Earnings Call Transcript - TRVG Q1 2025

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Trivago Q1 Earnings Call 2025. I must advise you the call is being recorded today, Wednesday, April 30, 2025. We are pleased to be joined on the call today by Johannes Thomas, Trivago CEO and Managing Director; and Robin Harries, Trivago CFO and Managing Director. The following discussion, including responses to your questions, reflects management's views as of Tuesday, April 29, 2025 only, unless expressly stated otherwise, in which case it reflects management's views as of today, Wednesday, April 30, 2025 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 Q1 2025 Operating and Financial Review and Trivago's other filings with the SEC for information about factors which could cause Trivago's actual results to differ materially from this forward-looking statement. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in Trivago's Operating and Financial Review, which is posted on Trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit Trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2024. With that, let me turn the call over to Johannes.

Johannes Thomas, CEO

Good morning, everyone, and thank you for joining us today. We are thrilled to announce that we have significantly accelerated our momentum in Q1 2025, surpassing expectations for both top and bottom-line results. In light of this exceptional performance and our continued growth trajectory, we are pleased to announce that we are raising our full-year revenue growth guidance to mid-teens percentage and foresee a better-than-expected adjusted EBITDA profitability. These excellent results reflect the consistent and diligent execution of our strategic plan by our dedicated team over the past two years. Today, I'm pleased to provide you with an update on each of our three strategic focus areas. Our first strategic priority remains brand marketing, through which we continue to elevate our globally recognized brands. We remain committed to increasing both the efficiency and overall impact of our brand investments. Our AI-powered Jurgen Klopp TV creators, along with our localized campaigns for Brazil and Japan, are performing well, and we are successfully driving brand revenue growth across all segments. We are also excited about our summer campaign, which has already launched in the U.S. and will gradually roll out globally throughout May. Our recent performance clearly demonstrates the compounding effects of our brand marketing investments, and we continue to observe the marketing elasticity we had anticipated. This elasticity enables us to confidently scale our brand investments while maintaining a disciplined approach to our performance marketing channels. Our second strategic priority is to enhance our core hotel search experience. We empower travelers to book with confidence, saving them valuable time and money. Over the past quarter, our product teams have further increased the product testing velocity, delivering meaningful user experience enhancements, and driving notable improvements in conversion rates. We have also made considerable progress in increasing member sign-ups by providing more exclusive deals and benefits for our logged-in users. Further, we have improved our map functionality, employed new AI-powered hotel filtering features, and introduced numerous popular web functionalities into our app. We have also expanded the coverage of AI-generated hotel highlights to more than 350,000 hotels and 11 languages. Most notably, we have leveraged advanced machine learning algorithms to deliver even more tailored hotel search results to our users. We are excited about the meaningful impact our investments in AI and machine learning are already having, and their future potential to transform our hotel search experience. Our third strategic priority is to empower our partners to maximize their potential on Trivago. We are pleased with the evolution and overall health of our marketplace. Our partners increasingly recognize the high quality of leads provided, making Trivago a more attractive marketing channel. We have also made significant progress in expanding Trivago Book & Go to additional partners, helping them increase their conversion rates. We are also particularly excited about the outcomes of our strengthened strategic partnership with Holisto. The collaboration is yielding promising results, and we warmly welcome Holisto as part of the broader Trivago team. Overall, our dedicated team has delivered another quarter of strong execution and accelerated learning. Our strategic direction continues to advance as our teams remain focused on key priorities designed to create value for our users and advertising partners. We are grateful for our team's diligence, commitment, and creativity, which continue to propel Trivago forward. Thank you, and now I would like to hand over to Robin for a more detailed review of our financial results.

