Good day, ladies and gentlemen. Thank you for standing by and welcome to the trivago Q4 Earnings Call 2022. At this time, all lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I must advise you the call is being recorded today, Wednesday, the 8th of February 2023. 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 as of today Wednesday, February 8, 2023, 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 Q4 2022 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 reconciliations 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 2021. With that, let me turn the call over to Axel.

Thank you, everyone, for joining us for our Q4 earnings call today. 2022 was a very strong year for trivago. We saw leisure travel bouncing back as COVID restrictions were lifted around the globe. The pent-up demand was fueled by consumer savings during the pandemic and a strong desire to travel. As prices for accommodation continue to rise, consumers need to compare prices more to maximize their savings. We are therefore confident that the role of metasearch will become even more relevant this year. Moving forward, we are further developing and strengthening our core product and unique brand positioning. We're leveraging growth opportunities by offering travelers more direct access to hotels in addition to our traditional online travel agency offering. In Q4, we've run a new product design in five test markets, allowing us to generate valuable learnings in how to expose travelers to more prices and qualify their intent further before passing them on to our advertisers. In addition, we have established the building blocks of our direct hotel strategy, and we will build up those in 2023. And now more than 50% of direct hotel rate coverage, we are getting close to the next phase of our strategy, launching consumer-facing features around direct hotel access.

Thank you, Axel and good morning everyone. As Axel said, we are very pleased with our Q4 and full year2022 financial results. Last year, our revenue increased by 48% year-over-year to €535 million, while our marketing efficiency, measured as return on advertising spend, improved eight percentage points to 164.4%. Due to the impairment charges recorded in the second and third quarters of 2022 totaling €184.6 million, we had a net loss of €127.2 million. The combination of greater marketing efficiency and continued cost discipline led to an increase in adjusted EBITDA, which excludes the effect of the impairment charge of 210% year-over-year, bringing a full year record for the company of €107.5 million. This is an increase of more than 50% relative to our most profitable year before the pandemic in 2019. And for the first time, we achieved an adjusted EBITDA margin of over 20%. Now, looking at the fourth quarter, our referral revenue grew 21% year-on-year, driven by continued higher ADRs, which led to an increase in overall average booking value. Other revenue declined by €2 million year-on-year to €3.4 million as we stopped certain B2B products like white label solutions and display ads as we mentioned during the summer. Net income decreased year-on-year by €4.8 million to €10.4 million. The decrease was mainly driven by the non-recurrence of a €12 million COVID-19 subsidy that we had received from the German government in the fourth quarter of 2021 and recognized as other income. Excluding this one-time subsidy payment, our net income increased by €7.2 million. Adjusted EBITDA also increased by 15% year-on-year to €22.6 million. In the following, I will give a bit more color on the drivers of our referral revenue development relative to 2019 levels for our three regional segments in the fourth quarter. Starting with…

Thank you. [Operator Instructions] The first question today comes from the line of Tom White from D.A. Davidson. Please go ahead, your line is now open.

Hey, this is Wyatt Swanson on for Tom. Thanks for taking our questions. My first one is you mentioned the opportunity you see in operating travelers direct access to the hotel in addition to the traditional online travel agency offering. Can you talk a bit about what level of incremental investment might be required to roll this out globally in all your markets? Or is it more about just leveraging and deepening the existing relationships that trivago already has with the properties listed on your platform?

Sure. So, there are basically two ways to connect an additional hotels. One is where we do have an existing connectivity, where we pay basically for the infrastructure already and where we need to onboard the hotels to the platform. So, that does not come at additional technology costs. The other one is what Matthias was talking about, our partnership with UBIO, where we do have ramp-up costs, and we do expect the cost to stay in line with what we have spent in Q4. And that investment will allow us to get to 80% coverage by end of the year.

Great. Thank you. And then my second one. In terms of the significant decreases in qualified referrals in Americas, can you provide a bit more detail on the full market test in Brazil? What exactly were the changes you tested? Is the test going into full production? And will this drag on Americas QRs going forward?

Yes. So, basically, we have done something that we have not done that often in the past. We've taken five markets and one of those markets being Brazil and rolled out a very different flow -- user flow in those markets to get learnings from more long-term user behavior. And what you see there is basically we are exposing users to a lot more different rate options. And by doing that, we qualify the users further, which basically means that they are not clicking out as quickly. But when they click out that they are more ready to book. And that's what we're saying so that has a negative impact on QRs and a positive impact on RPQRs, which is what you see on the overall Americas numbers.

