Not applicable.
Not applicable.
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission, or the SEC, including the following risks that we face and that are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This annual report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors including the risks described below and elsewhere in this annual report and our other SEC filings. See “Special note regarding forward-looking statements” above. For a summary of these risk factors, see "Summary of our risk factors" above.
Risks related to our industry and business
The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the travel industry and our business, financial performance and liquidity position.
The COVID-19 pandemic has severely restricted the level of economic activity around the world and is having an unprecedented effect on the global travel industry. In response to the pandemic, the governments of many countries, states, cities and other geographic regions have implemented containment measures, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forgo their time outside of their homes. Individuals’ ability to travel has been curtailed through border closures, mandated travel restrictions and limited operations of hotels and airlines and may be further limited through additional voluntary or mandated closures of travel-related businesses.The measures implemented to contain the COVID-19 pandemic have had, and are expected to continue to have, a significant negative effect on our business, financial condition, results of operations, cash flows and liquidity position. As a result of the upswing in COVID-19 case counts that intensified in October 2020, new strains of the virus that have recently emerged and implementations of additional travel restrictions, particularly in Europe, we have seen a deterioration of our financial results in the fourth quarter of 2020 compared to 2020 summer period. With the continued spread of COVID-19 in Europe, the United States and other countries, we expect the COVID-19 pandemic and its effects to continue to have a significant adverse impact on our business.
Due to the uncertain and rapidly evolving nature of current conditions around the world, we are unable to predict accurately the impact that the COVID-19 pandemic will have on our business going forward, including to what extent our largest advertisers will resume advertising on our platform in the future at levels similar to (or approaching) those preceding the pandemic. The COVID-19 pandemic may result in or accelerate long-term changes to consumer behavior and industry structure that may have a significant adverse effect on our future competitiveness and profitability. These changes may relate to travelers' increased preference for destinations (e.g., those other than cities) or accommodation types that we have historically been less well able to monetize, our inability to deliver the same numbers of first-time users to our largest online travel agency, or OTA, advertisers or the fact that certain kinds of travel (e.g., business travel) may recover very slowly or not at all. The COVID-19 pandemic has already caused several of our smaller advertisers to file for insolvency, and it may cause additional consolidation in the online travel industry in the future, resulting in fewer offers available on our platform and less competition on our marketplace. The realization of any of these risks could have a material adverse effect on our business, results of operations, financial condition and prospects.
We derive a large portion of our revenue from a relatively small number of advertisers. A reduction in spending or any change in the bidding strategystrategies by one or more of these advertisers could harm our business and negatively affect our financial condition and results of operations.
Our "cost-per-click," or CPC, pricing for click-based advertising depends, in part, on competition among advertisers on our marketplace, with advertisers that pay higher CPCs generally receiving better
advertising placement and more referrals from us. Although we aim to improve advertiser diversification and competition on our marketplace in the long term, weWe continue to generate the great majority of our revenue from our largest online travel agency, or OTA advertisers. For the years ended December 31, 2015, 2016 and 2017, we generated 27%, 43% and 44% of our total revenue, respectively, fromadvertisers, including brands affiliated with Booking Holdings, (formerly The Priceline Group), including its affiliated brandssuch as Booking.com and Agoda. BrandsAgoda, and those affiliated with our majority shareholder, Expedia Inc., or Expedia, accounted for 39%, 36% and 36% of our total revenue for the years ended December 31, 2015, 2016 and 2017, respectively.
Our ability to grow revenue from our existing advertisers, whether large or not, is dependent to a significant extent on our ability to maintain and diversify our relationships with them. Advertisers are likely to reduce their advertising on our platform or cease it altogether if their advertising spend does not generate referrals, customers, bookings or revenue and profit for them on a basis they deem to be cost-effective. Advertisers may reduce or cease their advertising on our platforms for reasons not related to the value we can deliver to them,Group, such as a weakening of their own financial or business conditions or external economic effects.Brand Expedia and Hotels.com. The loss of any of our major advertisers, including Expedia, Booking Holdings, Expedia Group or their affiliated brands, on some or all of our platforms, or a reduction in the amount they spend, could result in significant decreases in our revenue as well asand profit or negative impacts on our liquidity position. We experienced a significant reduction in revenue in 2020 when advertisers reduced their spend on our platform or deactivated their campaigns entirely. Although we were eventually able to collect the great majority of outstanding account receivables that were at the time past due, we made significant payment concessions in the first quarter of 2020 for many of our advertisers, permitting them to extend payment dates or pay pursuant to installment plans. We would have experienced an increase in credit losses if such advertisers or affiliated brands ultimately had failed to pay us.
Our ability to grow and could havemaintain revenue from our advertisers is dependent to a material adverse effectsignificant extent on our ability to generate referrals, customers, bookings or revenue and profit for our advertisers on a basis they deem to be cost-effective. Any reduction in the value that we deliver to our advertisers may negatively affect CPC bids on our marketplace. Our advertisers' spend on our platforms may also be adversely affected by factors not related to the value we can deliver to them, such as a weakening of their own financial or business results of operations, financial condition and prospects.conditions or external economic effects.
Even if we are able to improve our product and deliver value to our advertisers, the fact that a significant portion of our revenue is generated from brands affiliated with Booking Holdings and Expedia Group can permit them,these advertisers, depending on marketplace dynamics, to adjust their CPC bids and obtain the same or increased levels of referrals, customers, bookings or revenuesrevenue and profit at lower cost. This can occur if one or more advertisers change their return-on-investment targets on our marketplace, including on a country or regional level, and such advertisers havewith sufficient market share to influence our aggregate CPC levels. In the second half of 2017, advertisers representing a significant portion of our revenues increasedlevels change their testing activitiesreturn-on-investment targets for their spend on our marketplace and changed their bidding strategies, significantly impactingmarketplace. Our advertisers may also change their CPC bidsbidding on our marketplace in various geographic markets. Someresponse to changes we may make to our sorting and ranking algorithm, which may also, in turn, negatively impact our revenue levels and profitability or increase the volatility on our marketplace. As we begin to offer our advertisers have also deactivated some of their inventory, most frequently inventory that they alone advertised or that was inactive, and have withdrawn fromthe option to participate in our marketplace for periods of time in certain geographic markets. We do not have reliable insights as to the advertisingon a cost-per-acquisition, or CPC levels or other strategic goals they hope to achieve through their testing and bidding strategies, and areCPA, basis, we may be unable to predict with any degree of certainty the likely effects that potential changes in testing and bidding strategiesmonetize traffic at levels we have achieved in the past. In addition, our revenue may be subject to cancellation risk if our future could haveCPA arrangements with our advertisers allocate this risk to us.
We believe that our advertisers continuously review their advertising spend on our business, results of operations, financial conditionplatform and prospects of their actions.
Our advertisers may also test how changes in their bidding strategies on our marketplace can affect their strategies on other marketing channels, particularlyand continuously seek to optimize the allocation of their spend among us and our competitors. In particular, we regularly compete with our advertisers in auctions for search engine keywords on Google. We
regularly compete with our advertisers on these marketing channelsGoogle and other search engines and adjust our spendingspend on those channelssearch engine marketing based on trends we see in our results. If changes in large advertisers’ strategies on our marketplace were to cause us to spend significantly less on these marketing channels, and we would also generate fewer qualified referralsQualified Referrals and, as a result, our revenue and results of operations couldwould be adversely affected. In addition, suchSuch advertisers couldmay also experience improvements in their competitiveness on suchthese marketing channels, providing them with additional financial benefits from pursuing such a strategy.
If we are unable to increase the diversity of our advertiser base, we will continue to be subject to the risks that advertiser concentration can lead to the adverse effects described above. The manifestation of any of these risks is likely to have a material adverse effect on our business, financial position and results of operations.operations, financial condition and prospects.
We are subject to a number of factors that contribute to significant quarter-to-quarterperiod-to-period volatility in our financial condition and results of operations. These factors have impacted and may continue to negatively impact our ability to meet the financial guidance that we communicate to the market.
Our financial condition and results of operations have varied and may continue to vary considerably from quarterperiod to quarter.period. This was reflected in the rapid slowdownquarter-to-quarter changes in our profitability and revenue growth that we experienced in the second half of 2017. The magnitude2020 as a result of the fluctuations inCOVID-19 pandemic. We cannot reliably predict our financial results can be influenced, as mentioned above, by the fact that a large portion of our revenue is concentrated in referral revenue generated from brands affiliated with Expedia and Booking Holdings. This concentration means thatadvertisers' future advertising spend or CPC levels or other strategic goals they hope to achieve through changes in these advertisers' strategiesbidding on our marketplace can have material impacts on our referral revenue inand, as a given financial period. Changes in referral revenue resulting from dynamics on our marketplace, whether or not relating to our largest advertisers, can occur with little or no notice to us, and can result, 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. As we spend the great majority of our revenues on advertising, such a failure to pull back advertising spend quickly enough can have a rapid adverse effect on our results of operations.
The difficulty of predicting advertiser behavior and outcomes on our marketplace make it challengingis difficult for us to forecast advertiser demand, especially since our advertisers can and often do change their CPC bidbidding levels with little or no notice to us. In addition, nearly allResulting
changes in Referral Revenue, especially as a result of changes in CPC bidding levels by our largest advertisers, can result in our inability to reduce our Advertising Spend, particularly on television, quickly enough to respond to the change in revenue. As we spend the great majority of our agreements with OTAs, hotel chainsrevenue on advertising, such a failure to reduce Advertising Spend quickly enough can have, and independent hotels may be terminated at will or upon three to seven days’ prior notice by either party. Ashas in the past had, a result, the financial guidance that we provide is subject tosudden and significant uncertainty, especially when the factors above are considered together with other trends, such as changing foreign exchange rates, user demand for travel services, regionaladverse effect on our profitability and global economic conditions and other external factors that may impact our users’ discretionary spending. These fluctuations and anyresults of operations. Any resulting inability to meet financial guidance that we may communicate to the market in the future may have a material adverse effect on our business, results of operations, financial condition and prospects.
As a result of the COVID-19 pandemic, we have experienced and may in the future experience an impairment of goodwill.
As a result of the continued deterioration of our business matures,due to the COVID-19 outbreak, we performed a goodwill impairment analysis during the first quarter of 2020. After analyzing the expected economic and financial impacts of the COVID-19 outbreak, we recorded an impairment charge of €207.6 million. We may not be ablecontinue to grow our revenue in future periods at rates comparable to thoserecord impairment charges in the past.
Our revenue in 2017 grew by 37% comparedfuture due to 2016, which represented a significant slowdown compared to revenue growth of 53% in 2016 versus 2015. Although we have communicated that we expect to return to a positive trajectory in terms of our rate of revenue growth in the second half of 2018, we may not be able to increase our revenue in future periods at rates comparable to those in the past,long-term economic or our revenue may decline. This may occur for any number of reasons, particularly as our business matures, and may reflect:
the possibility that our advertisers prioritize profitability over traffic growth;
declines in the emphasis that our advertisers wish to place on hotel metasearch as an advertising channel, particularly as we increasingly compete with them for traffic on other advertising channels, including on television and in auctions for search engine keywords (including bidding for trivago-related keywords);
possible reductions in the marginal returns from our advertising spend reflecting changes in the effectiveness of our advertising over time, and our brand awareness in lightfinancial impacts of the strategies of our competitors as they may choose to increase their advertising spend;COVID-19 pandemic.
a slowdown or reduction in our ability to attract and retain users in an increasingly competitive environment;
the emergence of alternative business models and new competitors; and
slowing growth of the overall online hotel search market, due for example to market saturation in more mature markets.
In the future, as our growth rate slows or declines, we expect the variability, cyclicality and seasonality in our business to become more pronounced, or in any event more apparent, as our high rates of growth in recent years tended to mask these characteristics. This could result in greater fluctuations of our revenue, cash flows, results of operations and other key performance measures from period to period and may affect the price of our ADSs and increase volatility in that price.
While the size of our user base continues to increase, we anticipate that the growth rate of our user base may decline as our business matures. We may also lose users for other reasons, such as a failure to deliver satisfactory search results, transaction experiences or high-quality services. In addition, even if our user base continues to grow, our revenue may not grow at the same rate or at all. If our growth rates continue to decline or if our revenue declines, as was already the case in Developed Europe in the fourth quarter of 2017, our results of operation, business and prospects may be adversely affected.
