Good day, ladies and gentlemen and thank you for standing by, and welcome to the trivago Q3 Earnings Call 2020. At this time, all participants are in a listen-only mode. I must advise you the call is being recorded today, Tuesday, 03 of November 2020. We are pleased to be joined on the call today by Axel Hefer, trivago's CEO and Managing Director; and Matthias Tillmann, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's views today, Tuesday, November 03, 2020, only. trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as 'we expect', 'we believe', 'we anticipate', or similar statements. Please refer to the Q3 2020 operating and financial review and the Company's other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from these forward-looking statements. You will find reconciliation of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on the Company's IR website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations site for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2019. With that, let me turn the call over to Axel. Thank you.

Good morning, thank you for joining our earnings call. In Q3, we wanted to achieve two things: first, to continue to progress on our recovery plan adjusting our products, value proposition and marketing. And second, to preserve our cash position. Looking back at the third quarter, we are very happy with the results; most notably we managed to achieve a positive adjusted EBITDA and almost broke even on a cash flow basis. We released a number of new features in our core product except for the infection of our new local travel product. We launched our new CPA model in our marketplace and continued to scale our alternative revenue streams and improved our bidding and performance marketing while testing a new creative concept successfully. With a number of infections rising quickly in many of our core markets and partial and full lockdowns being implemented, the short-term business outlook appears challenging. However, we believe that a sustainable recovery in travel is coming closer as progress in testing, vaccination and treatment are likely to show effect in 2021. We continue to focus at this point in time in a disciplined manner, progressing on our plans irrespective of the short-term travel outlook. And with that, I’ll turn it over to Matthias to cover our financial development in more detail.

Thank you, Axel and good morning everyone. We’re seeing a significant improvement in travel activity in the third quarter compared to the second quarter. The recovery was mainly driven by easing of lockdown measures in most countries due to lower number of COVID-19 cases and a general uptick in demand as we entered the peak summer holiday season in the Northern Hemisphere. In particular, in our segment developed Europe, the subsequent increase in qualified referrals and revenue per qualified referral was very strong. This allowed us to selectively invest in TV advertisements in certain European markets and we were very pleased with the results. We tested a new campaign and the positive response makes us confident we can build on these learnings to tailor our messaging for sustainable recovery. Overall, we continued to focus on preserving our cash and therefore limited our brand marketing tests to certain European countries. We were also mindful with our investment in performance marketing channels and focused on buying high-quality traffic. We finalized our restructuring close to the sale of our Spanish entity and consolidated our operations at our headquarters in Düsseldorf. In addition, we reduced other selling and marketing expenses and other non-discretionary items. As a result, our operating expenses including stock-based compensation decreased by €50 million or 32% in the third quarter compared to the same period in 2019. The combination of higher travel activity and our cost-saving initiatives led to a net loss of €2.3 million and a positive adjusted EBITDA of €6.1 million. We are very happy with our financial results in the third quarter and the progress we made in setting up the company for what we expect will remain challenging and unpredictable in the foreseeable future. Overall, our market continues to be volatile but there are a few trends emerging since the beginning of October. In developed Europe, the rapid increase in new COVID cases since the second week of October has had a negative impact on our qualified referral development. While the year-over-year growth rate had stabilized at the end of September, it began to drop again since mid-October as most countries are going into partial or full lockdowns again. Looking at our segment in the rest of the world, while there are regional differences, overall both qualified referrals and revenue per qualified referrals year-over-year growth rates have been stable over the last couple of weeks, and hence our referrals revenue continues to be around 20% of 2019 levels. In the Americas, we continue to observe a steady increase in qualified referrals year-over-year growth rate, which is mainly driven by significant improvement in Latin America, while the year-over-year growth rate in the U.S. has been stable since August. Qualified referrals were around 50% of 2019 levels in October, improving from 35% of 2019 levels in the third quarter. Due to the country mix effect, the revenue per qualified referrals year-over-year growth rate began to decline slightly in October. As we have now entered our low season quarter and are faced with the second wave of COVID-19 cases, particularly in Europe, we expect a negative EBITDA in the first quarter. However, we are confident that we will set up the company for this challenging environment and continue to focus on preserving our cash until travel rebounds. With that, let's open the line for questions. Operator, we are now ready to take the first question, please.

