prudent to assume improving or worsening commercialization levels from what we know today. Okay. Our next question comes from the line of Shyam Patil from SIG. Your line is now open. Hi, guys. This is Brendan on for Shyam. Just in terms of the product changes and innovations, you guys are talking about that you started investing in December. Can you just talk a little bit more about the specific changes and then the goals of the innovations? And then more broadly kind of taking the innovations into account, just how should we kind of think about RPQRs and QRs through quarters in 2019? Yes. I made that remark already in my opening comments. So actually, we what we want to work on is we want to improve the interaction with our site. So we think that the amount of interaction that users do on Trivago compared maybe they do on one of our advertiser website also improves in general the retention to our site. So when we see high interaction rates, we see higher long term retention. And this is something that we like started in Q3, ended Q3 this year to enforce. So we changed our metric system. We changed our way we optimize, and we did that throughout the Q4. And these are like features which are incremental like incrementally always like trying to get more content exposure on our side, more interaction on our side and then send people over to an advertiser site at a later in a later moment in time. And that's why you see in general, you see also the reduction in the qualified referrals. That's one of the reasons, next to the advertising optimization. Maybe Axel can comment on the overall effect in the quarters. Yes. So if you look at the development in the 3rd Q4, one difference between the 3rd Q4 is that the year over year trajectory has a different commercialization comparison. So in Q3, we were still having a negative impact from the year over year commercialization difference, whereas in Q4, we are basically neutral with some slight positives in Americas. So and what you have in the Q4 is more significant changes coming from the product side plus the impact that is coming through the recalibration and the optimization. So the changes those changes will persist for 2 3 more quarters, which you obviously need to keep in mind. And then on our general guidance that we've always given without any extraordinary effect, we assume that there is basically a flat RPQR development by region. You would need to add some slight headwinds to that on the RPQR side coming from the product initiatives that Rolf was talking about. However, you need to make sure that whatever you assume as a headwind, you basically factor in to the QRs as well sorry, headwind tailwind and headwind for the QRs. So the negative development you assume for the RPQRs, you need to for the QRs, you need to assume as a positive for the RPQRs as well because they go hand in hand. We wouldn't accept optimizations that net have a negative impact clearly. It is more the composition of the revenue that is changing through these product changes. Okay. Our next question comes from the line of Naved Khan from SunTrust. Your line is now open. Yes. Thanks a lot. It's Naveed Khan, SunTrust. Just a big picture question maybe on the on your sort of as you sort of talk about the cadence of the year and how the back half is going to see possibly a return to top line growth, how should we be thinking about your ability to grow the top line along with some improvement on the ad spend. So basically, is it possible to grow the top line just through product improvements? Or what's the right way to think about it? I think that is how we grew our top line also in the past very significantly, the product improvement and through marketing optimization. And I understand that it's sometimes difficult when you look at the numbers right now to get an idea like where we will be. Just to like to and the reason for that is, it's always difficult when both metrics change, it's also like a little bit difficult, right? So on one hand, you have an impact on growth. On the other side, you have an impact on profitability. How should you weigh that against each other? But I mean, when you, for example, look like just one indication, if you're looking at the development in Rest of the World, there you have some indication because basically the year on year development on revenue was flat. And so you can say like for like, the year on year development flat, like what was the impact on the profitability. And there you can see we have to get profitability improved from 93% ROAS to, I think, 127% ROAS. So you get an idea that there is a lot of improvement potential kind of like, which is manifesting for this year rather in a profitability increase than in a revenue increase. But there is this profitability like efficiency improvement in there. And I think now it's on us to see like, okay, where will this be in 1 year? We are confident that we can grow top line. But I think it's also like we also went through this change and I think it's quite it was a quite significant step change. So I think we also have to be careful with saying exactly where we will end then. But we are very confident that we can move back to growth. Understood. And that's very helpful. So a quick follow-up maybe on the 2 large advertisers. It looks like there was some share movements. So booking, I think, was at 34 and I think 2, 3 they were at 44 and Expedia, I think, gained share. Anything specific in terms of the dynamics between the 2 and one sort of losing share, another gaining share? Can you just comment on that a bit? I think the best way to look at these numbers is if you do a year on year comparison because what you have in there is that there is on a quarter on quarter level, so you described basically like bookings going down from 44% to 34%. But that is an effect that is due to different seasonalities. And when you compare it to last year, there's actually minor changes, and I would not over interpret those changes. Got it. Thank you. Okay. Our next question comes from the line of Mark May from Citi. Your line is now open. Thank you. Yes, Q4, I think it was the 2nd consecutive