Analyst Meeting

Dec 7, 2017

Slides

So when we were coming to the building, we were thinking, okay, one year ago, we are on the road. And actually, a lot of things have happened in the last year. And given that we are approaching Christmas, we thought it might be a good point in time to look back on 2017, what has actually happened and to recap and give a first outlook for next year. Don't worry, I won't read the disclaimer to you. So just an overview on trivago. I guess most of you know us very well. But for those who don't, last twelve month numbers, slightly north of €1,000,000,000 in revenue, 700,000,000 qualified referrals, more than 2,000,000,000 visits in the last twelve months. On the supply side, we exceed now 1,800,000 hotels and 400 different booking sites on our platform. And we are active with 55 platforms, which cover even more countries. So how do we fit into the overall travel universe? The way we are thinking is actually looking for the hotel to stay in, where to stay and where to book. So undecided and they need support in the overall search. So there, you've got generalist search, which is obviously Google and specialized players like us. Underneath, the majority of our hotels are Airbnb and the hotel chains. And then you've got the ultimate accommodation where you want to stay, the individual properties that give you then the hotel experience. So what is really changing in this industry and what is really going on? I guess one thing that is very clear and that the whole sector has benefited from is the off line to online migration. So latest focus right numbers, I think, are at approximately onethree online penetration, and that has obviously gone up. That you have, from our perspective, is that the user behavior is becoming more and more heterogeneous. So what do I mean by that? What that means is that you are undecided not only where to stay, but also what kind of property you want to stay in, and you have more clear idea what kind of experience you are looking for. So is it a business trip where it is all about the right location? Is it weekend trip with your significant other where it should be romantic, nice restaurants around, etcetera? And in your search and research process, you then decide whether you want to go for an hotel experience or a boutique hotel experience or for an alternative accommodation. So the impact this change has on the overall industry is from our perspective that it is getting more and more difficult to navigate through these different options because you are open to more options at the beginning of your search process. And as a consequence, that the value that you can create by providing search tools is going up. So now coming to 2017, that was just a more general intro. So what has actually happened in 2017? To answer that, I think you need to look back a bit more. So starting in 2015, what we've done here is we basically we have plotted the share of our, for some time, largest advertiser and used that as a proxy for the commercialization of our platform. So when you look at 2014 and 2015, pretty stable around the current share on the platform. And then in 2016, you actually can see a change happening. So that advertiser decided to increase very significantly the activity on us as a platform. And you can see that the share, as a consequence, has gone up a lot. In 2017, what you can't see on here, but what obviously has an additional impact, that advertiser had a low relevance assessment score, which made him pay even more, which if you would have had a good score, you would have resulted in even higher share. So as a proxy for commercialization, you would need to make that mental adjustment. And then in Q3 and then also in Q4, you see basically return to the old levels. So why does that really matter? And why is it very important to understand this year, but also last year's performance? So we increased our growth in the third quarter twenty sixteen very substantially. So we're at around 40 ish percent in the first half of twenty sixteen. And then used the additional commercialization that you can clearly see on this slide to reinvest into the business and then went up to 70% growth in the fourth quarter. So in a way, that growth was partially fueled by the performance. In Q1 and in Q2, we did the same. And so again, we had very, very high growth rates fueled by profitability coming through this additional pressure on the marketplace, which then in Q3 and in Q4 reverted and obviously made the growth slowing down. So in a way, the Q3 twenty sixteen to Q2 twenty seventeen were particularly good. And when you compare against them, then it is not a like for like compared one year where, again, they had particularly strong commercialization, which was not a like for like comparable. So I think this is really, really important to understand the numbers and the dynamics in the business that the yearly comps that we obviously show are not really comparable. Sorry, just to add to that. And going forward, we plan with the structure as it is today, obviously. I don't think that you can hope for a return to the elevated levels that we. So I'd like now to go through the various areas of the business and just point out a couple of things that we believe were very important that happened in 2017. So on the marketplace side, we are rolling out a continued tour of advertisers that are using that tool has gone up by more than 100%. And it is really an onboarding advertiser by advertiser process, so very time consuming. On the Express Booking side, we've been even more successful, increased the number by 250% more than 250%. On the marketplace as such, we started to make significant changes end of twenty sixteen. And the direction of these changes are really to allow more access of advertisers and making access more flexible, so more advertisers, more rates on the platform and trying to come up with rules how to deal with this enlarged access. On the product side, it is a bit more difficult to look back at 2017 because the key focus in 2017 was really on the back end. It happens to a lot of technology, redesigning the back end, making sure that it can actually support a lot more growth and further growth for the years to come. And from the outside, obviously, that is nothing that you can really see, but we believe it was very important. And we are now in a much better position than we were at the beginning of the year. Phase is continuously developing. We introduced tabs for the slide outs. We have an improved rating scale there with more sub ratings in the product. And boundless maps, we use for television advertising as well. I think it's a very big improvement and technology, not that straightforward so that you basically reload the map automatically when you're scrolling. For users using maps, it's a big improvement in the overall product. So on the branding side. More than 800 TV spots were tested through our internal tool. Not all of them obviously aired and produced. That's the idea behind that. On the SEM side, we are now at more than seven forty five million bids per day, so continue to roll that out as well. And on the brand awareness, the biggest change is if you remember the last time we disclosed these numbers, which was around the IPO, is obviously The U. S. So a very significant improvement in The U. S, 10 percentage points in brand awareness. So that gives us comfort that our marketing activities actually pay off. In Europe, obviously, we are very high already. And so there, you don't see big changes anymore. One of the key topics on the marketing side has obviously been the new attribution model. So we talked about it quite a lot already. Just to recap, so what does the new attribution model do? The new attribution model focuses