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SEC Filings

TRIVAGO N.V. filed this Form 20-F on 03/06/2018
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Advertising expense
For the years ended December 31, 2015, 2016 and 2017, we spent €432.2 million, €623.5 million and €884.7 million on advertising, respectively, representing 87.6%, 82.7% and 85.4% of our total revenue for such periods. We believe that increasing brand awareness creates self-reinforcing value by resulting in a greater number of visits to our platform and referrals to our advertisers that encourage more OTAs and hotels to advertise their inventory in our search results, which in turn makes our services more useful to users, further increasing the number of visits to our websites and apps and referrals to our advertisers. We believe that these investments contributed significantly to our revenue growth historically, although we expect deceleration in revenue growth rates in our more mature markets as our share in those markets increases and further advances in brand awareness become increasingly difficult and expensive to achieve. We already experienced a deceleration in revenue growth in these markets and a significant slowdown in our advertising spend growth, as described above, contributed to a decline in Referral Revenue in Developed Europe in the fourth quarter of 2017. Increasing brand awareness and usage of our platform are important parts of strategy as we plan to return to growth in the second half of 2018, and at this time we expect to continue to invest in marketing.
Rapid changes in Referral Revenue resulting from dynamics on our marketplace and changes in advertiser behavior can occur with little or no notice to us, and have resulted in our not having enough time to pull back our advertising spend, particularly on television, quickly enough to respond to the speed of the change in revenue levels. This was the case in the third quarter of 2017, when we were initially unable to pull back planned TV advertising spend quickly enough to respond to the speed of the RPQR slowdown. In addition, rapid slowdowns in Referral Revenue, such as that in the third quarter of 2017, can cause the algorithms that we use to allocate our performance marketing spend to pull back performance marketing spend more quickly than in an environment with lower volatility. As we spent the great majority of our revenue on advertising, our inability to pull back advertising negatively impacted our operating results in 2017.
Measures designed to maximize the lifetime value of the user
We are implementing initiatives that are designed to focus less on revenue generated in each user session and more on the end-to-end booking value of our users. Some of these measures include:
Measures aimed at optimizing our platforms and product, with the intention of increasing user retention and booking conversion, while reducing the number of click-outs required to ultimately make a booking. These are relatively small, incremental changes to our product that we believe, when considered together, will result in improvements to our product and platform; and
Our attribution model, which is our model for allocating our performance marketing spend. We continuously modify this model to reflect changes in how we determine whether revenue originated from a given marketing channel (or how revenue is “attributed” to that channel in our internal metrics) and that informs decisions we make about how much we spend on different performance marketing channels. The new attribution model focuses on whether a user who comes to us from a performance marketing channel books a hotel.
Since we make these changes by optimizing for traffic quality instead of volume, these changes have tended to have a negative impact on Qualified Referrals, but have contributed to positive effects in RPQR. Following the roll-out of the new attribution model in our Display, Email and Affiliate Advertising channel in the third quarter of 2017 and the implementation of measures aimed at optimizing our platform, we experienced higher volatility and a slowdown in Qualified Referral growth. We expect similar effects in the near-term resulting from the roll-out of the new attribution model in our Search Engine Marketing channel and as we implement additional measures to optimize our platform. Going forward, we may make additional changes to our marketplace and platform that may contribute to further volatility in our results, but we believe will help us increase booking conversion rates, RPQR and, ultimately, our financial performance over the long term.