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. And your first question comes from the line of Tom White from D.A. Davidson. Your line is now open. Please ask your question. Thank you.

Great. Thanks guys for taking my question. Just first on the cost to acquisition product as you guys talked about, I guess my presumption would be that the net version of the CPA product, the one that includes cancellations, would be more appealing to advertisers in the current environment. Is that accurate, and are you getting any real traction there? And I guess I am curious to know whether you are inclined to really push the net version of the CPA product or if you do not really want that kind of becoming the new normal that advertisers expect maybe once things get back to normal. And then I just have a quick follow-up.

Of course. So just to be clear, the CPA product that we have taken live in October and are now rolling out is a gross CPA product. We are taking over the risk of the booking happening, the booking conversion risk. We are not taking over the cancellations risk. We think that it is a very, very good first step to help our advertisers, in particular, deal with the uncertainty and data scarcity in the current market environment. Whether we will eventually move to a net CPA model or not is something that we will see in the next couple of weeks and months. But given that the time to travel has come down a lot, and there are very, very short travel windows, we think that the gross CPA is actually helping our advertisers very significantly and it's a very good foundation for entering next year.

That's helpful. Thanks. So just a quick follow-up. Do you guys have any sense as to what percentage of your business or your referrals you think might come from corporate travel? And I guess, I mean there is kind of unmanaged corporate travel, so the worker that's booking his own hotel rooms and getting reimbursed as opposed to kind of corporate travel spend that maybe goes through the large travel management companies?

Yes sure. So on corporate travel, we don't know the exact mix of our business. So we don't have perfect visibility on that. However, what we've said in the past is that obviously through interaction on our website and certain behaviors, etc., we estimate what kind of travel users are coming from. Generally, business travel is not the largest part of our business mix. A large part is rather city trips and there we have seen a negative development relative to the rest of the market in the third quarter, and now that continues into the fourth quarter. Does that answer your question?

Yes. Thank you very much. Appreciate it.

Thank you. And the next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is now open. Please ask your question.

Thanks. Two questions if I could. Actually, I just want to follow up on your exposure to city travel vacations. Can you remind us how that has trended? Has it varied any over time, maybe specifically with 2020 in particular? And then the second question is around the rollout of sponsored listings and display ads. How would you assess the rollout? How far into the rollout are we? How's it being implemented? Is it broadly? Is it regional? Is it with respect to certain types of inventory? Is the onboarding process around those sponsored listings and display ads accelerating? We're trying to get a better understanding of the adoption rates and the runway there. Thanks.

Thanks Brian. This is Matthias. I will take the first part of your question and then pass it on to Axel. So in general, what we have seen is a clear shift in the third quarter towards nature destinations and nearby destinations, whereas usually a big part of our traffic mix is city destinations. To give you an idea, in city trips in Germany, we have used that example before, we saw a decline of more than 50% of city destinations for large city trips, whereas we saw that trips to nature destinations were even up year-over-year in Germany. So if you look at those categories, like what we said in the past in our last update, we believe that nature and close destinations will come back first. That's exactly what we have seen, then city travel, and lastly international travel. That is exactly what we are seeing right now.

On your second question regarding the status of the rollout of sponsored listings and display ads, first of all I'd like to say that there has been huge interest from our advertisers in these alternative products because they serve slightly different use cases, and by having a broader product offering towards our B2B advertisers, we can serve their needs much better. The adoption and the interest have been very broad. So I wouldn't say that there has just been a specific segment of the market being interested in these products, as some advertisers have started their tests and also permanent campaigns sooner while others have taken a bit more time. Obviously, the environment remains very difficult for a lot of our partners. The recent infections in Europe have been a temporary setback. However, we remain very confident that with these products, we are well-prepared for a more sustainable recovery next year, and the interest remains very strong despite the difficult environment we are currently in.

