Axel Hefer trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member
Matthias Tillmann trivago N.V. - MD & CFO
C O N F E R E N C E C A L L P A R T I C I P A N T S
Brian Nicholas Fitzgerald Wells Fargo Securities, LLC, Research Division - Senior Analyst
Douglas Till Anmuth JPMorgan Chase & Co, Research Division - MD
James Lee Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Internet Sector Analyst Kevin Campbell Kopelman Cowen and Company, LLC, Research Division - Former VP
Lloyd Wharton Walmsley Deutsche Bank AG, Research Division - Research Analyst
Robert Zeller
Ryan Michael Lister Susquehanna Financial Group, LLLP, Research Division - Associate
Thomas Cauthorn White D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst
P R E S E N T A T I O N
Operator
Good day, ladies and gentlemen, thank you for standing by and welcome to the trivago Q3 Earnings Call 2020. (Operator Instructions) I must advise you the call is being recorded today, Tuesday, the 3rd of November 2020. We are pleased to be joined on the call today by Axel Hefer, trivago's CEO and Managing Director; and Matthias Tillmann, trivago's CFO and Managing Director.
The following discussion, including responses to your questions, reflects management's views as of today, Tuesday, November 3, 2020, only. trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements.
Please refer to the Q3 2020 operating and financial review and the company's other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from these forward-looking statements. You will find 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 2019.
With that, let me turn the call over to Axel. Thank you.
Axel Hefer - trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member
Good morning. Thank you for joining our earnings call. In Q3, we wanted to achieve 2 things: First, to continue to progress on our recovery plan, adjusting our products, value proposition and marketing; and second, to preserve our cash position.
Looking back at the third quarter, we are very happy with the results. Most notably, we managed to achieve a positive adjusted EBITDA and almost broke even on a cash flow basis. We released a number of new features in our core product and accepted the app version of our new local travel product.
We launched our new CPA model in our marketplace and continued to scale our alternative revenue streams. And we improved our bidding and performance marketing and tested a new creative concept successfully. With the number of infections rising quickly in many of our core markets and partial or full lockdowns being implemented, the short-term business outlook appears challenging. However, we believe that a sustainable recovery in travel is coming closer as progress in testing, vaccination and treatments are likely to show effects in 2021. We continue to focus on this point in time and are disciplined in progressing on our plans, irrespective of the short-term travel outlook.
And with that, I will turn it over to Matthias to cover our financial development in more detail.
Matthias Tillmann - trivago N.V. - MD & CFO
Thank you, Axel, and good morning, everyone. We have seen a significant improvement in travel activity in the third quarter compared to the second quarter. The recovery was mainly driven by easing of lockdown measures in most countries due to lower number of COVID-19 cases and a general uptick in demand as we entered the peak summer holiday season in the Northern Hemisphere.
In particular, in our segment, Developed Europe, the subsequential increase in qualified referrals and revenue per qualified referral was very strong. This allowed us to selectively invest in TV advertisement in certain European markets, and we were very pleased with the results.
We tested a new campaign, and the positive response makes us confident that we can build up on the learnings to tailor our messaging for a sustainable recovery.
Overall, we continue to focus on preserving our cash and, therefore, limited the brand marketing test to certain European countries. We were also mindful with our investments in performance marketing channels and focused on buying high-quality traffic. We finalized our restructuring, closed the sale of our Spanish entity and consolidated our operations in our headquarter in Düsseldorf.
In addition, we reduced other selling and marketing expenses and other nondiscretionary items. As a result, our operating expenses, including stock-based compensation, decreased by $15 million or 32% in the third quarter compared to the same period in 2019.
The combination of higher travel activity and our cost-saving initiatives led to a net loss of EUR 2.3 million and a positive adjusted EBITDA of EUR
6.1 million. We are very happy with our financial results in the third quarter and the progress we made in setting up the company for what we expect will still be a challenging and unpredictable foreseeable future.
Overall, our markets continue to be volatile, but there are a few trends emerging since the beginning of October. In Developed Europe, the rapid increase in new COVID cases, since the second week of October, had a negative impact on our qualified referral development. While the year-over-year growth rate had stabilized end of September, it began to drop again since mid-October, as most countries are going into partial or full lockdowns again.
Looking at our segment, Rest of World, while there are regional differences, overall, both qualified referral and revenue per qualified referral year-over-year growth rates have been stable over the last couple of weeks. And hence, our referral revenue continues to be around 20% of 2019 levels.
In Americas, we continue to observe a steady increase in our qualified referral year-over-year growth rate, which is mainly driven by a significant improvement in Latin America, while the year-over-year growth rate in the U.S. has been stable since August. Qualified Referrals were around 50% of 2019 levels in October, improving from 35% of 2019 levels in the third quarter.
Due to the country mix effect, the revenue per qualified referral year-over-year growth rate has started to decline slightly in October.
As we have now entered our low season quarter and are faced with a second wave of COVID-19 cases, in particular, in Europe, we expect a negative EBITDA in the fourth quarter. However, we are confident that we have set up the company for this challenging environment and continue to focus on preserving our cash until travel rebounds.
With that, let's open the line for questions. Operator, we are now ready to take the first question, please.
Q U E S T I O N S A N D A N S W E R S
Operator
(Operator Instructions) And your first question comes from the line of Tom White from D.A. Davidson.
Thomas Cauthorn White - D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst
Great. Just first on the cost per acquisition product that you guys have talked about, I guess my presumption would be that the net version of the CPA product, the one that factors in cancellations, would be more appealing to advertisers in the current environment. Is that accurate? And are you getting any real traction there? And I guess I'm curious, like, are you inclined to really push a net version of the CPA product? Or do you not really want that kind of maybe becoming the new normal that advertisers expect maybe once things get back to normal? And then I just have a quick follow-up.
Axel Hefer - trivago N.V. - CEO, MD of Finance, Legal, International, Marketing, Product, People and Culture & Mgmt Board Member
Of course. So the -- just to be clear -- I mean the CPA product that we have taken live in October and we are now rolling out is a gross CPA product. So we are taking over the risk of the booking happening, the booking conversion risk. We are not taking over the cancellation risk. And we think that it is a very, very good first step to help our advertisers, in particular, to deal with the uncertainty and data sparcity in the current market environment. Whether we will eventually move to a net CPA model or not is something that we will see in the next couple of weeks and months. But given that the time to travel has come down a lot, and there are very, very short travel windows, we think that the gross CPA is actually helping our advertisers very significantly, and it's a very, very good foundation for entering next year.
Thomas Cauthorn White - D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst
Okay. That's helpful. Just a quick follow-up. Do you guys have any sense as to what percentage of your business or your referrals you think might come from corporate travel? And I guess I mean there are kind of unmanaged corporate travels. So it's the worker that's booking his own hotel rooms and then getting reimbursed as opposed to kind of corporate travel spend that maybe goes through the large travel management companies.
Matthias Tillmann - trivago N.V. - MD & CFO
Yes. Sure. So on corporate travel, we don't know the exact mix of our business there, so we don't have perfect visibility on that. However, what we've said in the past is that, obviously, through interaction on our website, through certain behaviors, et cetera, we estimate what kind of travel you're coming from. But in general, business travel is not the largest part of our business mix. A large part is rather city trips. And there, we have seen obviously a negative development relative to the rest of the market in the third quarter, and now that continues in the fourth quarter.
Yes. Does that answer your question?
Thomas Cauthorn White - D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst
trivago NV published this content on 03 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 November 2020 09:51:03 UTC
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