We are dependent on general economic conditions, and declines in travel or discretionary spending generallyhas reduced and in the future, could reduce the demand for our services.
Our results of operations and financial prospects are significantly dependent upon users of our services and the prosperity and solvency of the OTAs, hotel chains and independent hotels that have relationships with us. Travel, including hotel room reservations, is dependent on personal and business discretionary spending levels. TravelDemand for travel services tendtends to decline, along with the advertising budgets spent by hotels and other accommodation aggregators, during general economic downturns and recessions. Events and developments that cause deteriorations in economic conditions on a national, regional or global level, or are perceived as likely to lead to such deteriorations, can quickly affect our business. In particular, ourthe COVID-19 pandemic and the resulting economic conditions, regulatory restrictions and voluntary precautionary measures have resulted in a material decrease in consumer spending and an unprecedented decline in travel activities and consumer demand for related services. Our financial results may be adversely impactedand prospects are almost entirely dependent on the sale of accommodation-related services by economic uncertainty arising from negotiations between the European Union and the United Kingdom relating to the United Kingdom’s anticipated withdrawal from the European Union. Conditionsour advertisers. Other conditions that reduce disposable income or consumer confidence, such as an increase in interest rates (which, among other things, could cause consumers to incur higher monthly expenses under mortgages), unemployment rates, direct or indirect taxes, fuel prices or other costs of living, may also lead users to reduce or stop their spending on travel or to opt for lower-cost products and services, and these conditions may be particularly prevalent during future periods of recession, economic downturn or market volatility and disruption. International travel may also be affected by changes in exchange rates among significant origin and destination countries.countries and may contribute to increased volatility in our business, results of operations, financial condition and prospects.
Any significant decline in travel, consumer discretionary spending or the occurrence of any of the foregoing conditions may reduce demand for our services. They can also cause advertisers to become financially distressed, insolvent or fail to pay us for services we have already provided. The occurrence of any of the above could have a material adverse effect on our business, results of operations, financial condition and prospects.prospects, especially when considered together with the inherent attributes of our business discussed above that also contribute to period-to-period volatility in our financial results.
Our ability to maintain and increase brand awareness in order to improve our current financial performance brand awareness and growth is dependent on the effectiveness of our advertising expenditures.Advertising Spend. Increased competition, or inadequate or ineffective innovation in this areaand execution of our advertising strategy could harm our business and negatively affect our financial condition and results of operations.
We rely heavily on the trivago brand. Awareness, perceived quality and perceived differentiated attributes of our brand are important aspects of our efforts to attract and expand the number of users of our websites and apps. Many of our competitors have more resources than we do and can spend more on advertising their brands and services. As a result, we arehave been required to spend considerable amounts of money and other resources to preserve and increase our brand awareness and grow our business.awareness. Competition for top-of-mind awareness and brand preference is intense among online hotel search services, globally and in key
geographies. If we are unable to effectively preserve and increase our brand awareness, we may be unable to successfully maintain or enhance the strength of our brand.
In particular, we have significantly reduced advertising budgets as a result of the COVID-19 pandemic and have seen our competitors do the same. Once we eventually resume significant marketing activities (particularly on TV), it is difficult for us to predict our future marginal returns on Advertising Spend. In the future, our competitors may increase their spending on advertisement campaigns to improve their brand awareness after a period of being offline during the COVID-19 pandemic, which could make it difficult for us to increase or maintain our own marginal returns on our advertisements. We may face this difficulty even if we make substantial investments in innovative technologies and concepts in our advertising. Increased advertising spend by our competitors could also result in significant increases in the pricing of one or more of our marketing and advertising channels, which could increase our costs for advertising (which already consume most of our revenue) or cause us to choose less costly but less effective marketing and advertising channels.
TV advertising has historically accounted for a large percentage of our Advertising Spend, and often has higher costs than other channels. In recent years, we have engaged in successful broad-reachbroad-reaching TV marketing campaigns. We expect to continue toeventually invest again in TV marketing campaigns, including in geographies where our brand is less well known.well-known. As we make these investments, we may observe increasing prices in light of increased spending from competitors or may see reduced benefits from our advertising due to, among other things, increasing traffic share growth of search engines as destination sites for users. In addition, our advertising efforts may become less cost effectivecost-effective or less efficient than they have been historically. We have historically placed orders for TV advertising in advance of the campaign season. In the event travel demand is lower than we anticipated at the time we booked that advertising, we may suffer losses if we are unable to cut planned spending, as was the case when we were unable to pull back Advertising Spend quickly enough in the second quarter of 2017. Although our losses relating to advertising commitments were relatively small during the COVID-19 pandemic because we were able to renegotiate commitments, we may in the future be unsuccessful with this or an alternative approach, which could, in turn, result in material losses.
Our marginal returns from TV advertising may also be negatively affected over time by declining viewership in certain age groups and changes in viewing patterns that reduce viewer exposure to advertising. In order to maintain or increase the effectiveness of our TV advertisements, we may need to develop new creative concepts in our advertisements, and these advertisements may not be as effective in terms of returnReturn on advertising spendAdvertising Spend as those we have used in the past.
In addition, our competitors may increase their spending on advertisement campaigns, which could cause the marginal returns on our advertisements to decline. This may occur even if we make substantial investments in innovation in technology and concepts in this area. Increased advertising spend by our competitors could also result in significant increases in the pricing of one or more of our marketing and advertising channels, which could increase our costs for advertising (which already consume most of our revenue) or cause us to choose less effective marketing and advertising channels for reasons of cost.
TV advertising accounts for a large percentage of our advertising expense, and often has higher costs than other channels. Our marginal returns from TV advertising may also be negatively affected over time by declining viewership in certain age groups and changes in viewing patterns that reduce viewer exposure to advertising. If TV advertising becomes less effective or if we experience diminishing returns from TV advertising overall or in key markets, we may instead invest in other more expensive channels whichthat may not be as successful. Inhave a lower marginal Return on Advertising Spend. For example, we may, in order to maintain our brand awareness, we may also need to invest in newother advertising formats, such as online video, with which we have less experience.experience and which may be less effective than TV advertising. We believe the COVID-19 pandemic has accelerated the shift from linear TV to digital formats and expect this trend to continue beyond the COVID-19 pandemic. If we are unable to maintain or enhance consumer awareness of our brand or to generate demand in a cost-effective manner, it may have a material adverse effect on our business, results of operations, financial condition and prospects.
In addition, we intend to continue expanding our operations globally, including in countries where we have limited operating experience, that may have different competitive conditions and where users may have different travel preferences. Users in other countries may not be familiar with our brand, or may be less familiar with our brand than that of a competitor, and we may need to build brand awareness in such countries through greater investments in advertising and promotional activities. To the extent we have limited experience in these countries, we may be slow or fail to find the most effective and cost-efficient advertising channels there.
We are currently taking steps to increase advertiser diversity on our marketplace. If these measures are unsuccessful and we are unable to integrate additional inventory to our platform, or successfully to monetize that inventory, our financial performance could be materially adversely affected.
We have recently taken steps to increase advertiser diversity on our marketplace, including increasing the representation of individual hotels into our inventory, making investments in our advertisement relations team and integrating the vacation rental inventory of HomeAway, Inc., or HomeAway, onto our hotel search platform, with the aim of integrating additional inventory of alternative accommodation, such as vacation rentals, going forward. Increasing the representation of individual hotels on our platform requires large, skilled, multi-lingual sales teams that, even after the investments we expect to make, will still be substantially smaller and less experienced than the advertising teams of many of our competitors. In the case of vacation rentals, we face challenges in integrating these properties into our platform since those properties have attributes substantially different from hotel rooms, our traditional area of focus. In addition, the online vacation rental market is rapidly evolving, and if we fail to predict the manner in which that market develops or if large vacation rental providers are able to acquire a larger share of the alternative accommodation market at our expense, our financial performance may be harmed.
If our efforts to integrate additional inventory and diversify our marketplace are unsuccessful or if our competitors can provide more attractive advertising terms to potential advertisers, we may be unable to provide as broad a set of search results and as detailed pricing information to our users as our competitors are able to provide, which may have a material adverse effect on our business, results of operations, financial condition and prospects.
Increasing competition and consolidation in our industry could result in a decrease in the amountloss of market share and types of hotel information we display,higher traffic acquisition costs or reduce the value of our services to users and a loss of users, which would adversely affect our business, results of operations, financial performancecondition and prospects.
We operate in the highly andan increasingly competitive travel industry. Many of our current and potential competitors, including hotels themselves (both hotel chains and independent hotels), globaland metasearch and review websites,engines, such as Kayak, TripAdvisor, Trip.com and Google Hotel Ads, locally focused metasearch engines, such as Qunar, OTAs, such as Booking.com, Ctrip and Brand Expedia, alternative accommodation websites, such as Airbnb and HomeAway,Vrbo (previously HomeAway), and other hotel websites, may have been in existence longer, may have larger user bases, may have a wider ranges of products and services and may have greater brand recognition and customer loyalty in certain markets and/or significantly greater financial, marketing, personnel, technical and other resources than we do. Some of these competitors may be able to offer products and services on more favorable terms than we can. MetasearchGoogle Hotel Ads and other metasearch websites, are also expandingcontinue to expand globally, are becoming increasingly competitive, have access to large numbers of users, and, are in some cases, adoptingcontinue to adopt strategies and developingdevelop technologies and websites that are very similar to ours. In particular, Google Hotel Ads has invested into its own hotel metasearch product, trying to capture more of the available profit margin in the online travel industry and thereby grow its own profit base. In addition, relatively new industry participants, such as Airbnb and Trip.com, have in recent periods increased their activities across Western markets, which has further intensified competition. Competition could result in higher traffic acquisition costs, lower CPC levels and reduced margins on our advertising services, loss of market share, reduced user traffic to our websites and reduced advertising by hotel companies and other accommodation advertisers on our websites. In addition, the competitive structure of the online travel industry may change significantly as a result of the COVID-19 pandemic, which may make it difficult to regain our pre-pandemic market share. If fewer advertisers choose to advertise on our website, we will have less information available to display, which makes our services less valuable to users.
In addition, many of these competitors may be able to devote significantly greater resources to marketing and promotional campaigns; attracting and retaining key employees; securing participation of hotels and access to hotel information, including proprietary or exclusive content; website and systems development; research and development; and enhancing the speed at which their services return user search results. Our competitors may also be able to adjust their marketing spend more quickly or allocate it more efficiently than we can.can or improve their product more quickly and effectively, especially since they have more complete information about their users than we do about ours. Many of these competitors may also offer user incentives, such as loyalty pointsawards or priority access to services, which may not be available if users book through third-party sites or services. In the recent past, certain hotel chains have launched advertising campaigns expressly designed to drive consumer traffic directly to their websites. Furthermore, certain alternative accommodation websites have added other travel services, such as tours, activities, hotel and flight bookings, any of which could further extend their reach into the travel market.
In addition, consolidation among advertisers, or a change to more coordinated or centralized marketing activities within OTA groups and hotel chains, could reduce the number of offers we have available in our marketplace for each hotel, which could cause our services to become less valuable and popular for users and could result in advertisers bidding less for offers or even terminating their relationships with us.
As a result, competition, and consolidation, individually or in the aggregate, could result in higher traffic acquisition costs, reduced operating margins, loss of market share, reduced user traffic to our websites and reduced advertising by OTAs and hotels on our websites. If our large customers become less competitive with each other, merge with each other, focus more on profit than on traffic volume, or are able to reduce CPCs, this wouldwebsites, which could have an adverse impact on our CPCs which,CPCs. This, in turn, may have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, competition and consolidation among our advertisers may cause some of them to have financial difficulties, default on or materially delay their obligations to pay us for services we have already provided or become insolvent. As a result, we may not be able to compete successfully against current and future competitors, and competition and/or consolidation among advertisers may have a material adverse effect on our business, results of operations, financial condition and prospects.
We have chosen to focus exclusively on providing search services for hotels and other types of accommodation. If users expect to be able to book other services when they book accommodation, they may choose to utilize the websites of our competitors rather than ours, which would negatively impact our financial condition and results of operations.
We are focused exclusively on helping users find their ideal hotel room, with an increasing focus on other types of accommodation. Because we believe this focus will help us develop a platform that displays hotels that match individual users’ ideal hotel characteristics, we have decided that our search engine should not cover services that are outside our core area of focus. As a result, users cannot use our platform to book air travel, rental cars, tours, cruises and other services with our advertisers, while they can book or otherwise obtain information about these services on the websites of all of our major competitors. If we are unable to implement our strategic plans successfully, we may be unable to achieve our objectives, or we may incur further losses, and our business, results of operations, financial condition and prospects may be materially and adversely affected.