Robin Harries, CFO

Thank you, Johannes, and good morning, everyone. We are thrilled to report that Q1 was an outstanding quarter for Trivago, significantly exceeding our internal expectations, representing another strong quarter. We achieved a 22% year-over-year increase in total revenues. In addition, April's performance continues to show strong double-digit revenue growth rates. Our impressive performance was primarily driven by strategic brand marketing investments and product enhancement. We recognize numerous attractive opportunities to further scale our brand marketing investments and expand our business. We are optimistic that our strong operational performance will translate into significant benefits for shareholders as we continue to execute our strategy. Now let's review our first quarter results and our 2025 outlook. Unless otherwise indicated, all comparisons for 2025 are on a year-over-year basis. In the first quarter, our total revenue reached EUR124.1 million, representing a 22% increase compared to the same period in 2024. We are pleased to note this marks our second consecutive quarter of growth. We experienced strong year-over-year double-digit growth across all three reporting segments, with referral revenues growing 44% in the rest of the world, 19% in developed Europe, and 18% in America. This growth was primarily driven by increased branded channel traffic in response to our ongoing brand marketing investment, improvements to our booking conversion, and higher traffic volumes. We also continue to observe healthy bidding dynamics on our platform when compared to the same period in 2024. During the first quarter, we reported a net loss of EUR7.8 million and achieved an adjusted EBITDA loss of EUR6.5 million, which was better than our internal expectations. Similar to our 2024 performance, we expect negative adjusted EBITDA in the first and second quarters of the year and anticipate positive adjusted EBITDA in the third and fourth quarters of the year. Operational expenses increased by EUR20.7 million, totaling EUR133.7 million for the first quarter. This was mainly due to a EUR21.4 million increase in selling and marketing expenses resulting from higher brand marketing investments made over the course of the quarter. Advertising spending increased by EUR10.4 million or 31% in America, EUR7.3 million or 50% in the rest of the world, and by EUR2.7 million or 7% in developed Europe, driven largely by brand marketing investments in all segments. The overall increase in operating expense was partly offset by a EUR1.3 million reduction in general and administrative expenses during the quarter. Despite the significant scaling of our marketing investments, our ROAS remained globally stable at 118.1% for Q1, compared to 119.2% in the prior year. We observed a significant ROAS improvement in developed Europe, increasing from 121% in Q1 2024 to 134% in Q1 2025, while we observed reductions in the Americas from 114.5% to 102.7% and in the rest of the world from 125.1% to 120.3%. As of the end of Q1 2025, we have EUR118.6 million in cash and cash equivalents and no long-term debt, continuing to maintain our strong financial position. We feel confident about the future as our product caters to conscious consumers. We are optimistic about our outlook and therefore, raising our full-year 2025 guidance to mid-teens percentage revenue growth and positive adjusted EBITDA, similar to last year's levels. Looking further ahead, we believe significant potential remains to further scale our brand marketing investments, which we expect will positively impact our overall revenues as we steer towards regaining pre-COVID revenue levels in the future. With that, let's open the line for questions.

Operator, Operator

We are optimistic about our outlook and are raising our full-year 2025 guidance to mid-teens percentage revenue growth and positive adjusted EBITDA, similar to last year's levels. Looking further ahead, we believe significant potential remains to further scale our brand marketing investments, which we expect will positively impact our overall revenues as we aim to regain pre-COVID revenue levels in the future. Now, let's open the line for questions.

Robin Harries, CFO

We can’t hear you anymore. Sorry?

Operator, Operator

Your first question comes from the line of Naved Khan with B. Riley Securities. Your line is now open. Please go ahead.

Naved Khan, Analyst

Great. Thank you very much. I think this is really a good performance. I have a question on maybe the regional performance. And you do talk about April being strong. But if I have to look at the U.S. versus other markets, is there any particular trend to call out maybe weaker consumer or curious about what you're seeing across these regions? And what kind of influence has your overall guidance? And also maybe just talk about trends like consumer price sensitivity and booking conversions and things like that in the U.S.? Thank you.

Robin Harries, CFO

Naved, it's Robin. Thanks for the question. Regarding the most recent performance in the market, and we said April is still strong double-digit growth. We see it in all regions, very strong as Q1. And in terms of trends, let me provide a little bit more color on ADRs and search entries, so what we see. So we saw in our internal data for Q1 that ADRs were up in all three segments. Length of stay was slightly up in the Americas and developed Europe. The rest of the world was stable, and ABB was also up in all three segments in Q1. So when we look into Q2, Click prices and ABB on a global level in Q2 was slightly up and length of stay was rather stable. And when we look into the regions, so developed Europe and rest of the world, positive, America slightly negative. But overall, it looks healthy on a global level. So we are optimistic about the outlook for Trivago because, as I said, April is very strong again. We have enough room for further scale brand marketing investments and have the right product for price-sensitive users. And we believe that this will lead to further growth for Trivago. When we relate it to search interest on our platforms, we saw strong demand on our platforms across all our segments in Q1 and are still seeing it in April. There are gear shifts, but one strength of Trivago is that we are a global business and operating in over 50 localized websites and apps. And for example, there was less traffic from Canada and Mexico into the U.S., but on the other hand, there was strong domestic U.S. demand. And overall, we are seeing strong demand on a global level on our platforms. So we are confident that we can outgrow short-term volatility and, yeah, because we have diversity in our countries. And maybe to the search interest for 4 and 5-star hotels, this remains slightly below prior years in all three segments. Click days to stay were a little bit higher in three segments. Average travel distance clicked during Q1 and '25 was slightly up. And yeah, so that's it regarding the travel trends, what we see on Trivago.