quarter of high teens year on year declines in the average number of QRs that you're generating for every marketing dollar spent. Do you have any visibility as to when either you plan stabilize your marketing budget or even start to increase it again? Or if you don't have visibility into that, when you might start to see an improvement in the QR declines relative to the marketing spend? Just kind of curious on that dynamic there and how you're thinking about especially in terms of the marketing spend? And then secondly, could you talk to us about how RPQR for alternative accommodation referrals, they compare with the average for hotels? Okay. On your first question, so the advertising expenditure per qualified referral went down because of the optimization in Q3 and Q4. And that is obviously what we would expect for the first half of the year as well to see that effect to continue. For the second half of the year, this trend, you will not see to the same extent an improvement in our marketing efficiency. So that's the first question. On the second question, on the RPQR for alternative accommodation, I mean, as Rolf said, we see it as accretive to the overall conversion because we have searches where our users would consider alternative accommodations or yes, even they are even very, very relevant thinking, for example, about family vacations where some hotels are interesting, but also some apartments or vacation rentals could be very interesting. And we have an incomplete offering as of today. And as in the past with long tail hotels, an increase of overall I mean, more complete overall offering helps the overall conversion and the overall stickiness of our product and improves the retention of our users. So overall, we see it as accretive, which doesn't obviously mean that every single apartment or every single search will be accretive. But overall, we believe that it will overall help the conversion. Let me go to your or add some more color to your first for the first part of your question. So regarding like qualified referral growth in the second half of the year next year and to comment on like the qualified referrals exign on Q4. So I think as I said before, the qualified referral decline in this year, it's not only a reflection of like our optimized advertising spend. It's not only a reflection of the amount of traffic that we bring to our site, because it's also kind of reflection of the product optimization that we do on the platform. So it's a mixed effect here. Looking at next year, specifically like the 2nd part of next year, of course, we or we said that before, we expect that we go back to growth, meaning that the traffic volume that we bring to our site, the quality and so quality times volume that we bring to our site will grow. I think when you're looking then at the qualified referral, I think there is still next in the second half of next year the question like how much product optimization will we have done until then, if that is reflected in the qualified referrals or in the revenue per qualified referrals. And I think that is just hard to answer because if we are very successful in our product optimizations in the first half of the year, we will see most of the growth effect then rather in the revenue per qualified referrals, I mean, we'll see it in the qualified referrals. Okay. Our next question comes from the line of Brian Nowak from Morgan Stanley. Your line is now open. Hi, this is Alex Wong on for Brian. Thanks for taking our question. Just a follow-up on the qualified referral. As you continue to think about improving asset quality and Rolfe, you just talked about some of the product optimization. Has your view on the opportunity at the top of the funnel changed relative to a few years ago? And how should we think about kind of longer term referral growth? No, I think the opportunity has not changed at all. So we truly believe in our value proposition to be an aggregator. And I think when you're looking at the development of the market, when you're looking at that alternative accommodation gets more and more also a substitute for hotels, I think that it's even more the market is even more asking for an aggregator. So I don't think that the position at the top of the funnel really aggregating all of these players, that is getting weaker. And on the other side, I think a trend that we will see in the long run is definitely that we will see that hotel offers will individualize way more than they do today, and we see that happening with Airbnb. We see that happening with trends in the industry. And I think the more individual a hotel offer is, the more a position at the top of the funnel asserts that like offers you an aggregation of all the different players, the more that is valuable, yes, because you need a market maker who brings individual demand to individual office. So we have not changed our view on that. Understood. And just a follow-up. There was some commentary on slight improvement in commercialization in the Americas. Was there something specific to the Americas versus the other two regions? And more broadly, can you just provide us an update on the relatively new attribution model and what the focus is there, whether it's booking value? I think you touched on higher interaction rates, but if you could flush that out a bit, that would be helpful. Yes. So there's nothing significantly different in Americas. It's just slightly, slightly positive versus neutral in the other regions, which have all kind of effects in there, different country mix country development, etcetera. So no significant different strategy that we would observe. On the second question, the attribution model has now been implemented for quite some time. And of course, we continue to optimize it. But on the quarter, the effect is not significant. So the comments that we had in there are basically for the full year comparisons where there is still some effect and particularly in the beginning of the year. So the way to think about is more and it's fully operational and it's obviously we continue to improve it every day. Thanks. Okay. Our next question comes from the line of Robert