trivago N.V. (TRVG) Earnings Call Transcript

Hello, and welcome to the 31st Deutsche Bank [Indiscernible]. My name is [Indiscernible] Investor Relations advisory team at Deutsche Bank. I'm pleased to announce that our next presentation will be from trivago. Please note all of today's presentations are recorded and can be [Indiscernible] Deutsche Bank website, adr.db.com. [Indiscernible] from trivago.

Hello, everyone, and welcome to today's investor presentation of trivago. Let me start with our mission and what is trivago actually all about. Our mission is quite simple. We want that each traveler, if he thinks of a hotel, he has to think of trivago, that's our mission statement. And regarding trivago, we are a globally operating company listed on NASDAQ since 2016. The company has been founded in Germany in Dusseldorf in 2005. After a period of a very steady and very strong growth, actually, we [Indiscernible] acquired a major stake in trivago in 2013. And in 2016, the company went public on NASDAQ. After -- then in 2019, what was the next big event that hit the company hard. COVID started and the company went into survival mode. And when COVID was over, there was a strategic decision taken and the current leadership team that was previously until a 2018, 2019 with the company, rejoined the company and implemented a new strategy. Regarding the other facts and figures of trivago, we operate -- we are truly a global company. We operate over 50 localized websites and on our hotel meta search, there are over 7 million accommodations available. As mentioned, we are located in Dusseldorf, most of our employees sit here. And we additionally have a subsidiary located in Israel called trivago deals. Now I want to explain a little bit more where trivago sits in the travel ecosystem. When you think of our competitors, I used to say that our main competitor is Google because trivago is for travelers a search layer, and a search player where you can compare prices all over. And it doesn't matter if you want to book with an OTA, for example, with Booking.com or Expedia, or if you want to book directly with the hotel, everything is available on trivago. And a quick look at the market we are operating in the global travel market accounts for around EUR 1.6 trillion and the total segment size accounts for around EUR 500 billion. And it's also a quite profitable segment, the hotel segment. Therefore, we are solely focusing on the area of hotels. Trivago is basically a marketplace, and this is a quick explanation on how trivago operates. On our website, we match demand and supply. So how do we make sure that travelers come to our website. It's very simple. We need to do marketing. And there are to possibilities in order to do marketing. The first one is brand marketing. So you, for example, produce a TV spot, a traveler [Indiscernible] of trivago and then he directly visits our website. The second possibility is performance marketing. Performance marketing is mainly marketing via Google, so you basically buy the traffic on Google. And yes, this is the second marketing source that creates demand for our platform. When the user then comes to our website, he can compare prices decides for the best price or the best value he sees and then he books, he can book with certain OTAs like [Indiscernible] booking or he can directly book with a certain hotel. And there's also a third option I would like to mention here. We can also book with trivago Book & Go. Trivago Book & Go is possibility for users of trivago to directly book with trivago. And Trivago Book & Go is operated by our subsidiary that I mentioned beforehand, trivago deals. What is the driver of the decision to provide a booking on trivago itself for us, it's -- we want to improve the conversion rate of our users. And therefore, it's only consistent if you provide a completely trivago branded user experience. And yes, with this, we are -- we want to make sure to -- this price say community stays on trivago. I think it's clear that trivago also provides a very competitive rates compared to other players in the market. For us, -- it's -- so we are a price comparison or hotel price comparison. And here you can see basically the reason why we think that we are that we are highly relevant for the market. For the -- this is a survey and it has asked what is most important for travelers and value for money and the competitive pricing is very important for them and a very high degree of travelers also compare prices between hotel sites and between different booking sites. And if someone does this, the idea or the perfect starting point is a hotel meta search like trivago. Besides the meta proposition we are offering trivago is also a leading brand. And also a global brand. There are many markets out there where trivago was the most known brand -- a travel brand or a brand that is associated with travel. The survey here asked when you think of travel, which travel website comes to your mind, and here, as you can see, in many markets, we are #1 and #2. And in a moment, I will come to this, why an important brand is very, very important in this environment. At the moment, we see 4 important levers for trivago where we further can grow and we can -- where we also can increase our profitability. And this flywheel here shows the important levels. The most important lever is our brand. In many, many markets, as I just mentioned, we already have a strong brand, but we further invest into our brand because our brand makes us more independent from other traffic sources. So we invest into brand marketing. And we invest, we increase our investment, but we, at a certain point, do not -- or we invest at a more moderate pace. Why do we do this? The reason is pretty simple. When you invest into brand, you have an initial return of 30% at the point of investment. And the remaining returns come at later stages, and we make use of these compounding brand effects. The user from time to time has to be reminded that there is a strong brand in terms of travel that he can use this, and at a certain point, you come at a level where this is -- the number of reminders, don't have to be that often and then you come into a mode where it's -- where these effects could then compound and stay. And then in this space, further increases in our profitability because then we do not have to pay for this user again because he comes by himself to our website. The second important level we are seeing is our product. Since mid-2023, when the new management team took over, we were able to increase our conversion rate by over 50%, which means the user experience on the website has significantly improved. And an increase in conversion rate has a direct effect on our unit economics. And this is pure profitability. The third big lever is our member area. If you joined trivago and you will see that certain very competitive rates are only available for members. So you need to lock in and enter your data. And based on this data, we are able to provide you better, better prices, and we are also able to personalize the offers we are sending to our users. This furthermore increases the retention. And the last point is that based on our customer management system, we are able to reengage with our travelers and bring them back to our website at very