Naved Khan, Analyst

Great. And then maybe just a quick follow-up on Holisto. Has the team joined Trivago and maybe any kind of color or commentary on that front?

Johannes Thomas, CEO

Yeah. Maybe I can elaborate on the strategic context that we exercised our call today. So we're excited to acquire the remaining 70% of Holisto. And the strategic rationale we outlined mid of last year, there's an extensive post that you might want to look into. I think overall, the goal is to simplify Trivago. There are the popular brands everybody knows on Trivago. There is the direct website on Trivago. And then there are a lot of brands that have great deals but not much brand strength, which comes with a downside on trust and conversion rates. And by us offering the Book & Go product that Holisto has built exclusively for Holisto, taking that product and offering it to all our partners, we think can lift conversion rates and improve the user experience on our platform. And we are very excited to have the team back on board. We had in place goals that we wanted to achieve, and the Holisto team has exceeded some project expectations, delivering on others. And we are very happy working closer together with them because we can intensify and rely on the strategic direction of building a more seamless experience for travelers. So that's great. The company will continue to operate standalone. Certainly, it's a fully owned subsidiary. We will get a bit closer on what we operationally execute and align strategic objectives. And that's a great advantage now with the full ownership that we have interests aligned among both companies. We expect this to have an impact in the medium term, including higher conversion rates and better user experience which can propel results in the near term, midterm, and long term. And maybe, Robin, do you want to elaborate on the details of the deal?

Robin Harries, CFO

Yeah, sure, sure. So yesterday, we executed the call, and we will probably close the deal in the middle of the year. The impact of the full acquisitions are not reflected in our adjusted guidance yet. So we increased the guidance to mid-teens revenue growth and adjusted EBITDA to last year's level. But the impact of the acquisition is not reflected in here. We will provide more color on this after the closing, but the deal will have a further positive impact on our top line, and we don't expect a negative impact on our bottom line.

Naved Khan, Analyst

Great, thanks so much.

Robin Harries, CFO

Thank you.

Operator, Operator

Your next question comes from the line of Tom White with D.A. Davidson. Please go ahead.

Tom White, Analyst

Great. Good morning, thanks for taking my question. A couple on AI, if I could. Could you talk about how you sort of think about the risks potential risks posed by the AI hyperscalers as it relates to changing how travelers may search and book travel versus the opportunities that maybe AI technology creates for your own business? And then I had a follow-up.

Johannes Thomas, CEO

I believe that general GenAI products are quite effective at the research phase for travelers, and users who utilize them seem to be fairly satisfied. However, when it comes to specific transactions like booking a hotel, I think a chat-based experience is crucial for a positive user experience. While it's clear there is a use case, we still need to determine its full potential. For example, if someone knows their preferred hotels in New York, they could instruct AI to find the best option for them, and that would likely be effective. Additionally, we've observed that other search engines, like Google, have not dominated the travel sector despite having hotel offerings. We see ourselves as an integral part of how travelers navigate multiple sites for research. This behavior is unlikely to change, as people are cautious with travel decisions and invest significant time comparing options. Our strong brand presence serves as a safeguard against AI technologies potentially taking a larger role, which hasn't happened yet and seems to be a long-term process. We're actively integrating AI into our search results with features like hotel highlights, enhancing the user experience with our search interface. These improvements are already visible to users and are positively impacting conversion rates. We are optimistic about the prospects ahead and believe we are well-positioned to deliver these features swiftly, ensuring we maintain our lead in the market, and we will keep investing in this area.

Tom White, Analyst

Great. Appreciate that. Just a follow-up on the brand investments. I think you referenced sort of the compounding benefits. And I guess I'm curious whether that includes maybe sort of like a halo effect or uplift in efficiencies in non-branded channels like search or social. Just curious whether you're seeing sort of a palpable benefit there and whether that could further compound here over time? Thanks.