our performance marketing activities on booking value, yes, so on value that we deliver to our customers and not on our own revenue, which would be click optimized. So with this model, we can fully optimize for customer value in our own marketing activities. And we've rolled it out, relatively speaking, quickly in DEA in the last weeks July, where we see a drop or we saw in the rollout, we saw a drop in qualified referrals and a significant improvement in booking conversion. So much higher quality, lower volume and so in a way, exactly what we anticipated. On the SEM side, it has been more challenging than we originally anticipated. We originally were planning for a quick rollout, but then realized that the technical implementation in our bidding tools is taking more time than we thought. So what we are looking at there is a soft launch in this quarter, so in the next couple of weeks, and then a full rollout in the first quarter. Having said that, looking back at this year, we've learned that high volatility is obviously not good for our business. And so we will, on the SEM side, be more gradual in the rollout versus what we've done on the DA side, where we rolled it out very quickly. So on the advertiser relations side, we obviously continue to add more inventory and more advertisers, as I said on the first slide. So in the last year, we managed to increase the overall inventory by more than 70%. We are now at slightly north of 1,800,000 properties on our platform and continue to grow that, which is a lot of hard work because, obviously, the incremental additions are becoming smaller and smaller unless you enter a new category. And so that is obviously one of the bigger changes and big achievements, I would say, of this year, alternative accommodation. So what is our approach to alternative accommodation? The first thing is we think that it should be part of the same search. As I said before, if you haven't decided yet where you actually want to stay, then you need one tool that gives you all the options and allows you to make a decision. So do I want to stay in the family suite in an hotel for, whatever, dollars 500? Or am I going for an apartment for $200 Or if the hotel is only at $200 perhaps I might decide differently. So that's the value that you need or the transparency you need to give to the user. And that's why it has to be in one product. And so if you take that as a starting assumption, it has to be in one product. The difference of alternative accommodation is actually not that big to small hotels. Now if you've got a small bed and breakfast somewhere on a Greek island with three bedrooms, that is not so different to a large villa that is rented out in Mallorca the whole year or so. So but the challenge is that you have less data available, that you have tend to have less content, less description and just less frequency on the property. So the approach that we took here was we initially tested with some alternative offering and mix it into the hotel offerings. And really look at the sites, how does it convert, do we need to make any adjustments to the way we present it, the way we integrate it in the search results, the marketplace dynamic, our marketing activities? To what impact does it have as a first small mix? The second step that we took was to integrate HomeAway, which we've done now a bit more than a month ago, which gives us, obviously, a lot more inventory and the opportunity to gradually increase the number of alternative properties on the platform and the location properties on the platform. Does the website still work? What changes do you need to make? What happens to the marketplace, etcetera, etcetera. Etcetera? And when we are done with that test, ultimately, we will basically try to, like we did on hotels, we're trying to integrate every provider of alternative accommodation to the platform. So the fourth quarter is almost over. And so for 2017, we continue to believe what we said on the last earnings call. So we confirm our guidance for 2017, growth 36% to 39% and positive adjusted EBITDA. So there is no change. I guess the more interesting part is now how to look at 2018. So there's been a lot of volatility in 2017 and partially in 2016. The comps are very difficult. And so how should you think about 2018? And what are the key drivers? And what are the trends behind them? So we'll not give official guidance for 2018. We'll do that on the Q4 earnings call. But we thought it is very helpful for you to have some discussion around the key drivers and how we think about the first half and the second half for next year. So on the outlook. First half twenty eighteen will be very tough. So on the revenue side, we said before, flat to negative, and so that continues to be true. It will be very challenging to reach the same revenue number at a lower commercialization. On return on advertisement spend, in particular, the first quarter but also second quarter, we're very profitable, fueled by the additional commercialization that we had beginning of the year. There, you will see a negative trend. So we don't think that we will hit the same ROAS numbers in the first half of the year. On the OpEx side, we have significantly increased our overall cost base, and that's predominantly, obviously, people this year. And so the starting point is obviously much higher than beginning of the year. So no surprise, the OpEx will go up overall. On the revenue per qualified referral to be there in the first half of the year compared to the first half in twenty seventeen. And we now have more balanced marketplace dynamics, so we have a lower commercialization addition to that. As a consequence, revenue per qualified referral, we expect to be negative comparing first half twenty eighteen versus first half twenty seventeen. Overall, we expect the first half of twenty eighteen to yield a negative adjusted EBITDA with negative revenue development, negative ROAD development, increase in fixed costs. And that's those are basically the drivers for that. Second half, we are more optimistic. So on the revenue side, we expect in the second half to return to our fundamental growth rates in the various regions. So positive growth there. On the return on advertisement spend, we expect a positive development in the second half as well. So there, we've got pretty fair comparison that is pretty much like for like. And so as a consequence, we expect the upwards trending ROAS development to continue that we see in the last couple of years. Is likely to lead to a negative overall development because Rest of the World, obviously, is growing faster than Americas and Europe and has a lower RPQR. On the adjusted EBITDA, second half, we expect second half to be positive and show, yes, a like for like comparable results. So what does that mean for the overall year? Overall, we think we will grow, and we think that the consensus is more or less in the right range. And so what does that really mean? I mean in a way, what this year has shown us is that to grow faster, quicker, if anything, is strategically pretty important. So if we have to decide, are we investing into more sorry, and as a consequence, will not be profitable anymore. That is something that we would consider for next year, which I guess is some change to our philosophy before. But that doesn't mean that, that has to happen. Okay. So we're almost through and open for Q and A. There are possible challenges for 2018. Testing of bidding strategies on the advertiser side, that has started to happen in Q3. These tests could obviously lead to a change in bidding strategies or change in profitability targets, then the reaction to our continued optimization of the marketplace on the advertiser and the user side could potentially be a