We updated our mission “to be your companion to experience our world” and have begun to explore potential ways we can expand our value proposition beyond our historical focus on accommodation search.For example, we have begun partnering with other online travel companies to test price comparison offerings across non-accommodation travel verticals (e.g., flights, car rentals and activities).
We have also been expanding our product towards a more inspirational value proposition, targeting users who are undecided with regards to the specifics of planned travel or who may not have contemplated a trip in the first place.
Many of our competitors, including the large OTAs, have substantially more experience with respect to offering flights, car rentals and activities and have access to more content to promote user interaction with an inspirational product. If our efforts to integrate additional verticals into our website and to create more inspirational content are unsuccessful, or if our competitors can provide more attractive advertising terms to potential advertisers or more attractive content to users, with information they deem useful,we may be unable to provide as broad a set of search results or as interesting content to our users as our competitors are able to provide more attractive offers for accommodation coupled with attractive offers for other services, or our users demand to see more comprehensive offers akin to those of our competitors,provide.In addition, we may not realizebe unable to monetize flights, car rentals and activities successfully or to the anticipated benefitssame degree as our competitors. We may also be unsuccessful in transforming general interest in inspirational travel content into interactions with our website that we are ultimately able to monetize. The materialization of this strategy, which could negatively impactany of these risks may have a material adverse effect on our competitiveness,business, results of operations, financial condition and results of operations.prospects.
If we do not continue to innovate and provide tools and services that are useful to users and advertisers, we may not remain competitive, and our revenue and results of operations could suffer.
Our success depends on continued innovation to provide features and services that make our websites and apps useful for users. Our ability to attract users to our services depends in large part on providing a comprehensive set of search results and a broad range of offers across price ranges. To do so, we maintain relationships with OTAs, hotel chains and independent hotels to include their data in our search results. Although we maintain a very large searchable databasesdatabase of hotels infrom around the world, we do not have relationships with some significant potential advertisers, including some major hotel chains, and many independent hotels, smaller chains and smaller chains.certain large providers of alternative accommodations. In addition, consolidation among advertisers, which may occur at increasing levels because of the COVID-19 pandemic, or a change to more coordinated or centralized marketing activities within OTA groups and hotel chains, could reduce the number of offers we have available in our marketplace for each hotel. In recent periods, the large OTAs have moderated their performance marketing spend and have publicly emphasized their desire to increase the efficiency of their performance marketing spend. The loss ofreduced participation by existing relationships with advertisers in our marketplace or our inability to continue to add new ones, or the decision by one or more advertisersaccommodation inventory to deactivate part or all of their of their inventories in on or more geographical regions,our platform may reduce the comprehensiveness of our search results, which could reduce user confidence in the search results we provide, making us less popular.popular and could, because there are fewer offers made on our marketplace, enable advertisers to bid less for offers.
In addition, our competitors are constantly developing innovations in online hotel-related services and features. As a result, we must continue to invest significant resources in research and development in order to continuously improve the speed, accuracy and comprehensiveness of our services. The emergence of alternative platforms and the emergence of niche competitors who may be able to optimize services or strategies such platforms have required, and will continue to require, new and costly investments in technology. We have invested, and in the future may invest, in new business strategies and services. Some of the changes we are implementing may prioritize the quality of user experience over short-term monetization. These strategies and services may not succeed, and, even if successful, our revenue may not increase. In addition, we may fail to adopt and adapt to new technology, especially as Internet search, including through Google and Amazon, potentially moves from a text to voice interface over the coming years.years, or we may not be successful in developing technologies that operate effectively across multiple devices and platforms. New developments in other areas could also make it easier for competitors to enter our markets due to lower up-front technology costs. If we are unable to continue offering innovative services or do not provide sufficiently comprehensive results for our users, we may be unable to attract additional users and advertisers or retain our current users and advertisers, which may have a material adverse effect on our business, results of operations, financial condition and prospects.
Several of our product features dependsdepend, in part, on our relationship with third parties to provide us with consumer reviews.content.
ThirdWe currently license and incorporate into our websites content from third parties. As we continue to introduce new services that incorporate new content, we may be required to license additional content. We cannot be sure that such technology will be available on commercially reasonable terms, if at all. In particular, certain third parties provide us with consumer reviews that we provide to our users along with our proprietary rating score. If theseany of our third-party data providers terminate their relationships with us, the information that we provide to users may be limited or the quality of the information may suffer, which may negatively affect the implementation of our strategic initiatives, users’ perception of the value of our product and our reputation.
The measures we are implementing that are designed to maximize the lifetime value of the user may not generate the long-term financial benefits that we anticipate.
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. These initiatives are intended to help us increase booking conversion rates, revenue per qualified referral and, ultimately, we believe, our financial performance over the long term. However, these changes may have an adverse effect on revenue and/or profitability in the short or medium term. Some of these changes 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;
Our relevance assessment, which reflects our assessment of the quality of users' experience after clicking out to an advertiser from our website and functions as an adjustment to advertisers’ CPC bids in our marketplace auction process; and
Our attribution model, which is our model for allocating our performance marketing spend and which we continuously modify 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 focuses on whether a user who comes to us from a performance marketing channel books a hotel. In the third quarter, we completed the roll-out of this new attribution model in our “Display, Email and Affiliate Advertising,” or “DEA,” channel. In the fourth quarter of 2017, we continued to implement this new attribution model in our "Search Engine Marketing," or "SEM," channel.
Although we aim for these measures to have a long-term positive effect on our profitability by focusing on traffic quality instead of volume, they may not produce the long-term financial benefits that we expect. We rely on assumptions, estimates and test data to determine whether these changes to our marketplace and advertising spend are effective, particularly in terms of booking conversion. In particular, we assume that our advertisers will ultimately be willing to pay more for referrals that are more likely, in our view, to lead to a completed booking. However, this assumes that our definition of value matches that of our advertisers, who may instead perceive value in referrals that do not result in an immediate hotel booking but have the potential to deliver repeat users of their websites in the future. If our advertisers do not perceive added value for them from enhancements we make, they may be unwilling to pay us more after we have introduced these enhancements, in which case our user growth, business and our results of operations could be negatively impacted.
In addition, while we expect these initiatives may lead to short-to medium-term reductions in our revenue growth and profitability, the extent of these effects is difficult to predict, and the initiatives could cause revenues to grow more slowly than we anticipate or lead to revenue declines, and could lead to losses. They may also lead to increased volatility in our results. As an example, our revenue levels may be negatively impacted or may become more volatile as our advertisers take measures to respond to the automated version of the relevance assessment that we introduced in the fourth quarter of 2017. In addition, we expect higher volatility in our results and potentially a slowdown in qualified referral growth in the near term as a result of the roll-out of the attribution model to areas other than DEA.
We rely on assumptions, estimates and data to make decisions about our business, and any inaccuracies in, or misinterpretation of, such information could negatively impact our business.
We take a data-driven, testing-based approach to managing our business, where we use our proprietary tools and processes to measure and optimize end-to-end performance of our platform. Our ability to analyze and rapidly respond to the internal data we track enables us to improve our platform and make decisions about allocating marketing spend and ultimately convert any improvements into increased revenue. While the internal data we use to judge the effectiveness of changes to our platform isand to make improvements to how we make decisions about allocating Advertising Spend are based on what we believe to be reasonable assumptions and estimates, our internal tools are not independently verified by a third party and have a number of limitations. We only have access to limited information about user behavior compared to many of our competitors that in many cases can record detailed information about users who log onto their websites or who complete a booking or other
transaction with them. Our
In addition, our ability to track user behavior is also subject to considerable limitations, for example, relating to our ability to use cookies and browser extensions and cookies to analyze behavior over time, and to difficulties pertaining to users who use multiple devices to conduct their search for accommodation. In particular, users can block or delete cookies through their browsers or “ad-blocking” software or apps. The most common Internet browsers allow users to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. At least one major browser has introduced extensive privacy features, including the imposition of a strict time limit on tracking tools' lifespans. Any of these developments may inhibit our ability to use cookies to better understand and track our users’ preferences to improve our platform, to optimize our marketing campaigns and our advertisers’ campaigns and to detect and prevent fraudulent activities. We believe that many of our competitors, in particular Google, have substantial advantages compared to us in their ability to understand and track users' behavior. In addition, we are to a significant extent dependent upon certain advertisers for specific types of user information, including, for example, as to whether a user ultimately completed a booking. Furthermore, ourOur or our advertisers’ methodologies for tracking this information may change over time. Some countries have also already unilaterally adopted digital services taxes, with other countries planning to adopt such taxes in the future. In addition to increasing our operational expenses, digital service taxes are likely to make it more difficult for us to measure the marginal efficiency of our Advertising Spend among marketing channels as such taxes will affect not only how we allocate our spend but also how these marketing channels and our advertisers make decisions about their businesses.
If the internal tools we use to judge the effectiveness of changes to our platform produce or are based on information with inaccuracies,that is incomplete or inaccurate, or we do not have access to important information, or if we are not sufficiently rigorous in our analysis of that information, or if such information is the result of algorithm or other technical or methodological errors, the decisions we make relating to our website, marketplace and allocation of marketing spend may not result in the positive effects in terms of profitability, revenue and user experience that we expect, which may negatively impact our business, results of operations, financial condition and results of operations.prospects.
We rely on search engines, which may change their business models orparticularly Google, to drive a substantial amount of traffic to our platform. If Google continues to promote its own products and services that compete directly with our accommodation search engine algorithms in ways that could have a negative impact onat the expense of traditional keyword auctions and organic search, our business, financial performance and prospects.prospects may be negatively impacted.
We use Baidu,rely on Bing, Google, Naver, Yahoo! and other Internet search engines to generate a substantial amount of traffic to our websites, principally through the purchase of hotel-related keywords. We obtain a significant amount of traffic via search engines and therefore utilize techniques such as search engine optimization and search engine marketing to improve our placement in relevant search queries. The number of users we attract from search engines to our platform is due in large part to how and where information from, and links to, our websites is displayed on search engine pages. Google and other search engines frequently update and change the logic that determines the placement and display of results of a user’s search. If a major search engine changes its algorithms in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine marketing or other traffic generating arrangements in a negative manner, it may have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, if search engines, especially smaller players, decline in popularity, we may see adverse impacts as they provide us with fewer relevant leads or even shut down their services completely, resulting in even less competition in general search.
ToIn some instances, search and metasearch companies may change their displays or rankings in order to promote their own competing products or services or the extent thatproducts or services of one or more of our competitors. For example, Google, or other leading search or metasearch engines that have a significant presence in our key markets, disintermediate OTAs or travel content providers, whether by offering their own comprehensive travel planning or shopping capabilities, or by referring leads to suppliers, other favored partners or themselves directly, there could be a material adverse impact on our business and financial performance. In particular, Google appears to continue to direct an increasing amountsource of traffic to our website, frequently promotes its own hotel search platform (which it refers to as “Hotel Ads”) at the expense of traditional keyword auctions.auctions and organic search results. This, in turn, has negatively impacted the search ranking of our website. We purchase hotel-related keywords on Google to obtain a significant amount of traffic, but do not currently usehave introduced Hotel Ads as a marketing channel (although we have conducted some testing). If we were to do so, Hotel Ads may present a challenge since we would have significantly less flexibility to direct traffic to our website using that platform. In particular,in many markets, but our placement in Hotel Ads’its results would beis dependent on factors used by itsHotel Ads’ algorithm to rank and display our offers, resulting in dynamics significantly different from Search Engine Marketingsearch engine marketing in the form that we are currentlyhave historically been familiar with. This may present a challenge since we may have significantly less flexibility to acquire traffic for our website using that platform compared to traditional hotel-related keyword advertising. In addition, our major advertisers might not be amenable in some cases to our using their inventory to compete with them on Hotel Ads, which wouldmay present a further difficulty if Google continues to direct traffic in this manner. Google’s promotion of its own competing products, or similar actions by Google in the future that have the effect of reducing our prominence or ranking on its search results, could have a substantial negative effect on our business, results of operations, financial condition and prospects.