Johannes Thomas, CEO

Yeah. I think that's a very good perspective, and I would agree to some degree. And if you have brand investment, if you are more top of mind for travelers, if they see your brand then in social, if they see your brand on Google, we can see that there is an impact on click-through rates in other formats. So that has been something we have seen historically, and in markets where we have leaned in, that has collateral effects on that as well. I think the most powerful is the compounding effect over time that we are stacking up branded visitor baselines year-over-year that are landing into the different segments. We are seeing that materializing today because we have done it for two years now, and that's why we believe there is sustainable growth ahead.

Operator, Operator

Your next question comes from the line of Ron Josey with Citi. Please go ahead.

Unidentified Analyst, Analyst

This is Robert, on for Ron. Thanks for taking the question. I would love to just double-click on hotel search performance here. It was great to see AI generated highlights now covering 350,000 hotels and increased conversion rates. But can you talk to maybe some of the initial earnings on this product and then perhaps expand on your plans for AI Smart Search?

Johannes Thomas, CEO

Yeah. Let me elaborate on that. I think for what you can see, the AI highlights today cover 350,000 hotels. We added, I think, four languages last quarter as well. So we're expanding languages where it's available. We are trying different models powering these AI highlights. We started out using Google and are trying other models to compare them in order to get our uniqueness established. What you can see, if you go to other websites, you might see something like the hotel has a gym or the hotel has a nice breakfast or so. What you see in our AI highlights is really the differentiation. There's a test out there where we show you one very unique thing with an image; it might be a rooftop bar, an amazing spa, or a Michelin-star restaurant, which we try to highlight and give you this uniqueness about the hotel. So these days, when you scroll through search results, you're mostly anchored on the image. We see our users not just looking at images anymore but also at the hotel highlights as a second factor for efficiently comparing hotels. Our approach uses less information but rather distinct content, and that’s what AI has made possible here. So we are testing different models and different sortings. If you'd use a filter, we adapt the hotel highlights. If you visit the map and click on a hotel, we adapt the hotel highlights relevant to the location. We are working with dynamic content, therefore depending on what you're searching, you see dynamic content being produced. Relating to our AI search experience, we have brought this into our core experience; before, you had to go to ai.trivago.com. Now you see it featured in our search box that you can type whatever you want. We've made that available to a broad user base and are pushing more users into it. We are not rigid about instructing users to utilize this; instead, it complements our search and opens up new ways of searching. You have no platform where you could search, for example, 'a hotel with a pool next to Route 66,' which is a semantically quite complicated thing for a machine to understand. Usually, you refer to cities or regions when populating your list. It's exciting that new ways of searching are possible, and we are working on making the list even more relevant. The key question is how do we commercialize the list? Do we show only relevant hotels? How do we mix in commercialization into that list? We are progressing gradually on these fronts.

Unidentified Analyst, Analyst

Got it. That's great. And then just one follow-up. You called out localized marketing campaigns in Brazil and Japan specifically in the prepared remarks. So as you continue to roll these campaigns out, what can you tell us about the performance there so far? And then what are you seeing in terms of incremental traffic or ROAS in each of those regions?

Johannes Thomas, CEO

Yeah. Maybe I can explain here. So overall, we are happy with the global campaign that's featured lithium clock. Then we sometimes have local campaigns with specific objectives. Without going into too many details, so we don't want to unveil too much, but Japan is a nice case. We have launched a campaign very recently, and we say 'in this spot' 5 or 6 times 'Trivago.' The term 'Trivago' is not as easily spelled for Japanese speakers. So we are bringing with this campaign the term 'Trivago' more tangibly to users and have the goal to increase brand awareness and not just activation. Where you have a strong brand, you want to activate users and convert them into visiting you. Then in some markets, we want to prepare the brand more top of mind in terms of awareness. Certainly, that activates as well, but then just getting the brand in people's minds. And that was the objective in Japan. It has worked fantastically from what we see so far. And wherever we see there's value in doing that, we will continue to do that. Overall, we are very happy with the incremental ROAS we are seeing. I commented on that before. We see elasticity across all segments. And that's why we are confident that we have room to invest more. So on top of compounding effects, we have incremental investment that we can scale in all regions, and that's what we will continue to do.

Unidentified Analyst, Analyst

Great, thank you.

Operator, Operator

Your next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.