challenge. Effectiveness of our advertising could be a challenge. The overall use of Metasearch, obviously, regulatory attention to the sector has increased and could pose a challenge to the sector overall and to us. The focus on the lifetime value and on the booking value could actually not be successful. And then finally, the cost to comply with Sabine Oxley, given that we now exceed the revenue threshold, we need to be SOX compliant. That obviously comes at an expense and add some implementation risk, and that could be a challenge for next year as well. Good. So now we are open for questions. A couple of questions. Just quickly on that last point you just made about the SOX compliance. Obviously, this is something that everybody has to do, and I'm sure you've been planning for this. But is there any stair step in the G and A that you believe has to occur because of compliance? Is there consulting fees or accounting fees that you didn't have last year or this year, I mean? Yes, absolutely. I mean this year, I mean we started to work on SOX compliance end of last year, beginning of this year. And so in our OpEx in the first three quarters, you have significant costs in there already. So if you look at the year on year comparison, 'seventeen versus 'sixteen, obviously, the but the whole public being public costs are in the OpEx. So increased lawyer fees, consultants. Obviously, we ramped up our team significantly, both to address the material weakness on the inventory reporting side, but also to prepare for SOX compliance and the What you expect just for the stair step from compliance will be in G and A, incremental dollars? From now to the future, I don't think there are additional costs. There's no inherent It's in there already. That's what I tried to say. So we invested this year, obviously, so working on being compliant December. So we should be fully ramped up. Okay. Then too much time on it. Virtually irrelevant for us. Going back to the earlier thing about the growth rates and what happened to your key partner or largest customer and what happened to the revenue share. One, did you see this in Q4 of twenty sixteen and you were going public, did you see this as over earning? Did you see this as something that this was occurring that you thought couldn't wouldn't be sustainable? Obviously not. Okay, good. Secondly, as you see this as you go forward in and what you're bringing up here is this is very specific to your platform on how they have changed their behavior. But from one of your competitors, it's clear they've changed their behavior platforms. So is this not a return to a new when you're saying it's a return to a new level, it's a return to the original level, the 15 level. Is this just and this was a period of them overspending. Is this a more of a strategic change on their part than this is implying and this number could actually go lower? If you look back, I mean, so the increase from the current level to the elevated levels, and when at that point in time, we thought, okay, it is the largest player in the industry. And in a way, share that they had before didn't feel right. I mean, it was a bit too low. So we thought it was more, okay, adjustment to the natural share going up. I think the reason why it went down now, and you should ask them directly, but what we think has happened in terms of learning between the different data points is that when the relevance assessment score of this advertiser improved at such a high share of the business, the impact on us overall was pretty significant. And as a consequence, we adjusted our own performance marketing activity. So in a way, that's a very rare situation where you can see a change in one channel and you see a reaction on another channel. So in a way, what is the cross channel spill of your activity? And that is something that you normally can't see. Say that what the right bidding level is because there is obviously let's take an extreme example. If it would be 100%, yes? To get 100% on the platform, you would have to bid, I'm making it up, let's say, 10 per click. At that level, we could basically dominate all other performance marketing channels because we would have so much money. That obviously wouldn't make sense. And so you can go from this extreme example down, obviously, there is a point where that is not the case anymore. And I guess the insight of certain advertisers was that if you're around 50%, you see some of this dynamic that are just exaggerated so that you have a negative impact on your large performance marketing channels from an increased spend on the smaller channels. And so in a way, there is something like a right level of spend so that you don't miss out on market opportunity and that you where you don't fund your own competition on other channels. And from our perspective, at the current level, that is the right number or in the right range. Could it be 5% higher or lower? Difficult to say, yes, without having full transparency on the overall profitability. But yes, I think you could argue that 50% wasn't the right level anyway. Okay. And final question, I'll pass it on. Sorry, guys. So during your IPO, one of your main thesis that you pushed was that you guys had figured out that although you were performance marketing, that playing the SEM game was a losing battle, that you couldn't win just buying Google I a question. Come around 2Q, 3Q 2Q that's really, you're overearning because of what's going on at that time. Growth is enormous. You piled a lot of that money back into SEM. Why not put that money into brand like you had proposed is the long term winning strategy? We did. I mean so we increased our brand spend as well. But the brand spend is not as responsive. So in most markets, it depends a bit on the difference by market, but in most markets, it takes some time before you can economically buy. And so you need a couple of months lead time. So if you decide to ramp up your spend, performance marketing is obviously most responsive. You can do that tomorrow. The TV spend takes a bit longer. But we've done that as well. So basically, you were so over earning as your expectations that you had the excess money so quickly, you couldn't put it back into brands fast enough to reinvest fast enough. So you did that's why you increased your percentage of SEs. That's correct. Yes. So it takes longer time to move in, and it takes longer time to move out. That's correct. Thank you. Oh, and come on for the recording. It's Nat Schindler at Bank of America Merrill Lynch. Hi. Thanks. It's Kevin Kopelman from Cowen. So just had a couple just kind of focused near term first. On your Q3 call, you gave some specifics about advertiser market share in October. As we look at this slide that shows the share in the fourth quarter, is that similar? How did was November similar to October in terms of the way the major advertisers played out on the platform? You mean the Slide five of the earnings release where we gave the October to date, basically quarter to date. This is obviously updated. So I'm trying to read the fine print, okay, when exactly that was. So that's in the last couple of days. The number hasn't moved that significantly between October and November. Okay. And then one other short term question. So as you reiterated the full year 2017 guide on revenue growth, there is a big range in terms of what that implies for the fourth quarter, all the way anywhere from down a little bit to high teens, I guess. Can you give us any more color about where that's falling out so far? No. Surprise. Fair enough. Fair enough. Then just a couple of questions on the guidance. Have you gotten any more clarity on how big the relevance assessment surcharge impact was in the first half of 'seventeen? Or is it even possible to