Thank you Axel. Thanks Matthias.

Thank you. The next question comes from the line of Naved Khan from Truist Securities. Your line is now open. Please ask your question.

Hi, this is Robert Zeller, on for Naved. Thanks for taking the question. So, two if I can. With COVID resurfacing in Europe and parts of North America, how would you compare the demand you see today versus the demand you guys saw during the lows of April and March? And then, secondly, so you have mentioned that travelers have been traveling to more local nature destinations that they can drive to, and you called out in the letter I think this new feature, the local travel discover product that you guys plan on launching in 2021. So do you expect that this trend is going to continue into 2021? I guess when do you see a return to travel to bigger cities or more densely populated destinations? Thanks.

Thanks Robert. This is Matthias. I will take the first part of your question. In October we have had a mixed bag with different developments in our three segments. I broadly covered that in my prepared remarks but let me give you a few more data points here. In Europe, we clearly see the increase of new COVID cases having a negative impact on our qualified referrals. However, the first week was still very similar to the last weeks of September, and only mid-October did it start to decline. So it's still early and I think it's a bit premature to compare that to the situation in March and April, given that we are now less than three weeks into that development in Europe. Overall, qualified referrals are declining and clearly impacted. How exactly that will compare to April, I think again is a bit early, and we will probably have a better update on that in a couple of weeks. On the other hand, in the Americas, we clearly see a positive trend, particularly in Latin America and most notably in Brazil. In the last week of October, qualified referrals were almost at last year's level in that country and it confirms the trend we have seen during the summer season in Europe. When summer comes, people want to travel. There might be a shift in travel demand; for example, what we have seen in Europe and are now seeing in Brazil as well is that people choose domestic over international destinations, but overall there is a pickup in demand, and this makes us confident that travel will recover in the second half of next year as well.

On your question regarding our discover product and the outlook for next year, you're absolutely right. We do think that local travel will also be very, very important for next year in all of our core markets and in particular the summer that we expect will show sustainable recovery. We believe that local travel will be much greater than what we've seen in 2019, so a similar trend to what we've seen this year. The return of city trips that are very important for us, we expect in the second half of the year to see some opportunities for recovery in the first half, but that is more uncertain. The discover product is not focused on nature or city but is more focused on local destinations, providing inspiration for where consumers could go, and we think that fits perfectly into the customer needs for next year. It will be accepted in the app, and we are working on launching it on the other platforms and have a full pipeline of features that we are planning to deploy in the product over the next couple of months, so it is ready with full features when the volume will increase again next year.

Okay. Understood. Thank you very much.

Thank you.

Thank you. The next question comes from the line of James Lee from Mizuho Securities. Your line is now open. Please ask your question.

Great. Thanks for taking my questions. I was hoping to get maybe a little bit more specific on the geographic trends. You guys talk about referral revenues down about 80% year-over-year for Europe. Did you have a sense what the trend is like for qualified referrals and for the U.S.? Specifically, you commented that qualified referrals were down 50% year-over-year in October. What does the referral revenue trend look like? Thanks.

So thanks James. I think there is nothing specific to add here; as I said in my prepared remarks, the qualified referrals year-over-year growth rate in the U.S. has been stable since August. Above all, the broader trends have not changed. We still see a shift towards domestic travel and fewer city trips. In the rest of the world, there are regional differences. In Central and Eastern Europe, for example, the development is very similar to our developed Europe segment. Qualified referrals are declining rapidly with the increase in new COVID cases. In Southeast Asia, qualified referrals year-over-year growth rates are also declining but not as fast. In our biggest markets in that segment, namely Australia, Japan, and in particular India, we see a greater recovery offsetting the effect in the other regions in that segment. So overall, the year-over-year revenue growth rate is stable compared to what we have seen in Q3.