In addition, a significant amount of traffic is directed to our websites through our participation in DEAdisplay, email and affiliate advertising campaigns on search engines, advertising networks, affiliate websites and social networking sites. Pricing and operating dynamics for these traffic sources can experience rapid change, both technically and competitively. Any of these providers could also, for competitive or other purposes, alter their search algorithms or results, causing our websites to place lower in search results, which may reduce our user traffic and may have a material adverse effect on our business, results of operations, financial condition and prospects.
The litigation in Australia could increase our expenses and will subject us to significant monetary penalties.
On August 23, 2018, the Australian Competition and Consumer Commission, or ACCC, instituted proceedings in the Australian Federal Court against us. The ACCC alleged a number of breaches of the Australian Consumer Law, or ACL, relating to certain advertisements in Australia concerning the hotel prices available on our Australian site, our Australian strike-through pricing practice and other aspects of the way offers for accommodation were displayed on our Australian website. The matter went to trial in September 2019 and, on January 20, 2020, the Australian Federal Court issued a judgment finding that we had engaged in conduct in breach of the ACL. On March 4, 2020, we filed a notice of appeal at the
Australian Federal Court appealing part of that judgment. On November 4, 2020, the Australian Federal Court dismissed trivago’s appeal. A failure to comply with current laws, rules and regulations or changes to such laws, rules and regulationsseparate trial regarding penalties and other legal uncertaintiesorders is scheduled for June 7, 2021.
In establishing a provision in respect of the ACCC matter, management took into account the information currently available, including judicial precedents. However, there is considerable uncertainty regarding how the Australian Federal Court would calculate the penalties that will be ultimately assessed on us. In particular, the Australian Federal Court determined that we engaged in certain conduct after September 1, 2018 that will result in the applicability of the new penalty regime under the ACL, which significantly increased the maximum penalty applicable to parts of our conduct. Only a few cases have been decided so far assessing penalties for contraventions of the ACL under the new regime. The penalties imposed in those cases were jointly agreed by the parties and were not the subject of a contested penalty hearing. In addition, the Australian Federal Court in each case did not allocate the total penalty imposed between the old and new penalty regime. When assessing penalties, the Court does not apply any mathematical formula, but rather considers and weighs “all relevant matters”. Certain statutory maximum penalties serve, when balanced with all other relevant factors, as a yardstick for the court to assess penalties. In order to determine such maximum penalties under the new penalty regime, the court will need to consider whether the “value of the benefit received” by us can be determined and, if so, multiply it by three. Should the court determine that such benefit is not ascertainable, we would be subject to a maximum penalty per contravention equaling 10% of the turnover of the “body corporate”, and any related body corporate, for the preceding 12 months. It is unclear how a court might interpret these statutory provisions or how the court might otherwise exercise its considerable discretion in respect of these matters. Any penalty amount could substantially exceed the level of provision that we established for this litigation. The ultimate penalties assessed in this case could have a material adverse effect on our business, results of operations, financial condition and prospects.
Regulators' continued focus on the consumer-facing business practices of online travel companies may adversely affect our business, financial performance, results of operations or business growth.growth.
Our business and financial performance could be adversely affected by unfavorable changes in or interpretations of existing laws, rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our businesses, including those relating to hotels, the Internet and online commerce, Internet advertising and price display, consumer protection, anti-corruption, anti-trust and competition, economic and trade sanctions, tax, banking, data security and privacy. As a result, regulatory authorities or courts could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us (including financial penalties and adverse findings) if our practices were found not to comply with applicable legal, regulatory or licensing requirements or any binding interpretation of such requirements. Unfavorable changes or interpretations, and changes we might be required to make to our practices as a result, could decrease demand for our services, limit marketing methods and capabilities, affect our margins, increase costs or subject us to additional liabilities.
Regulators have recently increased their focus on the consumer facing business practices of companies active in the Internet search sector, in particular with respect to the providers of online travel search and booking services. A number of regulatorsregulatory authorities in various countries have made public statements that they are investigatingEurope (including the sector generally and individual companies concerning their marketing and selling practices. For example, on October 27, 2017 the U.K.UK Competition and Markets Authority, or “CMA”), Australia, and elsewhere have initiated litigation and/or market studies, inquiries or investigations relating to online marketplaces and how information is presented to consumers using those marketplaces, including practices such as search results rankings and algorithms, discount claims, disclosure of charges, and availability and similar messaging. For example, in 2018, the CMA, announced the launch ofopened an investigation into online hotel booking sites, with focal points on how hotels are ranked in search results, whether claims on the sites create a false impressioncertain of rate or room availability or rush customers into making a booking decision, whether the discount claims made on sites offer a fair comparison for customers and the extent to which sites include all costs in the price they first show customers, and the CMA has written to companies across the whole sectorour display practices in the United Kingdom including us, requiring informationthat the CMA questioned under U.K. consumer law. On January 31, 2019, we submitted voluntary undertakings to understand more about their practices. On October 24, 2017, the German Federal Cartel Office (Bundeskartellamt) announced a sector inquiry focused on the consumer facingCMA to make changes to certain disclosure and other display practices of online price comparison websites active in the travel, insurance, financial services, telecommunications and energy sectorsUnited Kingdom. The undertakings resolved the CMA's investigation into our practices in Germany, covering topics such as rankings, financing, corporate links, reviews, availability and relevant market coverage to assess whether consumer law provisions may have been violated. We have also been contacted bythe United Kingdom without any admission or finding that our practices violated U.K. law. On January 20, 2020, the Australian Federal Court issued a judgment in the Australian Competition and Consumer Commission or ACCC. The ACCC has requested information(ACCC)’s case against us regarding our advertising and documentswebsite display practices in Australia. Parts of the court’s opinion included views that differed significantly from us relatingthose of other national regulators and raised concerns about the function of our marketplace and the adequacy of disclosures to our advertisements in Australia concerning the hotel prices availableconsumers regarding how advertisers that pay higher CPCs generally receive better advertising placement on our website. Since then, two purported class actions have been filed in Israel and Ontario, Canada, making allegations about our advertising and/or display practices broadly similar to aspects of the case presented by the ACCC. These cases are still in their early stages. Should other national courts or regulators take a similar view of our business model to that of the Australian siteFederal Court and our strike-through pricing practice on that site, which is the display adjacent to the price quote in the top positionACCC, or should changes in our search results of a higher price that is crossed out. Should changesbusiness practices or those prevalent in our sector brought about by the attention brought on by this litigation or other regulatory attentionmatters reduce the attractiveness, competitiveness or functionality of our platform and the services we offer, or should our reputation or that of our sector continue to suffer, or should we have to pay substantial amounts in respect or as a result of any such proceedings,regulatory action or proceeding, our business, results of operations, financial condition and prospects could be materially adversely affected.
In addition, theremany governmental authorities in the markets in which we operate are also considering additional and potentially diverging legislative and regulatory proposals that would increase the level and complexity of regulation on Internet display, disclosure and advertising activities. For example, in the European Union a new Directive as regards the better enforcement and modernization of Union consumer protection rules (the “New Deal for Consumers”) recently came into force, and a regulation of the European Parliament and of the Council for business users of online intermediary services (the P2B Regulation) has been recently adopted. In parallel, the national competent authorities of the EU and EEA countries have coordinated their actions, through the Consumer Protection Cooperation (CPC) network, in order to address potential infringements of consumer protection legislation. EU regulators have also been cooperating with international counterparts on consumer protection issues internationally, such as within the International Consumer Protection and Enforcement Network (“ICPEN”), e.g., the CMA has been co-leading an ICPEN project on digital platforms in the travel and tourism sector, which may lead to further coordinated enforcement activities in the sector. There also are, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet and online commerce that may relate to liability for information retrieved from, transmitted over or displayed on the Internet, display of certain taxes, charges and fees, online editorial, user-generated or other third partythird-party content, user or other third partythird-party privacy, data security, behavioral targeting and online advertising, taxation, liability for third-party activities and the quality of services. Furthermore, the growth and development of online commerce may prompt calls for additional or more complex consumer protection laws and higher levels of regulatory review and enforcement activities, which may impose additional burdens, costs or limitations on online businesses generally. In this context, we note that in a study into paid ranking which was published on February 2, 2021 the Netherlands Authority for Consumers and Markets (ACM) has found that paid ranking (or sponsored ranking) comes with risks for competition and consumers. This and possible future related studies and inquiries may adversely affect the way trivago monetizes its offers on its sites.
Likewise,Moreover, our business and financial performance could be adversely affected by unfavorable changes in or interpretations of existing laws, rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our businesses, including those relating to those discussed above as well as anti-corruption, anti-trust and competition, economic and trade sanctions, tax, banking, data security and privacy. In addition, following the expiry of the EU-UK Withdrawal Agreement on December 31, 2020, there is uncertainty regarding the extent to which future regulations and policies in the United Kingdom may diverge from those of the European Union giving rise to greater regulatory complexity and additional compliance costs. Regulatory authorities or courts could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us (including imposing financial penalties and restricting our conduct going forward) if our practices were found not to comply with applicable legal, regulatory or licensing requirements or any binding interpretation of such requirements. Changes we might be required to make to our practices as a result of regulatory or judicial action, could decrease demand for our services, limit marketing methods and capabilities available to us, affect our margins and increase our costs, which could decrease demand for services, reduce revenue, increase costs or subject the company to additional liabilities.
Increasing enforcement of international trade and anti-corruption regulations could affect our ability to remain in compliance with such regulations and could have a materially adverse effect on our business, results of operations, financial condition and prospects.
The SEC, U.S. Department of Justice and U.S. Office of Foreign Assets Control, or OFAC, as well as other foreign regulatory authorities, have continued to increase the enforcement of economic and trade regulations and anti-corruption laws, across industries. U.S. trade sanctions restrict transactions involving designated foreign countries and territories, including the Crimea region of the Ukraine, Cuba, Iran, North Korea Sudan and Syria, as well as certain specifically targeted individuals and entities. We believe that our activities comply with applicable OFAC trade regulations and anti-corruption regulations, including the U.S. Foreign
Corrupt Practices Act and the UKU.K. Bribery Act. As regulations are amended and the interpretation of those regulations evolves, we cannot guarantee that our programs and policies will be deemed compliant by all applicable regulatory authorities. In the event that our controls should fail or are
found to be not in compliance for other reasons, including as a result of changes to our products and services or the behavior of our advertisers, we could be subject to monetary damages, civil and criminal penalties, litigation and damage to our reputation and the value of our brand.
The promulgationU.S. Government announced that, effective May 2, 2019, it will no longer suspend the right of new laws, rulesprivate parties to bring litigation under Title III of the Cuban Liberty and regulations, orSolidarity (Libertad) Act of 1996, popularly known as the new interpretation of existing laws, rules and regulations,Helms-Burton Act, allowing certain individuals whose property was confiscated by the Cuban government beginning in each case that restrict or otherwise unfavorably impact1959 to sue in U.S. courts anyone who "traffics" in the ability or mannerproperty in which we provide our services could require us to change certain aspects of our business, operations and commercial relationships to ensure compliance, which could decrease demand for services, reduce revenue, increase costs or subject the company to additional liabilities.
Litigation, including the purported securities class actions currently pending against us, could distract management, increase our expenses or subject us to material monetary damages and other remedies.
trivago N.V. and certain of its management board members are the subject of twoquestion. Five purported class actions were filed against us (and other defendants) in 2019. Since then, the United States District Court forplaintiffs in all five cases have dropped trivago as a defendant (while the Southern District of New York followingcases continue against other defendants). These actions seek remedies including the announcement by the U.K. Competition and Markets Authorityvalue of the investigation described above, assertingexpropriated property (on which the applicable hotel is located), plus interest, treble damages, attorneys' fees and costs. If trivago were to be named again as a defendant in these cases, or in other similar cases, we believe that we have meritorious defenses to such potential claims underand that the Exchange Act and the Securities Act on behalfresults of persons who purchased or otherwise acquired trivago’s American Depositary Receipts pursuant and/or traceableany related litigation would not be material to the registration statement and prospectus issued in connection with our IPO on or about December 16, 2016 and/or on the open market between December 16, 2016 and October 27, 2017. One of the complaints also named underwriters of our IPO as defendants. On January 22, 2018, the court appointed the lead plaintiff and lead counsel in the actions, and they now have the opportunity to file an amended complaint. While it is too early for us to form any view on the likely outcomes of these actions, their outcomes could have a material adverse effect on our business, financial condition or results of operations.