quantify? It is very difficult to quantify because it is one dimension. But what we said before is that we think that it is at least double digit. Double digit as a percentage of or double digit contribution to growth? Of growth, yes. Okay. And then the of 2018, is that a fair comp versus the third quarter of twenty seventeen given the spend level from the largest advertiser was still elevated? Yes. That's a very good point. So when you look at the third quarter, it is basically the first two months are more like the second quarter, and then the third month is then heading down. So there is still some unfair comparison effect in the third quarter. So the true like for like comparison will be in the fourth quarter. But third quarter, obviously, will already be much better than first and second quarter because you have partially the normalization in there, plus you have a fair relevant assessment comparison. So yes. And I'll just I'll ask one more and pass it on. But can you talk about your relationships with the large hotel chains and how active they've been in the on the platform and what you're working on to get them kind of even participating more fully on trivago? Yes. So I mean, we've got good relationships with all significant chains or pretty much all relevant chains. And in a way, they've got a lot of potential on the platform. We discussed that in the past. And what is really in our control what is in our control is that we can give hotels preferred visibility. So if there is connection, there is more visibility on the hotel rate, so because that's positive for conversion. That's on the product side. On the tool side, it is really what I mentioned before. It is automated bidding and express booking, which aims to optimize the bidding strategy and to improve the booking conversion. And that is really what we can work on to roll that out to more and more hotels, hotel chains. But that's only our part of the equation. To what extent the hotel chains are really pushing us as a channel, become more aggressive, improve their own booking conversions, etcetera, that is something that we cannot control directly. Do you see the bigger hurdle as being the hotel chains improving their conversion rates from the platform or the hotel chains' decisions in terms of how much they're willing to spend for a lead or ultimately for conversion on your platform? The conversion is the bigger challenge because if you I mean, that is something where you really need to optimize, and that takes time and effort and resources, obviously. Whereas the decision to change your profitability target, you can implement immediately. I mean you take a decision and a long time to implement it. And when you look at the market the competitive landscape for them on the booking technology, they're obviously competing with companies that do only that. They only do online hotel bookings. So there it is. It's obviously tough to compete and to narrow the gap. On the profitability targets, it's everybody's own decision. Can you comment on the profitability of Germany specifically? And then more importantly, any kind of commentary that you provide us on what the growth of that market would look like if you were to significantly cut back marketing spend? Or maybe a better way of asking is what would growth look like? Or how much would you need to spend to have 0% growth in that market? Just trying to understand how strong the brand is in Germany. So any kind of comments you can provide on that? Yes. So we can't comment on individual countries. It's difficult to test, yes? So I guess moving away from Germany, to more much in general terms. In the past, we've done it frequently. So a couple of years back, where we basically went off line in a market for half a year, three months, whatever. And so okay, what impact is that actually and does that actually have? We've done something similar in one market, but only for two months this year, where we saw that the main impact was that the growth basically came down, obviously, to no growth. But I'm not sure that, that is really 100% fair because obviously, if you would not do it for two months, but for six months or for twelve months, which is really what you're asking, it is likely that the effect will be greater. So it is difficult to say without really investing significantly in a very large test. If we were to if you were to look at this model and you put a similar margin or similar spend ratio to what we see OTAs doing, which they're spending 30% to 40% of their dollars in the marketing channel. I'm just trying to get a feel for what the growth of this business model looks like in a more normalized marketing spends or a more steady state model. And that's why I asked about Germany because I know it's much more established. But I'm just trying to get a feel for what sustainable growth of this business looks like. So any kind of comments or maybe asking zero percent zero spend isn't the right question. Maybe it's more what does it look like when it's more normalized at like a 30% margin spend? I guess one data point that you can look at, obviously, is the relative profitability there versus the other markets. And so when we discussed it during the IPO, we were contribution margin of 25% in Europe. And then obviously, the question is which part of the overall overhead is triggered by Europe, which is under proportional, obviously, because you've got fixed cost by market. And so Rest of the World is a lot more complex per euro in revenue or per dollar in revenue than Europe. And that would at least give you, looking at the hard data, a good starting point. Europe, and that's why we will continue to invest into that. So if you say at maturity of the market, everybody went into a vertical hotel search, then the profitability should obviously be higher than what you see in developed Europe today. And that's how we came up with our 25% as well in the IPO. All right. Thanks. As we've seen booking.com shift from city landing pages to hotel back to city, I'm curious, they're now absorbing the relevance assessment again. Are you seeing unit economics improve a bit from where they were when they were buying hotel specific? Or are they further reducing bids just to that new or the old new whatever, yes, so to the regional layout? And so if you look at the share here and at the share that we presented there, no significant change. And so that implies, obviously impact is obviously on the overall business, not as big if you are at 50% versus at 25%. And so but yes, I mean, the relevance assessment score of that advertiser has come down through that change. That is correct. Okay. And then I guess as you guys have shifted from a manual algorithmic a manual to an algorithmic calculation of that relevance assessment, do you see any change in customers and like their ability to test it or their confidence in bidding with that algorithmic relevance assessment? We see a change there. Certain Expedia brands are testing the same layout currently, which is, in a way, exactly why we came up with the relevant assessment in the beginning so that we could allow for more testing activity. So I think it's probably fair to say that there is now more testing activity and more broadly spread testing activity than before. What is a bit too early to say is what really the impact of the move to the automated assessment versus the more manual before is because we just finished the rollout, and it will obviously take time for everybody to react to it. So that we can't say it. Okay. And then specific to your SEM spend on Google, as they ship more traffic to Hotel Finder, can you just give us a sense for your early test bidding on Hotel Finder in I think one country? Are you seeing any good performance from that? Are