Dae Lee, Analyst

This is Dae on for Doug. I just wanted to revisit your full year guide for a bit. So could you explain where you're seeing us relative to your guidance about three months ago? Is it more on the volume side? Or is it on the monetization side? And secondly, it seems like you guys are assuming the macro environment will hold steady in the full year guide. Just wanted to hear your thoughts on how a macro slowdown might affect your business and how you will approach advertising in a potentially slower environment? Thank you.

Robin Harries, CFO

Yeah, this is Robin. Thanks for the question. So regarding the guidance, we see huge potential in scaling our brand marketing investments. We have been doing this now for a couple of months. As Johannes said, Q1 was super strong. We had a 22% total revenue growth, and the ROAS was stable. So we increased the ad spend by 24%, but the ROAS was just 1% below the previous year. I think this is a strong indication that we see a good impact from our brand marketing campaigns. Moving forward, for the rest of the year, we will further increase and scale our brand marketing investments. Last quarter, we also uploaded the investor presentation where we highlighted that in '24, we only invested 50% of the brand marketing that we invested in 2019. We sometimes mention that there is one more objective to return to pre-COVID levels where we say this is around 2019. Therefore, it's important to scale brand marketing investments again. That's what we are doing, and we see that this is successful. We will do this in all three segments. The rest of the world is experiencing very strong growth in Q1. We believe that we can further scale investments there. We expect nice growth throughout the year, but the same applies to Europe and the Americas. We will really scale investments in markets where we are already active, and we might add new markets. Overall, this is clearly the driver. Regarding demand, for us, when we look at our platform, I mean with 22% revenue growth in this market. We see strong demand, and as I said, we have observed some differences in regional traffic. For example, there are fewer Canadians and Mexicans traveling to the U.S. But on the other hand, we see strong domestic travel in the U.S. When we look into April, we still see strong double-digit growth in all three segments. Yes, uncertainty is not good for travel. However, we see that the market is solid and our growth rates are strong. Especially because we have a product built for price-sensitive users, we are very optimistic and have a lot of room to further scale our brand marketing investments. We believe that this will lead to nice growth for the full year.

Johannes Thomas, CEO

Yeah. And maybe you asked what we do in terms of if there is volatility and what we do with our advertising. I think we have shown during the pandemic and historically many times that we are able to cut investment very quickly. Just look back into Q3 last year. We have seen that due to mega events, I think it was the Olympics, the World Cup, or elections; we have seen that elasticity has come down, performance has worsened, and we immediately cut a substantial amount of spend. So we are very responsive on that. We also don't usually make long-term commitments with our brand investments, and I think that will keep us flexible. I would like to point out one more driver. I think Robin has talked about brand. I think the other substantial one that we shared in our investor presentation in February, a slide where we showed the increase in conversion rate, which was around an increase of around 35%. That has a substantial impact on any marketing initiative. That's why we talk so often about conversion rate. If we are increasing our conversion, say 10%, this has a big impact on marketing efficiency. We are disciplined in not spending this on performance marketing. We are focused on investing the incremental returns we have into our brand marketing initiatives. It is TV, but it's also social media and many other initiatives we have around brand marketing. The conversion rate is really important, and our teams do a great job in accelerating the pace of increasing our conversion rate, and we see lots of opportunities to increase conversion rates further. I mentioned some AI features that have contributed to that, but we do hundreds of tests continuously, and those add up and have compounding effects like user satisfaction, user retention, and so on, which are very exciting to see.

Dae Lee, Analyst

Got it. Thank you.

Operator, Operator

That concludes our Q&A session. I will now turn the call back over to the management for closing remarks.

Johannes Thomas, CEO

Thank you. Before we conclude the call today, I would like to extend a special thank you to our CFO, Robin Harries, who will be leaving Trivago. We sincerely appreciate his hard work, dedication, and leadership, and we wish him all the best for his next endeavor. At the same time, we are thrilled to welcome Dr. Wolf Schmuhl as our new CFO. Wolf has consistently proven himself during his tenure at Trivago and is a natural fit for the role, bringing a wealth of experience in finance and strategic development. As a leadership team, we are very excited to build on the momentum and transform the company together with him. With that, I want to say thank you for joining the call today. We are well positioned for sustainable growth. We remain focused on executing our strategy and look forward to sharing our progress during the next quarterly call. Thanks a lot, and have a great day.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.