And Matthias, I have a follow-up question here. When we talk about recovery normalization in the first half of '21, are you referring to revenues or are you referring to growth of referrals?

Growth of referrals. So basically when we talk about normalization and travel, we mean the underlying demand that would translate into our qualified referrals. If you look at our revenue, obviously you have the monetization component on top that needs to be looked at separately.

Okay. Great. Thanks so much.

No problem. Thank you.

Thank you. Next question comes from the line of Shyam Patil from Susquehanna. Your line is now open. Please ask your question.

Hey guys, it's Ryan on for Shyam. Just two quick ones. First, can you talk about what's giving you confidence that travel demand should recover sustainably in the second half of next year? Is that contingent on a vaccine? And then secondly, Google is under some DOJ scrutiny, so do you think that could maybe help you if they decide to ease off on funneling traffic into their own travel product? Thanks.

Sure. Regarding sustainable recovery next year, the first thing that gives us confidence is what we've seen already in summer in the northern hemisphere and now in the southern hemisphere that there is a fundamental need to travel, and our travelers do want to travel. We believe this need to persist, and we expect the same trend for next summer. For the second half of the year, for segments important to us, such as city travel, we believe that a combination of faster and cheaper testing, the availability of a vaccine, at least to high-risk areas, and improvements in treatment will provide a better sense of control. This doesn't mean the pandemic will be over, but we believe that there will be a positive impact on the autumn season next year and that will lead to some recovery of city trips. For us, city trips are very important, and we are agnostic to the destination. As long as travelers feel comfortable traveling, we have the right product to offer. We don't need anyone to board a plane, domestically or internationally. So we believe that in terms of recovery, we should benefit slightly sooner than other travel companies. Regarding the investigation into Google's practices, this scrutiny is happening not only in the U.S. but in quite a few countries. There is increasing skepticism that some of the mega platforms, most notably Google, are showing fair competition overall in the segments they participate in. With any regulatory action, it takes time, but our read of the situation is that there is now a broad consensus that something is not right, and that will ultimately have an effect on their competitive environment.

Thank you. The next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is now open, please ask your question.

Thanks. I had two questions. First, when Trivago went public, they reported two segments: search and advertising, and their advertising was over half of total revenue. Can you maybe talk through the puts and takes of how your sponsored listings and display ads compare and contrast to what they have done? And give us a sense of where you think this can scale to as a percent of maybe 2019 revenue. And then the second one, a little more out there, have you looked at price comparison and other segments beyond travel? I mean, we just saw good are rest to the public in the U.S. doing prescription drug price comparison and they are doing $500 million in revenue with 30% growth and 35% EBITDA margin. Curious if you've ever explored leveraging your strong user base and brand to move into other categories that are maybe less competitive and have more attractive attributes.

Yes, sure. Thanks for the questions, Lloyd. The first question on the business opportunity for our sponsored listings and display products. There is a significant opportunity to increase revenues there. Of course, we have also looked at competitors and realized that we were pretty much the only player depending solely on CPC revenue and the core product. Whether we can reach the levels of the competitors has reached at the time of their IPO, I am not 100% sure, given that their business mix is much more skewed towards flights versus us on accommodation. As far as I understand, the search revenues are stronger on the accommodation side. So, I would expect our share to lag what you've seen at competitors. But we do believe there is a significant opportunity. I'm not sure that right now is the right time to quantify the exact share, given that there is so much volatility in the market. But at some point next year, I would hope that we have a better view of the overall perspective and potential. However, we are very optimistic about the additional products, and that is what we've heard as feedback from our advertisers.