And just to add to that, in terms of impact on qualified referrals, I mean, I gave a bit color on January, where we did have a similar impact. But going forward, we might change the design of the test, et cetera. So, there might be a few changes, and that could lead to a change in clicker distribution again. So, it's not clear at this point how this will impact qualified referrals going forward in those test markets.

Okay, great. Thank you guys.

Thank you. The next question today comes from the line of Jeremy [Indiscernible] from UBS. Please go ahead, your line is now open.

Hey, good morning guys. I have two questions. The first is what impact might we see from the European DMA gatekeeper rules coming into effect this year? Do you have any early indications of how this will impact Google Travel or how it might impact trivago? And the second is, is the consumer trade-down behavior widening out, I believe you called out Europe specifically at our conference in December and in the 3Q call? Thank you.

Yes, on the DMA, it's a bit too early to tell, to be honest. We do expect first effects in 2024, and it will depend very, very much on the approach of the commission and also then the reaction by Google. And -- yes, so, we don't really have a good prediction of what exactly the solution will be. What is clear is that it will lead to a more favorable competitive environment for us. How much better, again, is impossible to predict.

And then on your second question, I mean, first of all, ADRs remain strong with click prices on our platform in all segments being roughly 20% higher than in 2019 in the fourth quarter. But as we mentioned last quarter, we are seeing consumer trading down by reducing the length of stay. We have seen that in all segments. In the fourth quarter, length of stay was roughly 5% below 2019 levels, which is an improvement in Europe compared to the third quarter, where that drop was higher, while length of stay was roughly flat relative to2019 levels in Americas in Q3. So, they are we now saw in Q4 that the number also dropped slightly. We also see that the typical seasonal increase in click prices towards the end of the year was less pronounced in Europe last year compared to 2019. And in all regions, the click out share on our platform for four and five-star hotels decreased slightly year-over-year. So, I guess, while we expect ADRs to remain strong, we are seeing some offsetting effect presumably as consumers are becoming more price conscious.

Great. Thank you.

Thank you. The next question today comes from the line of Doug Anmuth from JPMorgan. Please go ahead, your line is now open.

Great. Thanks for taking my question. This is [Indiscernible] on for Doug. I have two. So, the first one, I mean, you're able to drive strong improvement in margins over the years. And it seems further expansion in margins is possible to in your comments around OpEx. But with that said, could you share your thoughts on where margins could go from here in the near-term? And then is the 25% the right long-term target? And I have a follow-up.

Yes, sure. Hi [Indiscernible]. So, we mentioned in the past that our long-term EBITDA margin goal is to reach at least 20%, and we did reach that in 2022. And our goal is to grow the business sustainably from our post-pandemic revenue baseline, focusing on high-quality and repeat traffic. And that is more important to us than hitting 2019 revenue levels. And consequently, we will be -- but we will continue to be disciplined with our marketing investments. However, if we do see opportunities to invest to accelerate our growth profitably at the expense of short-term contribution, we will do that even if it means that our margin would temporarily go down. For 2023, we do expect to increase our brand marketing investments. As with the benefit of hindsight, we believe we could have invested more last year, in particular during the peak summer period and also because our own auction was strong. Having said that, while we do plan to ramp up our investments, we do not expect to go back to 2019 margins level, which were below 10% EBITDA margin.

Got it. Okay. And then, I guess, as a follow-up. In terms of ADR, you talked about growth there still being strong. So, are you seeing any signs of that slowing down? And then -- and I guess with that, how do you think about ADRs going from here? Do you think this level of ADR is [Indiscernible]?

You were breaking a little bit, but I think I got most of your questions. So, the question is if ADRs can be sustained at these levels. Obviously, it's difficult to say, and I'm speculating. But at least looking at the underlying dynamics, why ADRs are up, I think that there are good reasons why they will stay at current or similar levels. In particular, last year, in summer and the peak season, we have seen that supply was tight in certain destinations, in particular, popular holiday destinations. And the reason for the increase in ADRs were driven by a cost increase, and we still continue to see that there's labor shortage, energy prices are still higher than they were a year ago. And these cost drivers, I mean, if you can or if hotels can they pass it on to the consumer. And I would expect that to be the case going forward as well. So, -- the then related question is, will that drive a change in consumer behavior? And again, I cannot predict the future. But given what we have seen last year and also what we are seeing now in January, we do not see that overall demand is coming down. We do see some signs that people try to mitigate the effect, as we called out, but it's not that overall demand levels are lower because of that, at least from what we can see in our numbers. Does that answer your question?