low acquisition expenses. And this all pays into our -- into the next years and our -- into our strategy of increased profitability. Here is a quick summary of the major investment highlights we are currently looking at. The travel market overall is large and expanding. Trivago has a highly relevant product. Price comparison still matters for the user. And on trivago, you can save up to 40% and we offer more than 7 million accommodations from over 100 booking sites. We are a leading global travel brand. We are very recognized in basically all the key travel markets all over the world. For the next years, we already called out a significant increase in profitability combined with a strong growth potential. Furthermore, we already executed on our strategy, and we will further execute but I will come to this at a later point. Here you can see our growth trajectory. In mid-2023, the current management team took over. And one of the first or the first 2 things that were approached -- we are, first, a focus on brand marketing, which decreases our dependency on performance marketing, especially on Google, which makes our business more robust, and the second initial improvement was the improvement of the conversion rate basically of the product of the user experience. And this, you can clearly see in our revenue dynamics year-over-year. Here, a quick snapshot how COVID hit our company very hard. And yes, it also can -- also clearly be seen here that it takes time to build up a brand and to make use of these compounding brand effects that I just mentioned. But now we are on a trajectory here and combines not only a growth trajectory in terms of top line but also in terms of increased profitability. On the right side, you can also see that we have a well-diversified business around the globe. And this makes us more independent from localized crisis. We can react more opportunistically and shift our spend into regions that are -- where it works better for us. Here, we come to the finance KPIs. First of all, trivago -- trivago stock has been -- there were ups and downs. Basically, a lot is driven by the low liquidity we are facing, which is driven by the fact that 60% of our shares are hold by Expedia and another big chunk is with our former founder [Indiscernible]. So the liquidity is quite small. But nevertheless, if we look at the market cap as well as the cash available and that we have zero long-term debt. And you can clearly see that we are valued at 2x EBITDA multiple of 2027. Yes, I would say this is clearly a chance given the growth trajectory we are on and given the profitability increase we are currently seeing here. We called out a 10% adjusted EBITDA margin by 2028. And the main levers that will bring us there are already working. It's the investment into brand and making use of these compounding brand effects, it's our locked-in members that already now generate around 35% of our referral revenue. And with this [Indiscernible] members, we can retain them better and make sure that they come back to trivago. And additionally, which we have already also shown is the improvement of our product of our user experience. And with this, the improvement of our conversion rate. And also Trivago Book & Go, so the possibility to book on trivago directly further pays into this momentum. On the other hand, we are a small company with around 600 employees. We are flexible and cost discipline -- cost discipline, which we have shown during the last years. And we will leverage AI in order to increase the efficiency and the effectiveness of our workforce. So there is no need to increase the headcount. And this is a starting point, and it's the way how we want to get at our 10% adjusted EBITDA margin. Here, a quick outlook on our product features. We are convinced that AI or we -- on the one hand, we leverage AI internally in order to be more efficient and effective with our company with all our work. On the other hand, we leverage in our product. We implemented a free text search where you can just enter whatever kind of hotel you are looking for? And this is adopted by our users, and it's -- I think it's a great feature. Additionally, we implemented AI generated highlights on our website as well as AI generated guest reviews, and also this is adopted by our users, and it further increases the user experience and with this also the conversion rate of our product. Last but not least, this is the partner mix we are currently seeing on trivago. In the past, it has been always a criticism that trivago depends on too much -- on the 2 big players or 2 big OTAs, Booking.com, as well as Expedia. And mid-2023, we started to implement measures in order to decrease this dependency. We implemented a CPA model, which basically means cost per acquisition. So there are 2 possibilities in order to monetize cost per click and the cost per acquisition model. And with the cost per click, it's pretty easy. If the user comes to our website and as soon as he clicks on an OTA or a hotel, we get paid. The other -- the alternative is the CPA model, where the advertiser where our traffic -- where we refer our traffic to he only has to pay us if the user books a hotel. And we, for them, take care of the bidding on our website, in our auction model. And this decreases complexity for small and midsized players. And therefore, they are more competitive on our website. Furthermore, trivago book and go and other initiatives improve the competitiveness of smaller players on our website. And based on this, the share of the smaller players or long tail OTAs, increased to 35% compared to 2023, where they were around 20%. This is quite important because in an auction model, you don't want to be too dependent on a certain bidder in your auction. So this basically improves the resilience and the robustness of our business model. With this, I come to our third quarter highlights in 2026. In terms of financial performance, we were able to grow our top line revenue by 16% year-over-year, and it's our seventh consecutive quarter of double-digit growth. Additionally, our adjusted EBITDA accounted for EUR 18.7 million, which was the highest quarterly result since mid-2023. Americas and Developed Europe were our growth drivers, and we were able to realize this 16% top line growth despite severe [Indiscernible] in our in our segment Rest of World, which has been affected by the Middle East conflict as well as by foreign exchange-related headwinds. Additionally, our brand investments keep compounding we are very happy with the response we [Indiscernible] on this. It works as planned. Additionally, our product conversions account for an increase of 50% directly reflecting or increasing our unit economics. Our member base is growing, locked in members already generated more than 35% of our referral revenue, and we are able to engage with them and yes, at close to zero acquisition growth, which is great and further increases our profitability. And yes, -- and all these developments now show our way to increase profitability -- we confirmed our adjusted EBITA target for 2026 of around EUR 30 million. For 2027, we see EUR 45 million and for we called out the 10% adjusted EBIT EBITDA margin. Thanks a lot for your attention, and I'm happy to catch any questions in our one-on-ones. Thanks a lot.