We could also become involved from time However, litigation is uncertain and there is little judicial history or interpretation of the relevant claims and defenses, in particular as applied to time in various other legal proceedings, including, butbusinesses like ours. As a result, there can be no assurance that there will not limitedbe an adverse outcome to actions relating to breach of contract, consumer protection matters and intellectual property infringementany such litigation or that might necessitate changes to our business or operations. Regardless of whether the securities litigation described above or any other claims against us have merit, or whether we are ultimately held liable or subject to payment of damages, claims may be expensive to defend and may divert management’s time away from our operations. If any legal proceedings were tosuch an outcome would not result in an unfavorable outcome, it could have a material adverse effectimpact on our business, financial position and results of operations. Any adverse publicity resulting from actual or potential litigation may also materially and adversely affect our reputation, which in turn could adversely affect our results.
Companies in the Internet, technology and media industries are frequently subject to allegations of infringement or other violations of intellectual property rights. We are currently subject to several claims and may be subject to future claims relating to intellectual property rights. As we grow our business and expand our operations we may be subject to intellectual property claims by third parties. We intend to vigorously defend our intellectual property rights and our freedom to operate our business; however, regardless of the merits of the claims, intellectual property claims are often time consuming and extremely expensive to litigate or settle and are likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability or prevent us from operating our business or portions of our business. Resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Many of our agreements with hotels, OTAs and other partners require us to indemnify these entities against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.prospects.
We process, store and use personal data which exposes us to risks of internal and external security breaches and could give rise to liabilities, including as a result of governmental regulation and differing legal obligations applicable to data protection and privacy rights.
We may acquire personally identifiable information, personal data or confidential information from users of our websites and apps.apps and from advertisers and share this with third parties. Breaches or intrusions to our system,systems or the systems of external service providers, including cloud-based systems, upon which we have been increasingly relying, whether resulting from internal or external sources, could significantly harm our business. It is possible that advances in computer circumvention capabilities, new discoveries or other developments, including our own acts or omissions, could result in a compromise or breach of personally identifiable information, personal data and/or confidential user information.
We cannot guarantee that our existing security measures or the security measures of external service providers will prevent all security breaches, intrusions or attacks. A party, whether internal or external, that is able to circumvent our security systems or the systems of an external service provider could stealimproperly obtain user information or proprietary information or cause significant disruptions to our operations. In the past, we have experienced “denial-of-service” type of attacks on our system, thatwhich have made portions of our website unavailable for periods of time. In early 2020, we were the victim of cyber-related fraud that involved electronic communications impersonating one of our vendors, resulting in our paying several outstanding invoices together totaling less than €1 million to foreign accounts controlled by the impersonator. We may need to expend significant resources to protect against security breaches, intrusions, attacks or other threats or to address problems caused by breaches. Any actions that impact the availability of our website andor apps could cause a loss of substantial business volume during the occurrence of any such incident and could result in reputational harm and impact negatively our ability to attract new customers and/or retain existing ones. The risk of security breaches, intrusions and other attacks is likely to increase as we expand the number of markets in which we operate and as the tools and techniques used in these types of attacks become more advanced. The new European data protection laws (described in detail below), introducehave introduced mandatory breach reporting to regulators and individuals across Europe. Security breaches could result in negative publicity, damage to our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions as well as civil litigation. Security breaches could also cause users and potential users to lose confidence in our security, which would have a negative effect on the value of our brand.
We also face risks associated with security breaches affecting third parties conducting business over the Internet. Users generally are increasingly concerned with security and privacy on the Internet, and any
publicized security problems impacting other companies could inhibit the growth of our business. Additionally, security breaches at third parties upon which we rely, such as hotels, could result in negative publicity, damage to our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory or criminal penalties and sanctions as well as civil litigation. We currently provide users with the functionality to book directly with certain hotels, by completing a form on our website which enables users’ details to be transferred directly to the hotel’s booking forms. In connection with facilitating these transactions, we and contracted third party processors receive and store certain personally identifiable information and/or personal data, including credit card information. We currently receive and store certain personally identifiable information and/or personal data in the form of booking and reservation data from advertisers. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, including throughout the member states of the European Union as a result of European Commission Directive 95/46/EC and implementing legislation in effect in member states of the European Union, which will be replaced from May 25, 2018 by the EU’s General Data Protection Regulation 2016/679, (GDPR).or GDPR, which has been in effect since May 25, 2018, and of national GDPR implementation acts on an EU member state level. In particular, EU laws regulate transfers of EU personal data to third countries, such as the United States, that have not been found to provide adequate protection to such personal data. A considerable number of our service providers and hotels operate in such jurisdictions. ThereThe laws, rules, and regulations regarding cross-border transfers of personal data, including laws relating to transfer of personal data outside the EU are recent regulatory concerns about certain measures that can be usedrapidly evolving and likely to validate suchremain uncertain for the foreseeable future. Recent legal developments in the EU have created complexity and uncertainty regarding transfers of personal data export, as well as litigation challenging somefrom the EU to the United States and other jurisdictions. For example, on July 16, 2020, the European Court of Justice, or CJEU, invalidated the EU-U.S. Privacy Shield framework, or Privacy Shield, which provided companies with a mechanism to comply with data protection requirements when transferring personal data from the EU to the United States. The same decision also cast doubt on the ability to use one of the mechanisms for adequate data transfer (i.e.,primary alternatives to the standard contractual clauses). We could be impacted by changes in law as a result of the current challenges to these mechanisms by regulators and inEU-U.S. Privacy Shield framework, namely, the European courts which may leadCommission’s Standard Contractual Clauses, to governmental enforcement actions, litigation, fineslawfully transfer personal data from Europe to the United States and penalties or adverse publicity which could have an adverse effect on our reputationmost other countries. At present, there are few if any viable alternatives to the Privacy Shield Frameworks and business.the Standard Contractual Clauses for the foregoing purposes.
Government regulation of privacy and data security is typically intended to protect the privacy of personally identifiable information and/or personal data that is collected, processed and transmitted in or from the governing jurisdiction. Since we collect, process and transmit personally identifiable information and/or personal data in and from numerous jurisdictions around the world, we are subject to privacy, data protection and data security legislation and regulations in a number of countries around the world. We are in particular affected by the GDPR. The GDPR applies to any company established in the EUEuropean Union as well as to those outside the EUEuropean Union if they collect and use personal data in connection with offering goods or services to individuals in the EUEuropean Union or the monitoring of their behavior (for
example, trip booking services). The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR can trigger significant fines of up to €20 million or 4% of total worldwide annual turnover per case of violation, whichever is higher. We may also be exposed to civil litigation including claims for damages and other adverse consequences. We may incur substantial expensefurther expenses in complyingensuring and maintaining compliance with the new obligations to be imposed by the GDPR and by national GDPR implementation acts and we may be required to make significant further changes in our business operations and product and services development, all of which may adversely affect our revenuebusiness, results of operations, financial condition and our business overall.prospects. We may have to undertake substantial effort to comply with new data protection laws in the United Kingdom, Brazil and California or may need do so as a result of changes in U.S. federal, state or other national data protection laws. Further, the United Kingdom’s exit from the European Union has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, while the Data Protection Act of 2018, which implements and complements the GDPR achieved Royal Assent on May 23, 2018 is now effective in the United Kingdom alongside a UK only adaptation of the GDPR which took effect on January 1, 2021, it is still unclear whether transfer of data from the EU to the United Kingdom will remain lawful under the GDPR without additional safeguards. We may also incur
costs to comply with new requirements and restrictions for data transfers between the European Union and the United Kingdom based on applicable regulations. We could be adversely affected if we fail to comply fully with all of these requirements and other laws in jurisdictions where we operate or target users. In addition, we could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that may have a material adverse effect on our business, results of operations, financial condition and prospects.
In recent years, U.S. and European lawmakers and regulators have expressed concern over the use of third-party cookies, web beacons and similar technology for online advertising, which is fundamental to our business model. The current European laws that cover the use of cookies and similar technology and marketing online or by electronic means are under reform.reform and changing rapidly as a result of decisions delivered by courts. Unlike the current law, the new proposed e-Privacy Regulation will apply directly in each EU member states,state, without the need for further enactment at the member state level. When implemented,effective, the e-Privacy Regulation is expected to alter rules on third-party cookies, web beacons and similar technology for online behavioral advertising and to impose stricter requirements on companies using these tools. The current draft also extends the strict opt-in marketing rules with limited exceptions to business-to-business communications, and significantly increases penalties. Regulation of cookies and web beacons (such as possibly requiring browsers to block access and use of device data and storage by default) may lead to broader restrictions on our advertising activities, including efforts to understand users’ Internet usage. Such regulations may have a chillingdetrimental effect on businesses, such as ours, that collect and use online usage information in order to attract and retain advertisers and may increase the cost of maintaining a business that collects or uses online usage information, increase regulatory scrutiny and increase the potential for civil liability under consumer protection laws. In responseWhereas it is currently still unclear if and when the proposed e-Privacy Regulation will enter into effect, European regulators and courts tend to marketplace concerns aboutapply the usage of third-party cookies and web beacons to track user behavior, providers of major browsers have included features that allow users to limit the collection of certain datacurrent law more restrictively in general or from specified websites, and some regulatory authorities have been advocating the development of browsers that block cookies by default. These developments could impair our ability to collect user information that attracts advertisers. If such technology is widely adopted, it could adversely affect our business.
In the past, we identified a material weakness in our internal control over financial reporting. If the measures we have implemented, including internal controls, fail to be effective in the future, any such failure could result in material misstatements of our financial statements, cause investors to lose confidence in our reported financial and other public information, harm our business and adversely impact the trading price of our ADSs.
Our management is responsible for establishing and maintaining internal control over financial reporting, disclosure control, and complying with otherway which would effectively anticipate opt-in requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. In addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act since we ceased to qualify as an “emerging growth company” under the JOBS Act at the end of 2017. Satisfying these requirements required usproposed e-Privacy Regulation. European regulators increasingly take efforts to dedicate a significant amount of time and resources, including for the development, implementation, evaluation and testing of our internal control over financial reporting. Although no material weaknesses were identified in connection with the attestation of the effectiveness of our internal control over financial reporting as of December 31, 2017, our management cannot guarantee that our internal control and disclosure controls will prevent all possible errors or all fraud. In addition, the internal controls that we have implemented could fail to be effective in the future. This failure could result in material misstatements in our financial statements, result in the loss of investor confidence in the reliability of our financial statements and subject us to regulatory scrutiny and sanctions. This could in turn could harm our business and the market value of our ADSs. In addition, we may be required to incur costs in improving our internal controls system and the hiring of additional personnel.enforce their positions.
We may experience difficulties in implementing new business and financial systems.
We are currently in the process of transitioning certain of our business and financial systems to systems on a scale reflecting the increased size, scope and complexity of our operations, particularly including the adoption and integration of a new internally developed tool to manage our invoicing, and various third-party developed tools to assist us with internal system integration, financial management, and consolidation. The process of migrating our legacy systems could disrupt our ability to timely and accurately process and report key aspects of our financial statements as the consolidation software relates to a wide variety of items in our financial statements that we report on a consolidated basis. In addition, while our financial management software is intended to increase accuracy of financial reporting and reduce our reliance on manual procedures and actions, the transition to that system can affect the accuracy of reporting as we align that system to our internal processes. This can affect a variety of parts of our revenue cycle, including recognition of revenue in accordance with our revenue recognition policy, deferred revenue, and accounts receivable. With respect to these systems, certain financial controls and processes will be required and may result in changes to the current control environment. These changes will need to be assessed for effective implementation and effectiveness in mitigating inherent risk in these processes. This evaluation could result in deficiencies in our internal control over financial reporting, including material weaknesses, in future periods. Any difficulties in implementing the new software or related failures of our internal control over financial reporting could adversely affect our results of operations or financial condition and cause harm to our reputation.
We rely on information technology to operate our businesses and maintain our competitiveness, and any failure to invest in and adapt to technological developments and industry trends could harm our business.
We depend on the use of sophisticated information technologies and systems, including technology and systems used for websites and apps, customer service, supplier connectivity, communications, fraud detection and administration. As our operations grow in size, scope and complexity, we need to continuously improve and upgrade our systems and infrastructure to offer an increasing number of user-enhanced services, features and functionalities, while maintaining or improving the reliability and integrity of our systems and infrastructure.
Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our service in response to competitive service offerings. The emergence of alternative platforms such as smartphone and tablet computing devices and the emergence of niche competitors who may be able to optimize services or strategies such platforms have required, and will continue to require, new and costly investments in technology. We may not be successful, or we may be less successful than our current or new competitors, in developing technologies that operate effectively across multiple devices and platforms and that are appealing to users, either of which would negatively impact our business and financial performance. New developments in other areas, such as cloud computing and software-as-a-service providers, could also make it easier for competitors to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. Failure to invest in and adapt to technological developments and industry trends may have a material adverse effect on our business, results of operations, financial condition and prospects.
Any significant disruption in service on our websites and apps or in our computer systems, some of which are currently hosted by third-party providers, could damage our reputation and result in a loss of users, which would harm our business and results of operations.
Our brand, reputation and ability to attract and retain users to use our websites and apps depend upon the reliable performance of our network infrastructure and content delivery processes. We have experienced interruptions in these systems in the past, including server failures that temporarily slowed down the performance of our websites and apps, andin particular as we opted to use more cloud-based services. We may experience service interruptions in the future. Interruptions in these systems, whether due to system failures, computer viruses or physical or electronic break-ins, could affect the security or availability of our services on our websites and apps and prevent or inhibit the ability of users to access our services.service, which, in turn, can have a material adverse effect on our financial condition, business and results of operation. Problems with the reliability or security of our systems could harm our reputation. Damage to our reputation and the cost of remedying these problems could negatively affect our business, financial condition and results of operations.
Substantially all of the communications, network and computercomputer hardware used to operate our website are located at facilities in Germany, the Germany, United States, and Hong Kong, and China.while also leveraging cloud-hosted services. We either lease or own our servers and have service agreements with data center providers. Additionally, we are becoming increasingly reliant upon external providers, including Amazon Web Services and Google Cloud Platform, to provide us with cloud computing infrastructure. Any disruption to our use of services furnished by these providers or an unanticipated increase in costs from using those services could negatively impact our business operations. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence
of any of the foregoing events could result in damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur. Our systems are not completely redundant, so a failure of our system at one site could result in reduced functionality for our users, and a total failure of our systems could cause our websites or apps to be inaccessible byto our users. Problems faced by our third-party service providers with the telecommunications network providers with which they contract or with the systems by which they allocate capacity among their users, including us, could adversely affect the experience of our users. Our third-party service providers could decide to close their facilities without adequate notice. Any financial difficulties, such as bankruptcy or reorganization, faced by our third-party service providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party service providers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business.business, results of operations, financial condition and prospects. Any errors, defects, disruptions or other performance problems with our services could harm our reputation and may have a material adverse effect on our business, results of operations, financial condition and prospects.
Changes
In the past, we identified a material weakness in Internet browser functionalityour internal control over financial reporting. If the measures we have implemented, including internal controls, fail to be effective in the future, any such failure could result in a decreasematerial misstatements of our financial statements, cause investors to lose confidence in our overall revenue.reported financial and other public information, harm our business and adversely impact the trading price of our ADSs.
We generate revenue,Our management is responsible for establishing and maintaining internal controls over financial reporting, disclosure controls, and compliance with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in part, by redirecting usersaccordance with U.S. GAAP. In addition, our independent registered public accounting firm is required to our advertisers’ websites. Changes in browser functionality may either prevent or limit our abilityattest to redirect users to our advertisers. As a result, our revenue could decline if we are no longer able to offer this feature to our users.
The introduction of certain technologies may reduce the effectiveness of our services. For example, someinternal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Satisfying these requirements requires us to dedicate a significant amount of time and resources, including for the development, implementation, evaluation and testing of our servicesinternal controls over financial reporting. Although no material weaknesses were identified in connection with the attestation of the effectiveness of our internal control over financial reporting as of December 31, 2018, 2019 or 2020, our management cannot guarantee that our internal controls and marketing activitiesdisclosure controls will prevent all possible errors or fraud. In addition, the internal controls that we have implemented could fail to be effective in the future. This failure could result in material misstatements in our financial statements, result in the loss of investor confidence in the reliability of our financial statements and subject us to regulatory scrutiny and sanctions. This could, in turn, harm our business and the market value of our ADSs. In addition, we may be required to incur costs in improving our internal controls system and the hiring of additional personnel.
We may experience difficulties in implementing new business and financial systems.
We continue to transition certain business and financial systems to systems that reflect the size, scope and complexity of our operations. These systems include an internally developed tool to manage our invoicing and various third-party developed tools to assist us with internal system integration and financial management. The process of migrating our legacy systems could disrupt our ability to timely and accurately process and report key aspects of our financial statements as we will rely on cookies, which are placedthese systems for information that is included in or otherwise relevant for our financial statements. In addition, while the implementation of these systems is intended to increase accuracy of financial reporting and reduce our reliance on individual browsers when users visit websites. We usemanual procedures and actions, the transition may affect the accuracy of reporting as we align our new systems to our internal processes. With respect to these cookiessystems, certain financial controls and processes will be required and may result in changes to optimizethe current control environment. These changes will need to be assessed for effective implementation and effectiveness in mitigating inherent risk
in these processes. This evaluation could result in deficiencies in our marketing campaigns and our advertisers’ campaigns, to better understand our users’ preferences and to detect and prevent fraudulent activity. Users can block or delete cookies through their browsers or “ad-blocking”internal control over financial reporting, including material weaknesses, in future periods. Any difficulties in implementing the new software or apps. The most common Internet browsers allow users to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. Increased userelated failures of methods, software or apps that block cookies, or the disaffection of users resulting from our use of such marketing activities, may have an adverse effect oninternal control over financial reporting could adversely affect our business, results of operations, financial condition and prospects.prospects, and could cause harm to our reputation.
We rely on information technology to operate our business and maintain our competitiveness, and any failure to invest in and adapt to technological developments and industry trends could harm our business.
We depend on the use of sophisticated information technologies and systems, including technology and systems used for websites and apps, customer service, supplier connectivity, communications, fraud detection and administration. As our operations grow in size, scope and complexity, we need to continuously improve and upgrade our systems and infrastructure to offer an increasing number of user-enhanced services, features and functionalities, while maintaining or improving the reliability and integrity of our systems and infrastructure. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. If these changes result in our infrastructure being unreliable or if they do not result in the benefits we anticipate, our business, results of operations, financial condition and prospects could be adversely affected.
Our brands arebrand is subject to reputational risks and impairment.
We have developed our trivago brand through extensive marketing campaigns, website promotions, customer referrals and the use of a dedicated sales force. We cannot guarantee that our brand will not be damaged by circumstances that are outside our control or by third parties, such as hackers, or interfaces with their clients, such as subcontractors’ employees or sales forces, with a resulting negative impact on our activities. For example, the independent actors we relyhave relied on in various countries where we advertise have come to represent our brand, such as “Mr. trivago” in the United States and “the trivago girl” in Australia. The actions of such actors are not in our control, and negative publicity about such actors could affect our brand image. Also, it is possible that the use of testimonials in the advertising and promotion of our brands could have a negative impact on customer retention and acquisition if the reputation of the testimonial provider is damaged. We may be subject to negative press accounts or other negative publicity regarding our product, brand or business practices, which may, among other things, cause us reputational harm. Such negative publicity may become more prevalent as a result of announced or future regulatory investigations or litigation relating to practices in our marketplace and related online travel-related market segments. We believe this occurred when the Australian Federal Court issued a judgment finding that we had engaged in conduct in breach of the Australian Consumer Law. Social media’s reach may magnify any negative publicity and messages can “go viral” necessitating effective crisis response in real time. A failure on our part to protect our image, reputation and the brand under which we market our products and services may have a material adverse effect on our business, results of operations, financial condition and prospects.
Many events beyond our control may adversely affect the travel industry.
Many events beyond our control can adversely affect the travel industry, with a corresponding negative impact on our business and results of operations. Natural disasters, including hurricanes, tsunamis, earthquakes or volcanic eruptions, as well as other natural phenomena, such as outbreaks of the Zika virus, the Ebola virus, avian flu and, most recently, a novel strain of coronavirus first identified in Wuhan, Hubei Province, as well as other pandemics and epidemics, have disrupted normal travel patterns and levels in the past. The COVID-19 pandemic has had a significant negative impact on our global business volumes in 2020. The travel industry is also sensitive to events that may discourage travel, such as work stoppages or labor unrest, political instability, regional hostilities, increases in fuel prices, imposition of
taxes or surcharges by regulatory authorities, travel relatedtravel-related accidents and terrorist attacks or threats. We do not have insurance coverage against loss or business interruption resulting from war and terrorism.terrorism, and we may be unable to fully recover any losses we sustain due to other factors beyond our control under our existing insurance coverage. The occurrence of any of the foregoing events may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our global operations involve additional risks, and our exposure to these risks will increase as our business continues to expand.
We operate in a number of jurisdictions and intend to continue to expand our global presence, including in emerging markets. As of December 31, 2017, we derived 38% of our total referral revenue from our operations in the Americas, 42% of our revenue from our operations in Developed Europe and 20% of our revenue from our operations in the Rest of World. See “Item 5 Operating and financial review and prospects” for a further description of our geographical operating segments. We face complex, dynamic and varied risk landscapes in the jurisdictions in which we operate. As we enter countries and markets that are new to us, we must tailor our services and business models to the unique circumstances of such countries and markets, which can be complex, difficult, costly and divert management and personnel resources. In addition, we may face competition in other countries from companies that may have more experience with operations in such
countries or with global operations in general. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses or our failure to adapt our practices, systems, processes and business models effectively to the user and supplier preferences of each country into which we expand, could slow our growth. Certain markets in which we operate are characterized by lower margins in our business and related businesses than is the case in more mature markets, which could have a negative impact on our overall margins as our revenue from these markets grows over time.
In addition to the risks outlined elsewhere in this section, our global operations are subject to a number of other risks, including:
changing political conditions, including risk of rising protectionism, restrictions on immigration or imposition of new trade barriers;
local political or labor conditions, including being individually targeted by local regulators or being adversely affected by national labor strikes;
compliance with various regulatory laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety, and advertising and promotions;
differences, inconsistent interpretations and changes in various laws and regulations, including international, national and local tax laws;
weaker or uncertain enforcement of our contractual and intellectual property rights;
preferences by local populations for local providers;
slower adoption of the Internet as an advertising, broadcast and commerce medium and the lack of appropriate infrastructure to support widespread Internet usage in those markets;
our ability to support new technologies, including mobile devices, that may be more prevalent in certain global markets; and
uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of precedent.
Our global operations expose us to risks associated with currency fluctuations, which may adversely affect our business.
We conductOur platform is available in a significant and growing portionlarge number of our businessjurisdictions outside the Eurozone. As a result, we face exposure to movements in currency exchange rates around the world. TheseChanges in foreign exchange rates can amplify or mute changes in the underlying trends in our revenue and Revenue per Qualified Referral. Although we largely 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 revenue 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. For example, we experienced negative impacts from foreign exchange rate effects, in particular due to the relative weakening of the U.S. dollar and certain currencies in Latin America to the euro in 2020. Currency exchange-related exposures also include but are not limited to re-measurement gains and losses from changes in the value of foreign denominated monetary assets and liabilities; translation gains and losses on foreign subsidiary financial results that are translated into euroseuro upon consolidation; fluctuations in hotel revenue and planning risk related to changes in exchange rates between the time we prepare our annual and quarterly forecasts and when actual results occur.
We do not currently hedge our foreign exchange exposure. Depending on the size of the exposures and the relative movements of exchange rates, if we choose not to hedge or fail to hedge effectively our exposure, we could experience a material adverse effect on our financial statements and financial condition. As we have seen in some recent periods, in the event of severe volatility in foreign exchange rates, these exposures can increase, and the impact on our results of operations can be more pronounced. In addition, the current environment and the increasingly global nature of our business have made hedging these exposures more complex.
We are subject to risks associated with a corporate culture that promotes entrepreneurialism among itsour employees, decentralized decision making and continuous learning.
We have delegated considerable operational autonomy and responsibility to our employees, including allowing our employees flexible working hours that allow them to determine when, where and for how long they work. In addition, at the core of our culture is allowing our employees to grow, ensuring that they
continuously accept new challenges and take on new responsibilities. This is reflected by our leadership framework, which was introduced in 2017. Under this framework, weapproach to the career development of our employees. We encourage our employees to move into and out of newlyinternally defined leadership roles, and we rotate experienced employees to other jobs and different leadership roles within the company. We also often make changes to our internal organizational structure to support operational autonomy and individual advancement.
