Good day and welcome to the Trivago Second Quarter Earnings 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Matthias Tillmann, Head of Investor Relations. Please go ahead.

Thank you Lisa. Good morning, everybody. Welcome to Trivago N.V.'s financial results conference call for the second quarter ended June 30, 2018. I am pleased to be joined on the call today by Rolf Schrömgens, Trivago's CEO and Managing Director; and Axel Hefer, our CFO and Managing Director. The following discussion including responses to your questions reflects management's views as of today, July 25, 2018 only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as: we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's IR website at ir.trivago.com. I encourage you to periodically visit our Investor Relations site for important content, including today's earnings release. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2017. With that, let me turn the call over to Rolf.

Welcome, everybody. Many thanks for joining our Q2 earnings call 2018. Last year has been very challenging for us. We grew at a very solid 67% in the first half of 2017, before we had to adapt to this new environment which has been quite a test for the company. We are very happy with how our people dealt and continue to deal with it. But we also truly believe that we will come out stronger than before. About a year ago we experienced a significant drop in our commercialization, as our core advertisers adjusted their performance (inaudible). This means that we would see a significantly less for every euro booking volume that we generated for advertisers. As a consequence, year-over-year comparison has been unfavorable for the past four quarters including the current one. This effect will start to ease over the coming quarter as the loopy effect that I mentioned before. Let us go first and look at the financial performance of the current quarter. Again as we compared against the very strong quarter, second quarter in 2017, additionally lower commercialization and foreign exchange rate has wins negatively affected our performance in this period. As a consequence, total revenue declined from 298.3 million in Q2 2017 to 235 million in the second quarter of 2018. For the first half of 2018, this means a decline from 565.9 million to 494.4 million. The decline in revenue reflects a drop in QRs, qualified referrals from 196.4 million to 177.1 million in Q2 which leaves to a stable Quarter development in the first half of 2018 compared to the same period in 2017. Revenue for qualified referral decreased from 1.5 to 1.3 euro in the second quarter and from 1.5 to 1.33 in the first half of 2018 compared to the same…

Thanks Rolf. So let’s look a bit deeper in to the financial performance of the second quarter. So the second quarter revenues came down by 21% reaching 235 million euros, while for the first half of the year revenue came down 13% reaching 494.4 million euros. The adjusted EBITDA was at 17.7 negative in the second quarter of 2018 compared to 3.2 million positive last year. And that as a percentage of total revenue represented minus 7.5% adjusted EBITDA margin versus a positive 1.1% last year. If you look at the return on advertising spend, we had a 113% last year, in the second quarter came down to 110%, so a drop of three percentage points. While for the first half of the year, we reached 109% compared to 117% last year. Looking at the KPIs globally, there are a couple of effects that are across the regions and I would like to start with them first. The QRs were negatively affected by our continued focus on traffic quality at the sacrifice of quantity and our focus on profitability and more effective spending leading to a reduction in QRs. Our RPQR were negatively impact by year-over-year double digit drop in commercialization and exchange rates also had a negative translation effect on this metric. Both effects were partially mitigated by the improved traffic quality that Rolf mentioned earlier. The rollout suffered from the drop in commercialization which has been mitigated by our focus on profitability as of the second half of this quarter. Looking now at developed Europe, our qualified referrals came down from 82.1 million to 63.5 million in the second quarter. The first half, the drop was 155.7 million to 133.5 million. In the RPQRs, we managed to keep them basically flat from 1.47 to 1.46 euros through a…

Actually we can now go in for the question, I think.

[Operator Instructions] And we will take our first next question from (inaudible) from JP Morgan. Please go ahead. Your line is open.

First, last quarter you talked about let down in profitability target from larger (inaudible) in 1Q. So I was just curious if you could give us an update there through the course of the quarter, and if you’re seeing anything different in to the back half? And then second, can you talk about any other ways that you’re looking to drive traffic, anything that might be different for us from your paid channel, if there is something you can do more organically or on a non-paid front. Thank you.

