TRIVAGO (TRVG)

[eastunder]

Letter to Shareholders.

February 7, 2023

https://www.sec.gov/Archives/edgar/data/1683825/000168382523000004/exhibit992lettertosharehol.htm

Dear Shareholders,

Last year was a turning point for the travel industry as COVID-19 became endemic in most parts of the world, and we have seen a strong recovery in leisure travel. The surge in inflation has led to significantly higher Average Daily Rates (ADRs) for hotels in many of our core markets without our having observed any notable adverse effects on travel demand. However, in the second half of the year, we started to see first signs that travelers around the world are trying to mitigate the impact of higher hotel rates by comparing different hotel offers or searching for cheaper destinations. In this environment, we believe that the value of metasearch has increased, and we have shifted our focus to innovation in our core product and plan to improve transparency of our offering and price comparison functionality.

As we reflect on the past year, we think it is important to take a step back. trivago was founded 18 years ago. Since then, it has been a leading player in the accommodation price comparison industry, while it has built one of the best known global online travel brands through broad-reach TV marketing campaigns. Until 2018, our key focus was bringing as many users as possible online and helping them to compare prices to find great deals. Prior to 2018, we experienced stellar growth, together with many of our advertisers.

Around 2018, the market dynamic started to change – industry growth slowed, particularly in Europe and the US, while most consumers had already moved their search for accommodation online. We quickly adjusted to this change in market dynamic, shifting our focus from growth to profitability. Starting in the second half of 2018, we reduced unprofitable marketing spend, improved efficiency and optimized costs, resulting in a significant increase in profitability in 2019. Through the pandemic we continued on this path, and while in 2022 our net loss was €127.2 million, mainly driven by the impairment charges recorded in the second and third quarters of 2022, we achieved a record adjusted EBITDA of €107.5 million. While improving our adjusted EBITDA, we have worked on and tested various growth options for the future, such as expanding in other travel verticals, developing travel inspiration products, integrating wholesale inventory and many others. These initiatives have generated valuable learnings that have informed our strategy going forward.

While we continue to improve our product and strengthen our core value proposition, we plan to scale up growth initiatives. Looking at the years ahead, we believe that the biggest opportunity for us – both from a consumer and a B2B perspective - is to offer travelers direct access to the hotel in addition to the traditional online travel agency offering. We believe this will benefit travelers by providing them with better rates, more personalized offers and direct communication with the service provider, while hotels will appreciate owning the customer relationship, tailoring their offerings and increasing the revenue they can generate per customer. We are convinced that we are well positioned to pursue this opportunity and are excited about the value we can bring to users and hotels going forward.

trivago in 2022

Despite all the challenges and changes that we have experienced during the past year, we achieved a record adjusted EBITDA of €107.5 million, more than 50% above our 2019 pre-COVID result, with an adjusted EBITDA margin of 20.1%. Revenue grew 48% year-on-year and cash, cash equivalents and short-term investments have increased to almost €300 million, while operating expenses (excluding Advertising Spend, significant court-ordered penalties and impairments of goodwill and intangible assets) were stable. We are very happy with our results in a challenging environment and see it – despite all the volatility we have experienced over the past few years – as proof of the value we are delivering to our users and advertisers every day!

In addition to our financial success during the year, we have made significant progress on our strategic initiatives:

We have scaled up our brand marketing investments and sharpened our brand communication with a clear focus on price comparison.

In four European markets and Brazil, we have run a large scale full-market test to improve the transparency of our offering and price comparison functionality.

We have accelerated the growth in our direct hotel coverage on our platform through our strategic partnership with UBIO Limited.

In addition to our traditional cost-per-click and cost-per-acquisition (CPA) revenue models, we are extending our net CPA on consumption model beyond independent hotels also to our hotel chain customers.

trivago in Q4 2022 and early trends in 2023

We finished the year strong, growing our revenue 18% year-over-year while maintaining our disciplined marketing approach, leading to net income of €10.4 million and an increase in adjusted EBITDA of 15% and an adjusted EBITDA margin of 21.5%.

Average booking value1 continued to be positively impacted by increased average daily hotel rates and were, as a result, significantly higher compared to the prior year period. This was a key driver of our strong financial performance, which is reflected in the increase of our Revenue-Per-Qualified-Referral (RPQR) year-over-year. However, we are seeing first signs of consumers trying to mitigate increasing average daily hotel rates by, for example, shortening their length of stay or looking for cheaper destinations and accommodations. We believe that we are well positioned to help travelers around the world to navigate through different offers, making sure they get the best deal, and present them with attractive alternatives. Consequently, volumes have been relatively stable. In Developed Europe, Qualified Referrals (QR) increased slightly year-over-year, and in our segment Rest of World, QRs would have been roughly flat when excluding the loss of volumes in Russia and Central Eastern European markets due to the war in Ukraine. The significant decrease in QRs in Americas of 20% year-over-year was mostly driven by a large-scale full market test in Brazil. While this led to a significant decrease in click-outs and QRs, the overall booking volume in that segment increased year-over-year, driving the increase in referral revenue of 15% in that segment.

2023 has started strong with a year-on-year referral revenue increase in January of over 30% which partly reflects the weakness in the same period a year ago when Europe in particular had travel restrictions in place due to the Omicron wave. We have increased our marketing spend year-on-year in anticipation of robust travel demand at the beginning of the year and are encouraged by the current trends in our branded traffic.

trivago in 2023 and beyond

In 2023 and beyond, our key focus remains to serve our users and advertisers better, delivering more value and better ease of use to them. As a first step, we have increased our coverage in eight test markets of rates directly bookable at the hotel. These rates are now available for hotels that attract 50% of click-outs, an increase from 38% prior to the test. We expect to reach 80% by year-end. With the increase in coverage, our front-end teams have the opportunity to launch new features that leverage the direct access to the hotel and better rates, and we expect to be able to actively promote these features by the beginning of 2024.
We are very excited about the opportunity ahead of us and will keep you posted on our progress in the quarters to come.