Kubernetes from Wells Fargo. Your line is now open. Great. Thank you for taking our questions. Your comments on the brand strength and history in developed Europe and how that's contributed to the RPQR development. Just wanted to return to that for a moment. Wondering why that wouldn't play out more in sort of QR strength relative to the change in advertising spend versus RPQR strength. And then also wanted to ask on contribution from chain and independent hoteliers. Could you maybe give us an update on Hotel Manager or Manager Pro and your efforts to build those direct relationships and the kind of traction you're seeing? Thanks. Okay. So why does not manifest it more in QRs than it does in RPQRs? It's basically due to the fact that we did these significant changes in the product. And this is why you take over these improvements from the QRs to the RP QRs. We have to give the same effect that we predict also to happen over the next year. On the overall efforts on the Hotel Direct side, we continue to engage heavily with hotel chains and also continue to invest in our relationships with independent hotels through our direct products. But there is no fundamental change, which I mean would have been a surprise as well. I mean it's more a gradual improvement and we continue on our path and believe that it is the right thing to do and that it will pay off in the future. Okay. Our next question comes from the line of Kevin Kopelman from Cowen. Your line is now open. Hi, thanks a lot. Could you talk about how you view seasonality of profits under your new profit optimization strategy? Would profits typically be 1st half weighted, 2nd half weighted or more balanced throughout the year? Sure. I mean compared to this year, we would expect them to be more balanced, so no surprise. The I think that they are I mean, we are expecting, yes, more steady profitability, but there will still be some volatility between the different quarters as they are not all the same. And we wouldn't give more specific guidance on that at this point in time. Yes. And not specifically for this year, but just kind of as a general rule, is Q3 should Q3 be a high point? I mean, not necessarily. I mean, they are as I said, they are different dynamics in the different regions and the different quarters. And we might also test different spending patterns in the future. So you will always have some movement in the absolute levels of profitability. But yes, we would expect it to be more steady than this year and also the year before. I mean also historically, we have been always like strong in the second half of the year, and I think that is something that we'll probably maintain in the future. But also think about it in the moment where there is maybe also more investment into growth again, and we might see opportunities there, then there might be kind of like a shift again between the 3rd and the 4th quarter maybe. But I think that's dependent on like going into the quarter, seeing where there are like possible good investments into marketing and that will decide it more or less, I think, between the 2 quarters at the end of the year. Great. Thanks, Raoul. Thanks, Aksel. I think we have time for one more question, operator. Yes, sir. And our last question comes from the line of Heath Terry from Goldman Sachs. Your line is now open. Great, thanks. Just a couple of things I wanted to follow-up on. With pricing parity changes and regulations continuing to change in Europe as well as some of the contractual changes that you're seeing in the U. S. Are you seeing that begin to drive more variability in pricing from different sources across your platform? And if so, do you see that benefiting trivago longer term as consumers begin to notice the ability to find better prices across different platforms. Any trends that you're sort of seeing there? I know you've talked about it a bit in the past, would be helpful. And then on the to follow-up on the earlier question about Hotel Direct, any progress in terms of being able to show loyalty rates or preferential rates from the hotels directly the trivago platform? I think regarding price parity, I think that's a long term trend. We talked about it in one of the calls this year. And we said, I think, that we see like a long term trend also reflected in what we see that rather disparity increase that increases that it decreases. So definitely, we see that. And we think also that's a long term positive for trivago if this trend continues. I think it would be definitely long term positive for us if hotels get more in control of their pricing and they can decide. And but I would not say like we see now a significant increase from quarter to quarter. So yes, that's not the case. I think that's not significant enough. But it's a long term trend. Yes, fully agree. On your second question, loyalty rates specifically, I think we discussed that on one of the previous calls. It is absolutely in our interest to show every rate that is available out there to help our users to have maximum transparency. However, some of these rates are more difficult to implement than others, and we are we continue to be focused on it. So yes, we think that we have made progress even though it might not be as visible to the outside as of today. Operator, with that, I want to hand it back to Rolf for some closing remarks, please. Okay. Yes. Thank you, Ali. So I think while the previous years were rather characterized by hypergrowth, the current year was rather defined by a step change towards more healthy profitability levels. Although these changes were a challenge for the organization, the profitability gives us back the confidence to invest into our people, to invest into our product and to invest into our long term sustainable growth. I have to say that I learned a lot this year. I think we learned a lot as a team and also as an organization. And we are keen on keen to keep on learning and return back to our growth trajectory in the second half of the year. So thanks, everybody, for joining the call. I think this concludes the call. Thank you very much. Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.