Okay, let me start with your first question, we’ve seen since our last earnings call stable dynamics in the market place, so there is no update. I think you’re having the second question on new marketing channels. I think we’ve made a lot of improvement in all the performance marketing channels during the last year focusing more on booking volume and we see the results are coming in now. But regarding new traffic channels, we got more engaged into Google hotel apps and we ramped it up du ring the second quarter and we’re seeing very nice positive results already.

And we will take our next question from Naved Khan from SunTrust. Please go ahead. Your line is open.

Just a quick clarification on your pullback in advertising, I guess you’re pulling back on both brand as well as performance channels. In terms of us trying to think about which one maybe you might be pulling back more on should we be thinking about? Is it that you’re pulling back more on performance or is it equal?

We’re looking at all and other channels at the same time now, so we have been becoming very more profitable now in the performance channels over the last month, and the same is true for right marketing. So it’s basically on the same level because – there were specific levels of efficiency before that we thought make sense, and basically you would try to optimize on all channels at the same time, so you got basically the same kind of potential cuts more.

And just on the outlook. So revenue under the new outlook is going to be down year-on-year, can you give us a sense of the magnitude, how should we be thinking about that, should it be low-single digits, mid to high, can you just give us more color there?

We don’t give any guidance for other metrics other than adjusted EBITDA. It will be down, and I guess you’ve some data points in the first and second quarter and the color that we gave for the monthly trajectory in the second quarter to get us in and what to expect.

And then one last question if I may, other players and online travel ecosystem have also been spending aggressively on TV, do you see any impact on your ROIs in that channel or not really? How should we kind of think about it ourselves?

The TV market is obviously very, very large market and the impact of other travel players coming in and out doesn’t have an impact on the pricing of the efforts (inaudible).

And also it doesn’t have an impact – we don’t see its impact on our returns. So I think it’s still a super large market and the effect on like one of the players growing on small percentage share on the overall market is not really impacting us a lot. So at least we cannot measure it, we cannot measure the effects on us.

And our next question comes from James Lee from Mizuho Securities. Please go ahead. Your line is open.

A couple of questions here, any reason you got involved in Google Hotel ads a little bit deeper this quarter, are there any specific advantage for you for using this product, maybe for example you can best buy property, maybe the one advantage there? And also can you help us understand what kind of trends are you seeing in July specifically, supposedly Expedia will likely step up their spending in the back half, as they spend a lot of inventory here in Europe, and are you seeing any activities there?

So on Google Hotel ads, basically we have started to test in the channel some time ago and the further we test obviously the further we scale the channel, and in the second quarter we’re just at a point in our testing where we could significantly scale it up in particular in the US which is a very large market and that’s why it is the first quarter where it has a noticeable impact. But it is more driven by our pace of testing and scaling up rather than the market environment.

And regarding the trends in July, I think that Axel said that before that we see a quite stable market place environment. So there’s no general update. We see that all our advertisers are very engaged; they want to work with us, we don’t see any advertiser like stepping up, spending more, being more aggressive. So that’s at least something that we can right now not see.

If I can add a follow-up question here, looks like row ads in Europe has improved a little bit and in America and the rest of the world is declining. Can you help us understand what you’re doing right in Europe specifically and what you need to do specifically in Americas, and also in rest of the world for that rollout to move in the right direction?

It’s more of timing of our measures that you can see there. So the drop in QRs was a bit stronger in developed Europe as well. So we are just improving our targets quicker and the way it is implement more quickly than in the other regions relatively speaking to last year, and so there’s no fundamental difference, it’s just the timing and the year-over-year comparison.

And the next question is from Mark May from Citi. Please go ahead. Your line is open.

I had a couple of questions related to RPQR, it’s been down only kind of low single-digits in developed Europe the last few quarters, it’s actually been trending up in Americas for the last couple of quarters. In your prepared remarks however, you’ve mentioned “we continue to experience lower levels of commercialization”. Was that comment in the prepared remarks just related to year-on-year or are you seeing it on a go-forward basis, because you don’t necessarily see it in the numbers themselves, the last couple of quarters it’s been relatively stable in your major markets.