you ultimately paying more per click there versus core AdWords and then the downstream bookings? How does that look on the two different models? I think it's a bit too early to say. Also planning on going direct on TV in many other markets. I think they said 30% by the end of this year. What kind of impact are you baking in when you are talking about the 2018 guidance? Is that already baked in? Or should we see that as a potential risk? I'm not sure I fully understood the question. So Booking has talked about booking.com is planning on expanding the TV ad rollout. They're going to 30 markets by the end of this year, as So if you look at your 2018 outlook, what kind of impact are you baking into your outlook from that, if any? Yes. Okay. Thanks. On TV, the reality is there is always somebody else on TV. And so in any market, so it's not that we have online travel monopoly or had that in the past. I guess we are one of the players that has most focused on it and has been most consistent in the TV investments and so continuously, obviously, being present for a very long time period. And so now with more players being more consistent as well, or that's at least what they want how you make clear how your product differentiates. And because the value proposition of the different players in online travel is different. So our value proposition is ideal for somebody who hates to miss something. So this small boutique hotel that you can find on us, but perhaps not on other platforms, that you want to consider as well. So if you feel that you miss out on this special opportunity, you're more inclined to use us than an OTA directly. Same with prices. If you want to make sure that you have full price transparency and that you know exactly what the price structure in the market is, then you're much more likely to use us than going to an OTA directly. If that is not important to you because you travel for the business and don't have to pay yourself or more focus on convenience, etcetera, then you might be more likely to use somebody else first. And so in a way, the market is developing. And like any market that is developing, the more developed, the more it And that, I think, is much more important than for the effectiveness of the advertisement than how many players are really active. Or is that a potential upside that we that can materialize? You're referring to the on the product side, you're are you referring to the attribution rollout? The attribution rollout and then ultimately driving booking conversion. Yes. So I mean, obviously have a plan. Obviously, if there are absolutely breakthrough innovations that we will launch that are beyond the normal improvements, then that could provide some upside. But as of today, the outlook that I'm presenting is basically what we are currently thinking with what we are knowing today. Just as a follow-up to the marketing question. Can you actually speak, just holistically speaking, about your marketing mix plan for 2018 to support the financial outlook that you laid out relative to what you did in 2017? And I'm particularly thinking about search in particular. Google seems to be the ultimate winner of this whole thing going on. So how does your how aggressive will you be on that platform since obviously the other guys are going be pretty aggressive as well? And then I have a follow-up. Yes. So our competitiveness on Google, obviously, depends on our own profitability target and then our ultimate conversion. So there, we are obviously working on further improving that going forward. So that should be less well. And so at the same profitability target, that would mean that we are not as competitive as in the first half of 'seventeen. Does that mean that you're actually spending less in aggregate on Google? Or you're spending more, but it's just that the unit economics on Google are not as attractive? So we don't comment specifically on spend developments. But what I said was that the ROAS will go down in or we expect the ROAS to go down in the first half. And so if you assume that, that is across all the different channels, that would mean that for the same revenue, we would have to spend more. Yes. So and then it depends a bit where we come out, but let's make it simple. If we hit exactly the same revenue and the ROAS has come down in all channels, then that would imply that we would have increased our spend. Okay. And then lastly, can you help us just quantify or envision the alternative accommodation opportunity for you? And how long does it take you to kind of build it into something that starts moving the needle? How long will it take us to build something that moves the needle? On the user side, so on the value proposition towards the user, I think it moves the needle more quickly as does long tail inventory on the hotel side as well. So it's not a high and a higher percentage. And so that, from a value proposition perspective, I think, should we should be able to deliver that, relatively speaking, shortly. For the long tail and ultra long tail to be a very significant part of the overall revenue. But to us, it is the key thing is, do we have a complete offering? And do we have and that's another aspect that is pretty important from a user perspective, but on the B2B side, do we have competition in the long tail? So more niche destinations, very busy times, trade fairs, etcetera. There, obviously, it can become very relevant. And that's why we think it is very important. How's it going? Hey, thanks for doing this meeting. A couple of questions. Have you guys seen I mean, gating factor, obviously, one of these advertisers has a far better conversion rate than the others. And so maybe it's just kind of pricing needs to get readjusted? You can actually see some of that dynamic on the earnings release slide, where we have the different brands in there. And what you can see there is that one brand has reduced very significantly, and pretty much all the others have gained pretty much pro rata. And so what that means is that it is not that there is one or two advertisers that just pick up that volume, but that it is spread more evenly. And if you go on the slide, you can actually see that as well. So you've got more diversity on the slide than you had six months ago. In certain markets, a lot more diversity, which obviously is, from a user perspective, beneficial. Back to kind of my conversion rate topic issue. Do you see CPCs kind of get readjusted as the makeup of the bidders changes in the auction? Yes, absolutely. I mean so if you let me just go back to the magic slide. So it's a a lot of your competitors very consistently. If you then revert that, it obviously has an impact on the average bid as well on the negative side. That's clearly the case. And particularly, if you have somebody who has been the marginal bidder in such a high percentage, then that player pulling back has an impact on the winning rates, but absolutely. As you sit today trying to provide guidance at a time when you guys haven't it doesn't sound like you have done a ton of testing with the attribution model. How is that still kind of a pretty meaningful variable to play out here? It sounds like that with attribution model, we could have some near term negative impact on referral volumes, but a long term benefit to that may have or No. As I said, I mean, in the outlook that we provided, we consider everything that we know today. And we have better knowledge on what is happening because we now have obviously had the benefit of observing what has happened in the DA channel now for almost half a year. So I think that's one point. So we understand it better than when we introduced it, to be fair. The second thing is that we are rolling it out or we'll roll it out in SEM more