As a consequence, people in key positions may have less experience in the relevant operational areas. As our employees have significant autonomy and may lack experience when performing new operational roles, this could result in poor decision making,decision-making. We have also implemented remote working for our employees during COVID-19 pandemic and plan to permit employees flexibility in this regard going forward. Our remote working arrangements may result in a less cohesive corporate culture, thereby negatively affecting our operations. In addition, our competitors may offer more operational autonomy and flexibility in regard to remote work, which may, in turn, make it difficult for us to retain and motivate our
employees. The realization of any of these risks could have a material adverse effect on our business, results of operations, financial condition and prospects.
We rely on the performance of highly skilled personnel, including senior management and our technology professionals, and if we are unable to retain or motivate key personnel or hire, retain and motivate qualified personnel, our business would be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of our senior management and our highly skilled team members, including our software engineers. The loss of the services of any key individual could negatively affect our business. In particular, the contributions of certain key senior management are important to our overall success.
On February 28, 2018, our supervisory board approved a new streamlined leadership structure at trivago. In accordance with this plan, we reduced the number of managing directors in the management board from six to three, and reduced the number of persons whom we consider part of our leadership team from seven to five. The reduction in the size of our leadership team increases our exposure to the risk that we would lose the services of one or more of the remaining members of the team. Should one or more of our senior managers leave our company, we might experience dislocations while a replacement or replacements are located and they are integrated into our company. Any phase of transition to new senior managers may be accompanied by slower or inconsistent decision-making, or to the diversion of management attention to matters relating to executive recruitment and integration. This could have a material adverse effect on our results of operations or damage our reputation.
The Amended and Restated Shareholders’ Agreement contains certain provisions that could result in the departure of certain of our senior management, including if the Founders, collectively, hold less than 15% of our outstanding Class A shares and Class B shares (calculated as if all securities convertible, exercisable or exchangeable for Class A shares or Class B shares had been converted, exercised or exchanged), they lose certain contractual rights to nominate members of our management board. In such case, our supervisory board may also request from the Founders, the resignation of members of the supervisory board who have been nominated by the Founders. In addition, the general meeting of shareholders, which is controlled by Expedia, has broad discretion to remove members of our management board with and without cause, irrespective of the Founders’ holdings. If the general meeting of shareholders has reasonable cause, as defined in the Amended and Restated Shareholders’ Agreement, for such removal, Expedia has the unilateral right, subject to certain exceptions, to purchase all of such member’s shares.
Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Competition for well-qualified employees in all aspects of our business, including software engineers and other technology professionals who are key to designing code and algorithms necessary to our business. In 2020, we implemented significant headcount reductions. This reduction in workforce has resulted in the loss of institutional knowledge, relationships or expertise for critical roles. This reduction could also have a negative impact on employee morale and productivity, make it more difficult to retain valuable key employees, divert attention from operating our business, create personnel capacity constraints and hamper our ability to grow, develop innovative products and compete, any of which could impede our ability to operate or meet strategic objectives. As travel recovers from the COVID-19 pandemic, we may need to hire qualified individuals, which is intense globally.typically a time-consuming process. We may be unable to retain certain high-performing employees when the price of our ADSs is low, as a significant portion of the compensation they receive consists of equity grants. We compete with companies that have far greater financial resources than we do as well as companies that promise short-term growth opportunities and/or other benefits. These companies may be able to provide attractive offers to employees in critical roles who have gained valuable and marketable experience in our flat organizational structure. If we do not succeed in attracting well-qualified employees, or retaining andor motivating existing employees, and keyincluding senior management, it may have a material adverse effect on our business results of operations, financial condition and prospects.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly now that we are no longer an “emerging growth company.”
As a public company with ADSs traded on an exchange located in the United States, we incur legal, accounting and other expenses resulting from the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, the listing requirements of Nasdaq, the Dutch Corporate Governance Code 2016, or the DCGC, and other applicable securities rules and regulations. Compliance with these rules and regulations have increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources, particularly now that we are no longer eligible for the exceptions from certain requirements available to “emerging growth companies” under the rules of the SEC. The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, establishing the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, results of operations and cash flow couldwould be adversely affected.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements The loss of the Exchange Actservices of any key individual could negatively affect our business.
The amended and related rulesrestated shareholders’ agreement entered into by travel B.V. (which subsequently converted into trivago N.V.), trivago GmbH (which subsequently merged into and regulations. Under Rule 405,with trivago N.V.), the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarterFounders, Expedia Lodging Partner Services S.à.r.l. ("ELPS") and accordingly, the next determination will be made with respect to us on June 30, 2018.
In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management continue to be U.S. citizens or residentscertain other Expedia Group parties (the "Amended and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus and equity compensation) and potential paymentsRestated Shareholders’ Agreement") in connection with change in control, retirement, death or disability,
whileour initial public offering contains certain provisions that could affect the annual reportcomposition of our senior management. Pursuant to the Amended and Restated Shareholders’ Agreement, certain transition arrangements have been agreed for succession of our Chief Executive Officer. Mr. Schrömgens ceased to serve as our Chief Executive Officer on Form 20-F permits foreign private issuersDecember 31, 2019, on which date a "Transition Period" of three years commenced. During the first eighteen months of the Transition Period, and unless a Founder is serving as our Chief Executive Officer (which is presently not the case), ELPS has the right to disclose considerably less compensation-related information. We will also have to comply with U.S. federal proxy requirements,select for binding nomination two management board members and our officers, directorsChief Executive Officer has the right to select all other management board members for binding nomination, subject to approval by the supervisory board. Also, during the Transition Period, the Amended and principal shareholders will becomeRestated Shareholders' Agreement stipulates certain arrangements for the appointment of our (successor) Chief Executive Officer, including by expanding our supervisory board by two seats (one of which to be filled on the basis of a selection by the Founders and the other on the basis of a selection by ELPS) and the formation of a three-person nomination committee of the supervisory board which shall be entitled to nominate a successor Chief Executive Officer, subject to the short-swing profit disclosureapproval of ELPS, and recovery provisions of Section 16 ofthereafter, the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. We would need to convert our systems to prepare our financial statements in U.S. dollars. Such conversion and modifications will involve additional costs and may divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.supervisory board.
Integration of acquired assets and businesses could result in operating difficulties and other harmful consequences.
We have acquired businessesmade small strategic acquisitions in the past comprising myhotelshopand recently acquired weekengo GmbH or myhotelshop, base7booking.com S.à r.l.("Weekengo"), or base7, B264 GmbH, or Rheinfabrik,which operates the online travel search website “weekend.com” and tripl GmbH, or tripl.specializes in optimizing the delivery of search results for direct flights and hotel packages with a short-trip focus. We expect to continue to evaluate a wide array of potential strategic transactions. We could enter into transactions that could be material to our financial condition and results of operations. The process of
integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures. The areas where we face risks in respect of potential acquisitions such as that of Weekengo and subsequent integrations include:
•diversion of management time and focus from operating our business to acquisition diligence, negotiation and closing processes, as well as post-closing integration challenges;
•implementation or remediation of controls, procedures and policies at the acquired company;
•coordination of product, engineering and sales and marketing functions;
•retention of key employees from the businesses we acquire;
•responsibility for liabilities or obligations associated with activities of the acquired company before the acquisition;
•litigation or other claims in connection with the acquired company; and
•in the case of foreign acquisitions, the need to integrate operations across different geographies, cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries.
Furthermore, companies that we have acquired, and that we may acquire in the future, may employ security and networking standards at levels we find unsatisfactory. The process of enhancing infrastructure to improve security and network standards may be time consumingtime-consuming and expensive and may require resources and expertise that are difficult to obtain. Acquisitions could also increase the number of potential vulnerabilities and could cause delays in detection of a security breach, or the timelinestimeliness of recovery from a breach. Failure to adequately protect against attacks or intrusions could expose us to security breaches of, among other things, personal user data and credit card information that may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could delay or eliminate any anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and may have a material adverse effect on our business, results of operations, financial condition and prospects.
We are subject to counterparty default risks.
We are subject to the risk that a counterparty to one or more of our customer arrangements will default on its performance obligations. A counterparty may fail to comply with its commercial commitments, which could then lead it to default on its obligations with little or no notice to us. This could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms
of our commercial arrangements or because market conditions prevent us from taking effective action. In addition, our ability to recover any funds from financially distressed or insolvent counterparties is limited, and our recovery rates in such instances have historically been very low. Because a majority of our accounts receivable are owed by three large OTAs,Booking Holdings and Expedia Group, delays or a failure to pay by any of these advertisers could result in a significant increase in our credit losses, and we may be unable to fund our operations. In addition, as we seek to expand our advertiser base to include more direct hotel advertisers, alternative accommodation providers and other advertisers beyond our core OTA base, we may increase or exposure to counterparties that may fail to pay us. These counterparties may also be located in countries where enforcement of our creditors’ rights is more difficult than in the countries where our major OTA advertisers are located. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings.proceedings, and in any event, the customers of that counterparty may seek redress from us, even though the booking with that counterparty was not conducted on our platform. In addition, almost all of our agreements with OTAs, hotel chains and independent hotels may be terminated at will or upon three to seven days’ prior notice by either party. In the event of such default or termination, we could incur significant losses or reduced revenue, which could adversely impact our business, results of operations, financial condition and prospects.
Risks related to our ongoing relationship with our shareholders
Expedia Group controls our company and has the ability to control the direction of our business.
As of December 31, 2017,2020, Expedia Group owned Class B shares representing 59.6%59.0% of our issued share capital and 64.7%68.8% of the voting power in us. As long as Expedia Group owns a majority of the voting power in us, and pursuant to certain rights it has under the Amended and Restated Shareholders’ Agreement, Expedia Group will be able to control many corporate actions that require a shareholder vote.
This voting control limits the ability of other shareholders to influence corporate matters and, as a result, we may take actions that shareholders other than Expedia Group do not view as beneficial. This voting control may also discourage transactions involving a change of control of our company, including transactions in which you as a holder of ADSs (representing our Class A shares) might otherwise receive a premium for your shares. Furthermore, Expedia Group generally has the right at any time to sell or otherwise dispose of any Class A shares and Class B shares that it owns, including the ability to transfer a controlling interest in us to a third party, without the approval of the holders of our Class A shares and without providing for the purchase of Class A shares.
The Founders have contractual rights to exert control over certain aspects of our business.
As of December 31, 2017, the Founders owned 31.6% of our outstanding Class A shares and Class B shares. Pursuant to the Amended and Restated Shareholder’s Agreement, the Founders have contractual rights to exert control over certain aspects of our business. For example, subject to certain exceptions, as long as the Founders collectively maintain holdings of at least 15% of our outstanding Class A shares and Class B shares (taking into account, for purposes of determining such percentage, each security convertible into or exchangeable for, and any option, warrant, or other right to purchase or otherwise acquire, any Share)share), the Founders will have certain rightsa Founder must consent to veto decisions about certain corporate matters. These contractual rights limitThis requirement limits the ability of ExpediaELPS to control certain corporate matters and, as a result, we may fail to take actions that other shareholders may view as beneficial. This contractual control may also discourage transactions involving a change of control or sale of substantially all assets of our company, including transactions in which you as a holder of ADSs representing our Class A shares might otherwise receive a premium for your shares or dividend of proceeds representing a premium price for such assets. Furthermore, subject to certain exceptions, so long as the Founders collectively maintain holdings of at least 15% of our outstanding Class A and Class B shares (taking into account, for purposes of determining such percentage, each security convertible into or exchangeable for, and any option, warrant, or other right to purchase or otherwise acquire, any Share)share), the Founders who are then serving as managing directors have the ability to select the other managing directors and, as a result, the Founders and their appointees will comprise the body that has primary day-to-day operational controlnominate three members of the company. In addition, from the date that Mr. Schrömgens ceases to serve as chief executive officer for a period of three years, so long as a Founder is serving as chief executive officer and there is no set of circumstances that would constitute a reasonable cause, such Founder has the right to nominate a
successor in its function of chief executive officer, subject to the approval of Expedia and thereafter, the supervisory board.
Expedia’s
Expedia Group’s interests may conflict with our interests, the interests of the Founders and the interests of our shareholders, and conflicts of interest betweenamong Expedia Group, the Founders and us could be resolved in a manner unfavorable to us and our shareholders.