The RPQR really has – Euro terms has really these three effects that come out in the different regions slightly differently. So there is a double-digit and year-over-year drop in commercialization. So we made the same comment in Q1 2018, so that’s definitely a drag for all the regions and then we’ve got – we’ve counter effect that is the improved focus on traffic quality which on the year-over-year has different effect in the different regions. I guess you compared two different periods, where there were different quality starting points and improvement there, and then obviously you have for the US and for the rest of the world you’ve got the currency effect in the second quarter was slightly different to the first quarter and that’s why you come out basically flat in Europe and slight negative in Americas and in rest of the worlds. And if you look at it overall, including the mixed effect of the different regions, we think that for the whole company the RPQR will be slightly down, adding up all these effects in the year-over-year comp and the mix effect between the durations.

But forgetting the year-on-year just from a sequential perspective, RPQR seems to be relatively stable, is that part of your expectation?

What happens is, the RPQR is very dependent on traffic quality, and also basically, of course like if you have a higher traffic quality coming in, you would expect the RPQR to go up. And so it’s very highly dependent on traffic quality. What we did do in the last year in parallel was we shifted our marketing before we shifted – our marketing focusing on the revenue that we generated. Now our marketing is completely focused on the booking value that we generate. So that’s we today buy way more quality of the traffic than we bought one year ago. And that’s leads to the effect that we have now less traffic but with a higher quality and that drives RPQR up and that compensates for the effect on the other side that we have a different commercialization. So these effects we know is super-hot to see in the numbers, but these two effects always balances out.

And final related question, in the second half starting now, you’re going to be even more focused on efficient marketing spend and traffic quality. So should we expect to see and even more meaningful improvement in RPQR?

The focus on profitability mainly has an impact on the return advertisement spend and then obviously on the QRs because we are more targeted on the profitable spend. On the RPQR, if you look at the year-over-year comp we implemented the attribution model in the end of July last year and then gradually over the three quarters, Q3, Q4, Q1 and in SEMs, so there isn’t the comp effect, there is definitely still a positive effect coming from the increased focus on quality, but it is coming down all the time. So that’s what to keep in mind when modelling the next couple of quarters.

I think the difference of these two effects is that until today basically we shifted to higher traffic quality. What you see right now is, if we raise now on the (inaudible) spend if you raise our overall target, so that’s just a different effect. That doesn’t ultimately mean that due to that the RPQR would go up, it’s different than I think the last four quarters.

And our next question is from Brian Nowak from Morgan Stanley. Please go ahead. Your line is open.

I have two just a couple of big picture questions. The first on the long term top line growth, Rolf can you just talk to sort of one or two strategies or areas where you see some potential improvement to drive faster referral growth. And then secondly on the topline, how we should we think about how long it could take the attribution model to really drive a material impact on revenue per qualified referral. And then I know you’re making a lot of great changes to the business model and so rethinking about growth. In the past you’ve talked about long term profitability and target. How do you think now about sort of the long term profitability or margin profile of the business (inaudible)?

So let me answer on the strategies to drive growth. So I think if you’re looking back at Trivago like how we manage the business, it is not this silver bullet. But we say, okay we go this direction and then there will be more growth. So what we constantly do is improving our products, we’re improving our marketing channels, we constantly gain more efficiency in the product in the marketing, and that’s the way how we’ve grown the business to the point where it is today. So they’ve walked often the path, there was no silver bullet. And it was really like heavy analytical understanding of the marketing channels, going deep in to the numbers, understanding and improving. And that is actually ongoing. So I know it’s always hard to see in the numbers, but if you compare it and compare the level where we are today, having in mind the challenges that we had to face last year, this improvement is still underneath going and happening. And we think that now on a new profitability level this will also drive the growth in the future and we’re seeing it also right now also if you’re not seeing it in the numbers. We think right now we had a year where we had to go with the situation. I think the next upcoming quarters will be also us rebalancing the business, becoming more profitable and then from the profitable base start growing again. But right now we took the decision to say, okay, we want to step in and we want to become more profitable first. Coming to your second question, the impact of the attribution rollout, I mean we see that in the RPQR already. So the reason why we are basically flat in the RPQR despite a double-digit drop in commercialization is both the product focus on more booking conversion and it’s also the focus in marketing through the attribution model. So I think the positive effects we were seeing there already and as I said before, on the DA channel in the year-over-year it’s going to be fully and it has been a year since we really launched there for SEM. We really rolled it out more gradually over three quarters, so there is still some effect in the year-over-year that will come out of it. But it has been quite some time since we rolled it out, so that the positive effect are there and we can see them and they support already the RPQR. On your third question, the long term profitability target is from our perspective not changed now, so we still think that 25% adjusted EBITDA margin is the margin that we can achieve in the long term. So there is not really update on that number from our perspective.