steadily than we have done in DA. So whatever impact there is, that will be spread out over a longer time period. And we don't expect that to have a significant additional negative impact. And lastly, we haven't talked about since the IPO, but are you still moving into the new headquarters next year? And if so, any kind of costs we should be thinking about associated I with the hope so. I hope that the construction is ready mid of the year. That's at least what we are planning for. And we think that we are excited to move in there. We will have everybody together and not spread out over three buildings or not even four in Dusseldorf. And the cost for the headquarter are obviously factored in. And so we have clearly, and that's time of the move, we obviously have rent twice. So in the old buildings and in the new one, that's obviously factored in. So next year, how different should your branded referral growth or referral growth from branded traffic sources be? And should that change much throughout the year? I know you mentioned you reinvested some dollars into brand, but it didn't have the same impact. So how should that cadence change throughout 2018? So I'm not sure I fully understand the question. So how different will the growth of the branded traffic be in the first half and the second half? Is that what you're asking? QR growth from branded traffic sources, so non SEM, basically. Okay. In the first half, obviously, SEM referrals driven by SEM will be down, offset by branded. So can you just help me? So we had some I mean, didn't only so I guess when you look at the overall trend, the branded trend looks more steady, obviously. So that's clear. But also on the branded side, you've got tough comps. I mean if you make x percent more money than on your profitability targets on TV, obviously, that has an impact on your marginal spending as well. So that gives you more firepower to spend. And we, in a way, need to optimize against that and compensate for that drop in profitability through optimization, yes? And so that optimization will then go into the compensation rather than into the further growth as it normally would do. So you've got a negative effect also on the branded traffic growth. But you're absolutely right. It will be more steady compared to the overall traffic. You talked earlier about changing to more focus on revenue growth as opposed to profitability specifically for 2018 given kind of the advertiser pullback. And I guess my question is longer term, how do you guys think about a path to profitability and kind of when should we expect Savagos to show profitability? So yes, as I said, I think our fundamental view is that revenue growth at this stage of the company and the industry is much more value creating than optimizing for more profitability earlier and leaving the revenue growth on the table and giving in a way that market share opportunity to your competition or leaving it to your competition. Looking back, and that's why I made that comment, and I think we are now taking a more extreme position than we were before. I think we'll focus more on it. So we will and that's our current view. So that would imply that you would have to be patient for some First question on the SEM attribution rollout. Can you just maybe provide a little more color on some of the difficulties that you run into that maybe is taking longer than expected? Just want to kind of understand that, that is bidding every day roughly 750mx on seven fifty million different campaigns. And the key challenge is to basically integrate the new data into the bidding algorithm and then linking that to the different SEM platforms. So the change and the optimization in a way in our proprietary bidding tool or the technical implementation, that is the key challenge. Got it. And then just a second question on RPQR. I know in the past, you kind of guided longer term to more kind of flattish. But maybe if you can just walk us through kind of the, I think, drivers that you've called out in the past in terms of conversion or given growing mobile or country mix and such? Yes. So basically, when you look at the key three subcomponents, you've got commercialization, you've got the booking value per booking and you've got the booking conversion. And on the commercialization, we obviously have a negative comp in the Q3 and for some time until we lap it. On the booking value per booking, that is flat to slightly upward sloping, but it's not changing dramatically. And on the booking conversion, we managed to increase the booking conversion significantly in the third quarter. Is that something that you will be able to show every single quarter? Probably not. And so if you assume that the commercialization is if you take out the noise of the last couple of quarters, yes, but looking forward, it's pretty much flat. The booking value per booking is pretty much flat. And there is some upside in optimizing the site and the traffic acquisition for more booking conversion, then you would come out with a slight positive. The negative that you need to factor in is obviously an increase in multi device usage, which is deflating the RPQR and inflating the QR. But and you're right, it could be could also be slightly up, slightly down, but that's our expectation by region. So I think you had said earlier that there was a double digit impact from the relevance assessment. I just wanted to get a sense for what that means exactly. Are you talking about if you grew 60% in a quarter, that was at least 10% of that 60%? Or was it 6% of that 60%? Or was No. It 10. As of more than 10% out of the 60%. Of your total growth, not just the advertiser? Yes. Okay. And secondly, you've switched to algorithmic. Can you comment on which direction that's taken the relevance assessment? One would assume up, but who knows? And then also what feeds that algorithm? Yes. So what exactly feeds the algorithm, can't comment on. That's obviously highly sensitive. On the direction of the score, I mean, that differs by advertiser. And given that we've just completed the rollout, I think there, again, it's a bit too early to say because obviously advertisers will now but it is I mean, obviously, it's more efficient, the way we've now set it up. And we think that it is better for testing and has higher acceptance with the advertisers because it is quantitative, and it is not a qualitative score. And you said that going forward, you think that the current revenue share of your largest advertiser is about probably about right and that seems to feed into your guidance for next year. I think you said maybe it could be up 5%, down 5%. What makes you I get that there's probably a correct equilibrium level. What makes you fairly confident that this is the right equilibrium level of share? It's a bit difficult to say because we have incomplete data. We can only see what is in our platform, and we don't have full transparency, obviously, what is happening for each of the advertisers. So you need to work with assumptions. They are it is getting more and more expensive if you drop more and more and at a low level. Whereas if you're, let's say, at 50% and you are breakeven, you don't lose any traffic by going to 49 So that is economically the biggest protection. And on the strategic point, okay, to what extent do you actually have a negative spillover in other performance marketing channels? If you're one of many, I mean, the spillover is obviously not there. So because that doesn't really change our activities. If you are the marginal bidder on the majority of the traffic, then obviously, that is much more so the case. So I don't know. We don't have all the data to say this is exactly the right level. But from our perspective, it seems to be a sustainable level. And even if