Hi Lloyd, this is Matthias on your second question. That’s a very interesting thought. We have built our brand equity around travel for many years and have invested a lot into that. As a result, we believe that we have a strong global travel brand. If we were to explore completely different fields, that would be a bigger shift for sure, and I'm not sure that the timing right now is perfect for that. Overall, we have a very lean setup, focused teams, and we are very excited about our opportunities in travel. With that, we have a full product pipeline, and our team knows exactly where to work and what to do. This has been one of our key strengths in the past and has contributed to how we’ve progressed this far, so I think it is prudent for us to continue exploring all available opportunities within travel.

Okay, thank you.

Thanks.

Thank you. The last question comes from the line of Doug Anmuth from JP Morgan. Your line is now open, please ask your question.

Great, thanks for taking my question. Axel, I was just hoping you could give us some more thoughts on the brand campaign that you did in some European markets and just curious how your messaging and the mix of marketing could potentially change as things hopefully recover more next year. And then also can you just give us an update on your progress with alternative accommodation and how you're thinking about the path there going forward. Thanks.

Right, thank you. I'll take the first question on the brand component, then Axel will talk about your second question. Given the production lead time that we typically have, we had to decide in April what type of creative we wanted to add during the peak summer season this year. If you remember how the situation was back then, our revenue was close to zero in April. There was a global lockdown and nobody knew how Q3 would turn out. With that in mind, we decided to produce a much softer TV campaign in terms of messaging. That turned out to be a very good decision. We received very positive results and valuable learnings from all of this that we can now apply for our new campaigns. The key takeaway is that we have tested a few different concepts, not only in Q3 this year but we started at the end of last year to test different formats and campaigns to diversify away from our Mr. trivago campaign. We have interesting learnings from this and now have a pretty good understanding of what's working for us, which will give us the flexibility to tailor our new campaign next year to fit whatever the market environment will be.

Regarding alternative accommodation, you are absolutely right. We are very happy that we started focusing and investing significantly in alternative accommodation at the end of 2017. For this summer business, our apartment coverage was very important and vital in terms of having all the inventory available. Many top nature destinations were fully booked out, and we needed to provide our users and customers with all available options. For next summer, we expect a similar dynamic. There will be a significant increase in market share that transitions into apartments, though we believe that as the market recovers, the share will normalize to a certain extent. Still, we believe apartments will be a key part of our overall value proposition and a major differentiator for us.

Great, thank you both.

Thank you.

Thank you. And we have one more question on the line. And the next question comes from the line of Kevin Kopelman from Cowen. Your line is now open, please ask your question.

Hi, thanks so much. On marketing trends, in the third quarter, you were able to reduce your marketing expense year-over-year significantly more than your revenue decline. Can you give us an update on those dynamics heading into Q4? Is there any change there with what's going on in Europe? Thanks.

Sure, thank you Kevin. Yes, that's a very good observation. In Q3, our advertising spend as a percentage of revenue was around 50%. Historically, it's a low number, as we didn't see the same opportunities in other segments and were more cautious. Our focus in Q3 was preserving cash. In Europe, we saw decent pickups, which prompted us to invest in that. As for the performance marketing side, when we noticed a pickup in demand, we increased investment, but remained cautious. Pre-COVID, we initiated testing in our performance strength, hence increased our target for return on advertising spend to determine incrementality. As for Q4, historically, it's a low quarter for us in terms of brand spend. With the holiday season approaching, TV advertisement costs rise, while demand for our product drops. Therefore, we usually reduce spending. Given the current situation in Europe, you can reasonably assume that we don’t expect a higher revenue-to-advertising ratio in Q4 compared to Q3. Does that make sense?

Yes, thanks Matthias. This is very helpful.

Great, thank you Kevin.

Thank you. There are no further questions at this time. Please continue.

Yes. Many thanks for taking the time to participate in our Q3 earnings call. Regardless of the very challenging situation we are facing in many markets, we continue to see this crisis as an opportunity. An opportunity to face our travelers and advertisers with better products. An opportunity to become more relevant and grow our market share. This is what is driving us forward, no matter how long the winter will last. Many thanks for your time, stay safe and see you next quarter.