And our next question is from Peter Stabler from Wells Fargo Securities. Please go ahead. Your line is open.

A couple from me, if I may, in the past when you’ve talked about the hotel direct opportunity, you typically refer to it as the long term project. Wondering if you could revisit what the primary obstacles are for you in building that channel. Trivago has got pretty tremendous exposure. Your advertising expense is down, but I think most of us agree it’s still a high visibility brand, so not sure it would be awareness but would love to hear some additional input on that, what are the primary obstacles. And then a follow-on to that would be, did the launch of Google Hotel ads and the improvement of that product, does that represent an incremental and significant competitive threat to you guys long term in terms of building the hotel direct revenue channel.

Starting with your first question on hotel direct, the way we are approaching it is that we’ve got this three step conversion [form] and so we’ve got the free to use product which is our hotel manager which more than 400,000 hotels they’re using and we’ve got a paid product that is used by more than 40,000 hotels which is giving them a lot more access to data and then the ultimate step is to get them directly on our platform. So, when you look at that, the biggest obstacle actually between step two and three is not so much having the access to the customer or to the hotel which we have already, but it’s also the technical connection that the hotel has. So the hotel needs to have certain technical infrastructure in place to directly connect to us and that takes some time, and also some effort from the hotel. And its similar for a lot of these hotels, I mean they’ve got no online presence, all the agents have one online presence through one OTA to go from one OTA to own website to multiple OTAs required for investment and that is really what makes it more long term opportunities. So it’s not only under our control, how well we actually sell and how convincing we are in communicating our value proposition, but at the same time it’s a development in the market for more and more hotels investing in to their technology and their connectivity. So that’s really I guess what makes it more a mid-to-long term project on the hotels that we have access to already that are connected it is obviously, it is something that is more under our control and that has more short to medium impact. On Google Hotel app, the way I guess what you need to keep in mind is, Google Hotel app is used by a user at the choice of Google. So Google decides how much visibility the product is getting. It is very different to our usage because our usage user needs to decide to come to our side. So one is a conscious decision and the other one is partially influenced by a tool that you use anyhow. So just the sheer size of the channel from our perspective is not a good proxy of the competitiveness from a user perspective. And the channel has been growing in the past, but us now having access to that channel we think is an opportunity for us, because they are significant pool of traffic that we in the past didn’t have access to which was a disadvantage. So up to the point where we are represented equally in that channel in all our large markets, we see it as an opportunity but overall it’s clear that Google and Google Hotel app is from a user perspective one of our direct competitors.

And our next question is from Tom Wise. Please go ahead sir, your line is open.

Just one more on RPQR. In Europe it was basically flat, you guys talked about the improvement in traffic quality. I guess on the traffic quality improvement, is that something that we can expect to have a more pronounced impact on RPQR in the other region, is it just a question of sort of timing when you kind of roll out those initiatives or are there something structural that maybe means that Europe sees the bulk of the benefit from traffic quality. And then just another sort of follow-up on Hotel Direct, I’m just kind of curious to hear your views on revenue diversification in general, is that a big focus area for you wondering kind of other products may be that you guys maybe thinking about or either new ad formats, just to kind of expand your base of advertisers, curious to hear your thoughts.