there is a change at that level, the impact is obviously much, much lower than what we've seen in the last couple of quarters. Have you noticed any difference in behavior your second largest advertiser in all of this? And you mentioned that they maybe started experimenting with landing pages. Are you surprised they have to accept advertising? Or given maybe it's more competitive or less competitive? Have we seen changes in behavior from our other large advertisers? I wouldn't say so. Increased testing activity, I mean, was anticipated with the automated relevance assessment. I mean, that's part of the idea. Should they have stepped up more? I wouldn't say so either. I mean so when you look at the competitive dynamic, the other players have stepped in pretty evenly. And in a way, that is a very positive thing from our perspective. If it would have only been one or two advertisers that would have picked up the volume, that would be a sign of a weaker marketplace. If it is spread out pretty evenly, that shows that a lot of players are competitive on part of the inventory. I'm not sure that, that answers your question. But I mean, our relationship with our shareholder is, in a way, special because we run completely independently, and that has been very important since 2013, not only for us, but also for the business. I mean if you're not running completely independently, then that hurts your credibility towards the competitors, but large customers of us and competitors of our shareholders. So I think there, it is really, really a pretty there's no special treatment or anything. So the advertisers are making their decisions, whether they are under the same shareholder structure or a different one. So to us, that doesn't really make a difference. And I would assume that it is the case the same is the case on their side. The first part of your question, was it a mistake to bid up so aggressively? I don't know. It depends on what you're trying to achieve. Was it up to a level that might not have been sustainable from a profitability perspective, from a user value proposition perspective And from a healthy marketplace perspective, perhaps, yes. I had a question going back to your comments about growing faster while reducing profitability maybe. So like going back to that, does that mean you have other opportunities that you might not have been chasing? And this is something where you might be, let's say, risking some profit to go after? Or is it I mean, can you kind of quantify what you mean by like chasing after growth while reducing profit? So what I'm I was trying to say was that in the past, we said very clearly that for us, it has been very, very helpful to have a baseline, which is basically a zero profit by self funding the whole business. And for this year, our objective that we communicated in the IPO was, okay, the existing profitability to use that as a new baseline. And what I tried to say is that in the current situation, we think that, that is worth reconsidering and that it is possible that we would deviate from that historic behavior. And then this will be across all your geos like Developer Americas and Rest World? Can you say that again? So will this be across all your geographies, like geos like Developer Americas and Rest of World? That would be for the overall business. And then the growth opportunities obviously differ by region. So there is plenty of growth opportunity in rest of the world, whereas in the more developed markets, obviously, there is less growth potential. But the comment is basically on the overall business, and we will continue to allocate our spend to where we think it has the highest impact. Okay. And then separately, going back to higher level, you said you have about 1,800,000 hotels on your website. Are there still opportunities to grab more there? Like how penetrated are you in that regard? It's a good question. We try to find a reliable source for the number of hotels on this planet when we did the IPO, and we couldn't find any. So I'm sure there is still upside on the hotel side. I mean that number includes all properties for us. But in terms of overall numbers, obviously, the opportunity is much greater on the long tail, so on alternative accommodation. But they are still hotels they have to be still hotels that are not on trivago. But I couldn't comment on how many exactly. Can you take us through the evolution of Express Booking, where we are today, where that is for you in the future, any conversion benefit that you can detail for us And anything that you can ease the friction from a technology perspective on the hotelier side? Yes. So as I showed, I mean, we are rolling it out. Yes? So but it is not a very significant part of the revenues yet. As you if you just use the site, probably have seen. The benefit for the advertiser depends very much, obviously, on his own conversion on his site. I mean the weaker his site converts, the bigger the benefit is from a de facto outsourced booking funnel. And that is basically the key driver. So I think in the Q2 earnings release, we had some examples from specific hotel chains, what the impact can be. But overall, we have high demand for the product. And so a lot of advertisers are interested in moving to it for exactly that reason because they expect that their conversion will go up. The ease of use part has today a lower impact because there are not that many registered users where it would be automatically prefilled. Ari does everyone have to go through a third party provider at this point to move into the system? I mean, I have to have you plugged into my CRS? Basically submit your properties and you submit daily bids. And for the Express booking, you need to have that direction, but we also need to have an interface that is going in the other direction where we submit actually the booking. So it is something that the standard the yes, that's basically the technical challenge. Thanks. Kevin Kopelman from Cowen. So I just have a few follow-up questions. The twenty eighteen kind of commentary that you've given, can you talk about I have a few kind of components here, but what kind of benefits you're looking at from the SCM attribution rollout are assumed in your commentary on revenue and EBITDA? So are you assuming some benefits from I think you're planning a Q1 rollout of new attribution model. Are you assuming that you get some uplift there? Or as you're doing your internal projections, is that still Yes. For 2018, we assume the revenue impact to be neutral. But in the long term, obviously, we expect a positive revenue impact. And are you expecting any benefit from the vacation rental initiative in your comments for 2018? Yes. That's a bit more difficult to quantify. I mean, as I said before, it is ultra long tail. So the revenue share coming from those properties can't be very high. I mean it's not like when you look at the I think the main effect is really in having a better user experience and a more complete offering. And that you can't really incorporate into a financial model. I mean that is something that, obviously, over time, should have a positive impact. But it's not nothing where you can say, okay, that is in month 3% revenue uptick. I mean that's very difficult. Would you expect vacation rental to make it into your TV advertising in 2018 in terms of featuring it featuring your vacation rental selection on television? It's possible. But the question is what is the right point in time to do that? And I would say that we are today still in a testing phase, but it is basically it's a larger scale test than what we've been running for the last couple of months. And I would say it's more likely to do these kind of things once you completed the testing phase, But it's also possible to