|TRIVAGO N.V. filed this Form 6-K on 10/24/2018|
Advertising Spend on our platform and on other advertising channels, and continuously seek to optimize their allocation of their spending among us and our competitors.
In addition, changes in foreign exchange rates can amplify or mute changes in these underlying trends in our revenues and RPQR. Although we denominate our CPCs in euro and have relatively little direct foreign currency translation with respect to our revenue, we believe that our advertisers’ decisions on the share of their booking revenues they are willing to pay to us are based on the currency in which the hotels being booked are priced. Accordingly, we have observed that advertisers tend to adjust their CPC bidding based on the relative strengthening or weakening of the euro as compared to the local functional currency in which the booking with our advertisers is denominated.
In the third quarter of 2018, our profitability improved substantially compared to the same period in 2017 as we reduced our Advertising Spend to adapt to the changing dynamics on our marketplace. These reductions were implemented across all segments, and were reflected in reduced brand marketing expenditure and increased return on investment targets for our performance marketing campaigns. While these measures improved our profitability, they also led to a reduction in traffic to our platform attributable to all marketing channels and accordingly resulted in a reduction in the number of Qualified Referrals.
As we optimized our Advertising Spend and continued to implement measures aimed at optimizing our platforms and product (as further described below), we were able to improve the quality of the traffic that we referred to our advertisers, particularly in Developed Europe and RoW, which was evident in the development of Revenue per Qualified Referral (RPQR) in those segments in the third quarter of 2018. We also continued to experience lower levels of commercialization as our largest advertisers appeared to have increased their return on investment targets for their spend on our marketplace compared to the same period in 2017. This, in turn, negatively impacted our share of the overall booking revenues generated by them from referrals on our platform and offset the positive effects from improved traffic quality, particularly in Americas and RoW.
In the third quarter of 2018, we continued to implement 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. We believe these relatively small, incremental changes to our product will result, when considered together, in improvements to our product and platforms. Since we make these changes by optimizing for traffic quality instead of volume, these changes will tend to have a negative impact on Qualified Referrals (in addition to the effect of declining Advertising Spend), but we believe they will have a long-term positive impact on RPQR.
In the third quarter of 2018, we experienced negative impacts on our referral revenues and RPQR due to relative weakening of certain local currencies in Latin America and Asia Pacific to the euro. In the nine months ended September 30, 2018, we experienced negative impacts on our referral revenues and RPQR from foreign exchange rate effects, in particular due to the relative weakening of the U.S. dollar and certain currencies in the Asia Pacific region to the euro. (The average exchange rate of euros to U.S. dollars increased 7.2% in the nine months ended September 30, 2018, as compared to the same period in 2017, calculated using the average for the particular period of the daily foreign exchange reference rates published by the European Central Bank.)
Reflecting our performance in the third quarter of 2018, we increased our profitability guidance for 2018. We now expect Adjusted EBITDA for 2018 to be between nil and negative €10 million, and continue to expect total revenue to decline when compared with the twelve months ending December 31, 2017.
We earn substantially all of our revenue when users of our websites and apps click on hotel offers or advertisements in our search results and are referred to one of our advertisers. We call this our Referral