On the approach question, on the stable RPQR in developed Europe versus the drop in other regions, either way to think about it is that just the measures that we implement to improve traffic quality we had in the year-over-year, a stronger impact on Europe and as a consequence QRs dropped stronger and the traffic quality went up more. But that doesn’t mean that developed Europe is basically a front runner in a trend for the other region. I think it is more specific to the region and the traffic makes that we had there last year versus what the end resulted in a different impact of the initiatives that we launched. And so I guess it’s better to look at it region by region rather than from inferring from the developing in one region to something that will happen in the other regions.

Thanks for the question regarding revenue diversification. No, we’re not planning to go in other services. We’re not planning to go in to other verticals. So we really want to build the best hotel search that is out there and we don’t think that we have done that so far, but we can do way better than we do right now. So that the use potential for the company to do is better and to create like a great value in the market and that’s what we want to go for. And we do whatever is necessary to do. So in Hotel Direct is one of the opportunities if you have that to create a better hotel search, because we want that the consumer has the choice to any OTA but also at the same time go to a Hotel Direct and have the chance to book directly with the hotel. And on the other side we also want to offer individual hotels the chance to compete on their property with the global OTA, and that is to create a better hotel search. And that’s why we’re going in to that direction, but we are not planning to go in to other directions.

And just one follow-up on that, so no new products or new verticals, but what about kind of new ad formats for the core hotel vertical. One of your competitors is obviously experimenting with more sponsored media type ad units to try and diversify their advertiser base a bit.

I don’t think that it will go in the direction that you were thinking about. So I think we have capital around different display opportunities for hotels in the past, and we will also do so in the future, but there will be no kind of like on the placement or something like that.

And our next question comes from Lloyd Walmsley from Deutsche Bank. Please go ahead. Your line is open.

This is Chris on for Lloyd. So it sounds like you guys aren’t going to be moving into any new verticals within the space even though you have a lot of some of the other online travel platforms moving in to areas like traction. So just really as it relates to the brand or to your new traffic, have you increased your mix at direct traffic going forward if you’re not going to be moving in to any of these new verticals.

We have proved it in the same way that we’ve proved in the past, so you could have asked this question five years ago and you would have gotten the same answer as we were like a fraction of the size that we are today. So we think this is super huge market, we’re having a small change of it. The market is still going one more front from offline to online. So we currently don’t see that there is like a limitation in the market size than as we have limitation to grow in this market. And if we get to a limitation than we can think about going to other verticals, but right now it’s rather about how can we improve our product. And I think companies like Google.com have shown that over the last year like how the large the market and with being just in one vertical and of course now they’re thinking about like diversifying, but we’re not yet decisive to (inaudible) booking.com. If we decide then we can of course think about it.

Our next question is from Kevin Kopelman from Cowen and Company. Please go ahead. Your line is open.

So when you look at the actions that you took to increase your profit focus, do you consider those fully implemented as of June or did you make additional cuts to your ad spend in July?

So do we consider it to be fully implemented, I guess that the strategy is implemented and I guess what the strategy means is that we are challenging every dollar we spent and sets a higher profitability target, that will not stop in July, so it’s obviously dynamic. So I think that we will see further improvement coming out of it, but we might adjust or we will adjust the target continuously to what we see in the market.

I think the question is, was it implemented for the full June, definitely not, because it happened during June. Was it implemented in the beginning of July, I also don’t think that, and although we were everywhere across the board there where we want to be. So I think there is still an effect in July and because of course like when you’re looking at performance in the marketing channels, you cannot just jump from – in profitability you have to adapt profitability targets set by the (inaudible).

Perhaps just to add to that on the TV side you also have commitment that obviously where you have less flexibility and that’s why we were basically challenged every spend that is coming up new, so it will be a continuing process.

And then another timing question which is, how do you think about the comps for Q3 and Q4? Do you see them as easing and do have to wait until October until you see that somewhat easing in new year results or does it happen sooner than that, of course it’s only a partial comp.