do it in the testing phase. So yes. Well, they're putting a lot of effort into building out their supply and closing the gap in some markets with Priceline. So are you assuming any benefit in your marketplace from increased competitiveness between Priceline and Expedia as Expedia adds properties? So the more bidders they are per hotel, the better it is for us. That's absolutely correct. And so if some of our advertisers would be successful in adding a second connection to currently unique property of their competitors, that should have a positive impact on them, on us and a negative impact on whoever had that property unique before. And is that in your current assumptions for 2018, what you've told us today? No. So that we plan for what we can control. And whether that will materialize, how quickly that will materialize, when it will have an impact, that is impossible to forecast. And another one on 2018. On marketing mix, in the recent past, I think, like 2016, 2017, you talked about or I think suggested that performance marketing was probably a little bit over half of the marketing budget. Do you see any major change to your marketing mix between performance and brand advertising next year? I mean, there's no change in philosophy. That's for sure. There are obviously market by market movements in one or the other direction. But in general, we continue to believe that the traffic mix, approximately fifty-fifty, is the right mix, and that will guide our actions. And just a couple more. So on vacation rental, you said the initial 100,000 that you were testing, those were not from HomeAway? Were those directly maybe I misheard you, so when you were first testing vacation rental, you started with 100,000 properties. How did what provider were those from? So I mean, today, most of the OTAs have alternative accommodation in their offering as well. And so we used some of the inventory that was available to us anyhow, and that we previously didn't show for the first testing. And then as a second step, we integrated HomeAway, which is obviously a very large provider that allows us to scale very significantly. And that is the phase we are currently in. And then a follow-up on a previous comment. Did you say that Expedia was also testing regional landing pages? Did I hear that correctly? Or did I miss you? That is correct. Okay. And last one, 2018, you've got these difficult comps through the first half of the year. Which metrics should we be focused on externally to kind of see progress through the first half of the year given the difficult comps? I think you look at the KPIs, and you just need to keep in mind that you are not looking on a like for So let's assume the revenue would be the same and the ROAS would be the same. That would mean that you that we actually fully compensated for the lower commercialization through higher efficiency. So that would be a big achievement. So I think you can look at the metrics that we have particularly the four quarters, Q3 to Q2, then you can see a normalized trend because you then look at like for like comparables again. Or you can look at two year growth rates, where you have, if you compare it with 15, similar marketplace structure and a better like for like comparison. Let's look at your data. The conversion on mobile is weaker than on desktop. That's for sure, as in probably every Internet vertical. And is the user loyal to us across all these platforms and devices? And as long as that is the case, he will ultimately book. As long as you book ultimately through trivago, it doesn't really matter whether the conversion on your mobile phone is zero and on desktop, it's 100% because it is just the way you use us as a product. And that's why we have a consistent product and a consistent auction across all the different devices. And I think until the cross device attribution is really solved, the reality is you will not know how big the difference really is because you can't fully understand the user journey. What we are doing to address that and why we are less concerned about the mobile increase. And one thing is when you look at our platform, mobile is growing very quickly, and it doesn't have a negative impact on our RPQR. So we are now above 60% revenue share coming from mobile versus 50%, I think, in June 2016. That's a 10 percentage point increase, but it didn't hurt the RPQRs, which, again, makes sense. As long as the users still use us across all devices, then it shouldn't hurt. Yes. So I don't expect a significant change to that trend. When we are testing the cross device bill, it is very significant, yes? So you need to be a bit careful that you don't over penalize in a way mobile because it doesn't converge because it is important in the user journey. And you can through tests, you can actually see that dependency even if you can't measure it and attribute it across devices. Okay. That's helpful. And then just between the mobile app versus the mobile app, are you seeing any kind of differences in either monetization or even user behavior? Yes. I mean the there is obviously a difference between app usage and mobile usage because and obviously, it depends a bit by market. There are markets where you use predominantly apps and where there are markets where you use very little apps. But if you really generalize a bit, you are more likely to download the app if you are a high frequency loyal user than not. And so in a way, if you just compare it, it is not a like for like comparison. So app obviously has better usage profiles. But I think that is driven by the fact that you have an adverse selection of the users. So which one is growing faster? Is it the web or is it the app? Which one is growing faster? Yes, in terms of usage. You said your mobile traffic is growing faster. So is it the app or is it the web? That will be the case. But then again, you need to be a bit careful because obviously, you've got markets where app is dominating mobile usage. So you have a country mix effect in there. And if you normalize for that, I'm not sure. So but still, apps should outgrow mobile because we are our app share is, relatively speaking, low. We rolled out apps, relatively speaking, late. And as a consequence, the growth potential was higher. In the last slide you showed, you talked very briefly about the regulatory attention that is being brought onto the space. Can you just elaborate on that a little bit? And where do you think the biggest risk lies? Yes. So there are various public inquiries in various markets into the overall sector. And one is in The U. K. In Germany, there is one. There are other markets where there are inquiries. And so there seems to be more focus of the regulators globally on the online travel market. And that obviously is something that is very difficult to foresee. So what exactly are the regulators after? And what exactly would then be the consequence of what they are trying to achieve? That is obviously something that you can plan for. Can you remind us what portion of your traffic today comes direct? And then maybe how correlated is direct traffic to brand advertising within specific regions? Yes. So the last data that we disclosed was for 2016, which was approximately fifty-fifty. And for 'seventeen, the numbers have not significantly changed. There is obviously a correlation between your TV spend and your growth in branded traffic. Otherwise, you shouldn't do it. And yes, so there is obviously a correlation. I mean, so if you spend on a good creative in the right way, that obviously has an impact and helps your branded traffic development. Any more questions? Everybody exhausted? Good. Yes. Thank you very much for your participation and for your time. And I wish all of you a great winter break, and see you next year.