Yes. Great. Thank you.

Thank you.

Thank you. The next question today comes from the line of Ron Josey from Citigroup. Please go ahead, your line is now open.

Hi, this is Mike [Indiscernible] on for Ron. Thanks for taking our question. You mentioned potential uplift from the reopening in China. Can you maybe talk about any early benefits you might be seeing now that COVID restrictions have been lifted there? And could you maybe frame the size of the potential impact there as the recovery accelerates? Thank you.

So, yes, absolutely. We don't operate a platform in China. So, the benefits that we are seeing and expecting are twofold. One is obviously more travel into China and particularly from Asia. And the other one is higher ADRs in Asia and in big western cities from outbound Chinese travelers. The latter we have not seen yet. Bute have seen a significant increase in searches and also bookings into China. The overall impact is difficult to quantify. We have still some travel restrictions in place in some markets into China. So, we do expect that trend to accelerate. But it is too early to tell and to quantify the exact effect for this year.

Okay, great. Thank you.

Thank you. The next question today comes from the line of Kevin Kopelman from Cowen. Please go ahead, your line is now open.

Great. Thanks so much. So, a couple of questions. First one, on the January metrics you gave, can you give us a sense of what those look like relative to 2019 for revenue specifically?

Yes, I can give you a bit more color. However, I deliberately not comment on 2019 levels as it's been four years now, and we have rebased our revenue and trading at a different gross margin profile than before the pandemic. So, we think the year-over-year comparison is more meaningful, and that is how we look at our business now. But let me be a bit more specific with what we see year-over-year. As I said, demand continues to be robust. Qualified referrals increased by more than 10% year-on-year in Europe and around 5% in Rest of World, while qualified referrals decreased slightly year-on-year in Americas due to the decline in Latin America, which more than offset the increase in North America. Revenue per qualified referrals in Europe and Americas were up around 20% and slightly more in Europe than Americas and around 50% in Rest of World. And then one other thing to call out. I mean I mentioned that referral revenue was up more than 30% year-on-year globally. You should keep in mind that January was lower relative to February and March as a percentage of 2019 levels in 2021. So, everything else being equal, year-over-year revenue numbers for the quarter will be lower than the January figure just due to this comp effect. I hope this gives you a bit more color and helps to model the quarter for you.

Yes, for sure. Thanks for that. And then just a different question. Could you talk about how bid intensity has trended on the platform, on average over kind of Q4, Q1 quarter-to-date? Thanks.

Yes, sure. So, Q4 was very strong. I mean, so we've seen a high level of competition both on our platform, but also on other performance marketing platforms and channels that we engage in. And we've seen a seasonal decline in bid intensity, which is quite common from December into January. So, the current bidding -- current bid intensity is lower in January compared to what we've seen in Q4.

Perfect. Thanks Axel, thanks Matthias.

Thank you, Kevin.

Thank you. [Operator Instructions] The next question today comes from the line of Brian Fitzgerald from Wells Fargo. Please go ahead, your line is now open.

Hi, this is [Indiscernible] for Brian. Thanks for taking our question. On your platform, we have a good mix of hotels and alternative accommodations. So, my question is, have you seen any divergence in the trends for traditional versus alternative so far in Q4 and in January this year?

Sure. Yes. So, the click-out share of alternative accommodation had increased during the pandemic on our platform. But we called out already last quarter, and I think even before that it trended back to our mix that we had pre-pandemic. So, right now, it's roughly flat with 2019 levels, as city trip approach pre-pandemic levels as well in our travel type mix. And with travel recovering and in particular, city trips and international travel coming back, we have seen a reversal of the trend towards hotel, and that is not unexpected, to be honest. So, I think alternative accommodation has a meaningful share in our traffic mix and will stay relevant for our users going forward. However, key value proposition is the hotel price comparison and has a significantly higher share than alternative accommodation for us.

Very good. Thank you.

Thank you.

Thank you. [Operator Instructions] There are no additional questions waiting at this time, so I'd like to pass the conference back over to Axel Hefer for any closing remarks. Please go ahead.

Thank you for taking the time to participate in today's earnings call. We appreciate your continued interest. We are very proud of the operational results achieved this year and we are very excited by the year to come. Our continuous focus on price, combined with the positive start of our Hotel Direct strategy, is giving us confidence that we can better serve our users and reach more travelers in the years to come. Thank you very much and see you next quarter.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.