So the comps in the second half of the year are significantly easier than the first half of the year, and so that’s definitely the case. Whether they are easing from the search of the fourth quarter, I mean we remember last year in October we gave some color on the market place dynamics so that’s point in time, but that’s a bit intra-quarterly so that will definitely effect last year that has an impact on the year-over-year comps. It’s not the same amount or degree that we saw in the first half ’17 versus first half ’18.

Just want to add the changes to your rollouts or strategies on spend, do you see it as you had sort of this change in the environment and you were temporarily sustaining losses and then you kind of adjusted your rollout target for that, or are you looking at bigger changes that actually puts you in a place that is different than when we go back like a year or more?

So I think there are basically two effects that have an impact on your question, one is, the market environment, and if your commercialization drops double digit obviously that is structurally taking out in the comparison profitability out of you and so you need to compensate for that. But overall when you say for the time being, we focus on profitability. That is a different focus than last year and the year before where actually our focus was on revenue development. So I think those are the two components to consider where we are heading.

And then one last question if I can, so in the past you targeted about a 50-50 mix between TV ads and performance spend and as of your most recent changes where do you see that mix?

So as Rolf earlier, so the optimization is across all the channels, so we still think that the basic mix of roughly 50-50 is the right mix. (Inaudible) you don’t manage for the mix. So I mean this is probably outcome than it’s a variable that we want to achieve. So we’re going for profitability goals and everything else is an outcome, because that’s something that we (inaudible) manage.

Is it still looking like around 50-50?

We didn’t discuss that. We think that’s probably the right mix.

And our next question is from Shyam Patel from Susquehanna. Please go ahead. Your line is open.

This is Brendon on for Shyam. Just two quick ones, just first on alternative accommodation, can you guys update us on some of your progress there and when you expect it to potentially have a noticeable impact on the business, and then what are like some of the hurdles or things you need to sort out for to do so? And then just on competition you guys have kind addressed this already and be it different pieces, different questions, but can you share any thoughts on bookings, recent ramp up in meta search acquisitions and sort of Google’s more targeted effort in the metasearch space? Kind of what impact you’ve seen or expect to see from those two?

Sure, so let me start with your first question on increased visibility of alternative accommodation. Since we launched the HomeAway integration in November and we are very clear that we are gradually increasing the visibility under the same time testing through the various parts of the business to make sure that the change in inventory mix doesn’t have a negative impact on our existing co-business and we are on track and with increasing that visibility. So we are now at 800,000 plus items or accommodations that we consider alternative accommodation and there are already destinations where it is very significant. We continue to believe that it is important to stay disciplined and not rush it and gradually increase visibility to make sure that all the different components of the business ecosystem are digesting the change in inventory mix.

The second question regarding competition [Bcom] acquiring (inaudible) combined. So I think first of all it’s just fine that Bcom believes in meta, so I think they have the best visibility in the market and they have the best visibility on the business model and so they seem to believe in to the business model and I think that is also like a good sign for us. And in total I think and also looking at and what Google is doing. So I think in general seeing that competitors like Booking or Google often move in to our direction, it’s just like also confirming us that we are moving in the right direction and still we have to compete and be better and at the end of all of that it’s all about the project, are you able to improve your product faster if any competition. And clearly we have Google as a competitor, but we Google as a competitor also I think already four of the last eight year or nine years. And I think we have done pretty well and we keep on improving the product and we want to beat the best metasearch or the best portal search.

It appears that there are no further questions at this time. I would like to turn the conference back to you Rolf for any closing or additional remarks.

Thanks a lot. So many thanks for joining the call. The last four quarters were challenging for us. We had to adapt to the new environment and that we (inaudible). I’m super thankful of how our people in Trivago reacted to it. They have seen the necessity to apt and to adapt, but they also stayed true to our [concept] to draw the least, which is equally important. In total I see this last year as a development that brought us, I think again closer to our core belief and also closer to what we want to be in the future. I think now we really have to take these learning that we made in the last year and build upon the first positive signs that we now see. Our clear goal is to rebalance the business on a higher profitability level and start growing after that. Thanks a lot for joining the call, and good bye.

This completes today’s conference call. Thank you for your participation, you may now disconnect.