Various conflicts of interest betweenamong us, the Founders and Expedia Group could arise. Ownership interests of directors or officers of Expedia Group in our shares, and ownership interests of members of our management board and supervisory board in the stock of Expedia Group, or a person’s service as either a director or officer of both companies, could create or appear to create potential conflicts of interest, including when those directors and officers are faced with decisions relating to our company. In therecent years, ended December 31, 2015, 2016 and 2017, Expedia Group, and brands affiliated with Expedia,it, consistently accounted for 39%, 36% and 36%a substantial portion of our revenue, respectively.revenues.
Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with Expedia’sExpedia Group’s businesses in the future or in connection with Expedia’sExpedia Group’s desire to enter into new commercial arrangements with third parties.
Expedia Group has the right to separately pursue acquisitions of businesses that trivagowe may also be interested in acquiring and also has the right to acquire companies that may directly compete with us. Expedia Group may choose to pursue these corporate opportunities other than through trivago.
Furthermore, disputes may arise between Expedia Group and us relating to our past and ongoing relationships, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:
•tax, employee benefit, indemnification and other matters;
•the nature, quality and pricing of services Expedia Group agrees to provide to us;
•sales, other disposals, purchases or other acquisitions by Expedia Group of shares in us (including when our share price is lower than in comparable prior periods); and
•business combinations involving us.
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. While we are controlled by Expedia Group, we may not have the leverage to negotiate amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party. In addition, should Expedia choose not to guarantee any future indebtedness we may incur, the cost of such financing may increase or financing may not be available at all.
Risks related to our intellectual property
We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.
We regard our intellectual property as critical to our success, and we rely on trademark and confidentiality and license agreements to protect our proprietary rights. If we are not successful in protecting our intellectual property, it could have a material adverse effect on our business, results of operations, financial condition and financial condition.prospects.
Effective trademark and service mark protection may not be available in every country in which our services are provided. The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use, which could adversely affect our competitive position. In addition, certain characteristics of the Internet, in particular the anonymity it may allow some actors, may make the protection and enforcement of our intellectual property difficult and in some cases, even impossible. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks, to third parties. These licensees may take actions that might diminish the value of our proprietary rights or harm our reputation, even if we have agreements prohibiting such activity. Moreover, we utilize intellectual property and technology developed or licensed by third parties, and we may
not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms. Also, to the extent that third parties are obligated to indemnify us for breaches of our intellectual property rights, these third parties may be unable to meet these obligations. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
We have registered domain names for websites that we use in our business, such as www.trivago.com, www.trivago.de and www.trivago.co.uk. If we lose the ability to use a domain name, we would be forced to incur significant expenses to market our services under a new domain name, which could substantially harm our business. In addition, ourOur competitors could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere, and in some countries the top-level domain name “trivago”“trivago,” or spelling variations on this, is owned by other parties. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of, our brand or our trademarks or service marks. Protecting and enforcing our rights to our domain names and determining the rights of others may require litigation, which, whether or not successful, could result in substantial costs and diversion of management attention.
Claims by third parties that we infringe on their intellectual property rights could result in significant costs and have a material adverse effect on our business, results of operations or financial condition.24
From time to time, we could be subject to various patent and trademark infringement claims. These claims could allege, among other things, that our website technology infringes upon owned patented technology and/or trademarks of third parties. If we are not successful in defending ourselves against these claims, we may be required to pay monetary damages, which could have an adverse effect on our results of operations. In addition, the costs associated with the defense of these claims could have an adverse effect on our results of operations. As we grow our business and expand our operations, we expect that we will continue to be subject to intellectual property claims. Resolving intellectual property claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
A substantial amount of our processes and technologies is protected by trade secrecy laws. In order to protect these technologies and processes, we rely in part on confidentiality agreements with our employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secrecy rights against such parties. To the extent that our employees, contractors or other third parties with which we do business may use intellectual property owned by others in their work for us without our authorization, disputes may arise as to the rights in related or resulting know-how and inventions. Laws regarding trade secrecy rights in certain markets in which we operate may afford little or no protection to our trade secrets. The loss of trade secret protection could make it easier for third parties to compete with our services by copying functionality.effectively replicating our services. In addition, any changes in, or unexpected interpretations of, the trade secret and other intellectual property laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation.
We use open source software in connection with our development. From time to time, companies that use open source software have faced claims challenging the use of open source software or compliance with
open source license terms. We could be subject to suits by third parties claiming ownership of what we believe to be open source software, or claiming non-compliance with open source licensing terms. Some open source licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuable proprietary code of the user. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract may have a material adverse effect on our business, results of operations, financial condition and prospects and could help our competitors develop services that are similar to or better than ours.
Risks related to ownership of our Class A shares and ADSs
Our share price may be volatile or may decline regardless of our operating performance.
The market price for our ADSs has been, and will likely continue to, be volatile, in part because our ADSs have little history of being publicly traded and there have been relatively few ADSs outstanding. Our results of operations are also subject to material quarterly fluctuations that may affect the volatility of our ADSs. In addition, the market price of our ADSs may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
actual or anticipated fluctuations in our results of operations;
variance in our financial performance from the expectations of market analysts or from the financial guidance that we have communicated;
announcements by us or our competitors of significant business developments, acquisitions or expansion plans;
changes in the prices paid to us by our customers or of our competitors;
our involvement in litigation;
our sale of ADSs or other securities in the future;
market conditions in our industry;
changes in key personnel;
the trading volume of our ADSs;
changes in the estimation of the future size and growth rate of our markets; and
general economic and market conditions.
The stock markets, including Nasdaq, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many Internet companies.
Future sales and/or issues of our ADSs, or the perception in the public markets that such sales may occur, may depress our ADS price.
Sales of a substantial number of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the price of our ADSs and could impair our ability to raise capital through the sale of additional ADSs. The ADSs are freely tradable without restriction under the Securities Act, except for any of our ADSs that may be held or acquired by our management board members, supervisory board members, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
Our Class B shares are convertible into Class A shares, which may be sold subject to certain restrictions in the Amended and Restated Shareholders’ Agreement.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of ADSs issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ADSs. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our ADS price and trading volume could decline.
The trading market for our ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analyst coverage results in downgrades of our ADSs or publishes inaccurate or unfavorable research about our business, our ADS price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease, which could cause our ADS price and trading volume to decline.
You may not be able to exercise your right to vote the Class A shares underlying your ADSs.
Holders of ADSs may exercise voting rights with respect to the Class A shares represented by their ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our Class A shares, including any general meeting of our shareholders, the depositary will, as soon as practicable thereafter, fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, the depositary shall distribute to the holders as of the record date (i) the notice of the meeting or solicitation of consent or proxy sent by us, (ii) a statement that such holder will be entitled to give the depositary instructions and a statement that such holder may be deemed, if the depositary has appointed a proxy bank as set forth in the deposit agreement, to have instructed the depositary to give a proxy to the proxy bank to vote the Class A shares underlying the ADSs in accordance with the recommendations of the proxy bank and (iii) a statement as to the manner in which instructions may be given by the holders.
You may instruct the depositary of your ADSs to vote the Class A shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote unless you withdraw our Class A shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those Class A shares. The depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver voting materials to you. We cannot guarantee that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the Class A shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the Class A shares underlying your ADSs are not voted as you had requested.
Under the deposit agreement for the ADSs, we may choose to appoint a proxy bank. In this event, the depositary will be deemed to have been instructed to give a proxy to the proxy bank to vote the Class A shares underlying your ADSs at shareholders’ meetings if you do not vote in a timely fashion and in the manner specified by the depositary.
The effect of this proxy is that you cannot prevent the Class A shares representing your ADSs from being voted, and it may make it more difficult for shareholders to exercise influence over our company, which could adversely affect your interests. HoldersDirect holders of our Class A shares are not subject to this proxy.
You may not receive distributions on the Class A shares represented by our ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A shares after deducting its fees and expenses. You will receive these distributions in proportion to the number of our Class A shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution to any holders of our ADSs or Class A shares. This means that you may not receive the distributions we make on our Class A shares or
any value from them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.
You may be subject to limitations on the transfer of your ADSs.
Your ADSs, which may be evidenced by ADRs,American Depositary Receipts, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are
closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason.
We do not expect to pay any dividends for the foreseeable future.
The continued operation of, and growth ofstrategic initiatives for, our business will require substantial cash. Accordingly, we do not anticipate that we will pay any dividends on our ADSs for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our management board and will depend upon our results of operations, financial condition, contractual restrictions relating to indebtedness we may incur, restrictions imposed by applicable law and other factors our management board deems relevant.
Risks related to our corporate structure
The rights of shareholders in companies subject to Dutch corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.
We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our management board and supervisory board may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our management board and supervisory board are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a holder of ADSs representing our Class A shares. See “Item 16 G. Corporate governance.”
We are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code.Code (or the DCGC). This may affect your rights as a shareholder.
We are a Dutch public company with limited liability (naamloze vennootschap) and are subject to the DCGC. The DCGC contains both principles and best practice provisions for management boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including Nasdaq.
The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands whether they comply with the provisions of the DCGC. If they do not comply with those provisions (e.g., because of a conflicting U.S. requirement), the company is required to give the reasons for such non-compliance. We do not comply with all the best practice provisions of the DCGC.
See “Item 16 G. Corporate governance.” This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.
Our dual-class share structure with different voting rights, and certain provisions in the Amended and Restated Shareholders’ Agreement, limit your ability as a holder of Class A shares to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A shares may view as beneficial.
We have a dual-class share structure such that our share capital consists of Class A shares and Class B shares. In respect of matters requiring the votes of shareholders, based on our dual-class share structure, holders of Class A shares are entitled to one vote per share, while holders of Class B shares are entitled to ten votes per share. Each Class B share is convertible into one Class A share at any time by the holder
thereof, while Class A shares are not convertible into Class B shares under any circumstances. Each of our ADSs represents one Class A share.
As of December 31, 2017,2020, Expedia Group owned Class B shares representing 59.6%59.0% of our share capital and 64.7%68.8% of the voingvoting power in us, and the Founders owned Class B shares representing 31.6%25.2% of our share capital and 34.3%29.4% of the voting power in us due to the disparate voting powers associated with our dual-class share structure. See “Item 7 A.7: Major shareholders and related party transactions—Major shareholderstransactions”.” As a result of the dual-class share structure and the concentration of ownership, as well as the terms of the Amended and Restated Shareholders’ Agreement, Expedia Group (through ELPS) and the Founders have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, appointment and dismissal of management board members and supervisory board members and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving the holders of ADSs (representing Class A shares) of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our Class A shares. This concentrated control limits your ability to influence corporate matters that holders of Class A shares may view as beneficial.
German and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws.
As a company with its registered office in Germany, we are subject to German insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Council Regulation (EC) No. 1346/2000 of May 29, 2000 on insolvency proceedings (which has been replaced by Regulationdirective (EU) 2015/8482019/1023 of the European Parliament and of the Council of MayJune 20, 20152019 on insolvency proceedings as of June 2017)proceedings). Should courts in another European countryEU jurisdiction determine that the insolvency laws of that countryEU jurisdiction apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Germany or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.
Dutch law and our articles of association may contain provisions that may discourage a takeover attempt.
Dutch law and provisions of our articles of association may in the future impose various procedural and other requirements that would make it more difficult for shareholders to effect certain corporate actions and would make it more difficult for a third party to acquire control of us or to effect a change in the composition of our management board and supervisory board. For example, such provisions include aour dual-class share structure that gives greater voting power to the Class B shares owned by Expedia Group and our Founders, the binding nomination structure for the appointment of our management board members and supervisory board members, and the provision in our articles of association which provides that certain shareholder decisions can only be passed if proposed by our management board.
In addition, a bill is pending in Dutch Senate which, if enacted in its current form, would introduce a statutory cooling-off period of up to 250 days during which the general meeting of shareholders would not be able to dismiss, suspend or appoint members of the management board or supervisory board (or amend the provisions in the articles of association dealing with those matters) unless those matters would be proposed by the management board. This could occur, for example, if a public offer for trivago is made or announced without trivago's support, provided that the management board believes that such proposal or offer materially conflicts with the interests of trivago and its business.
U.S. investors may have difficulty enforcing civil liabilities against us or members of our management board and supervisory board.
We are incorporatedorganized and existing under the laws of the Netherlands, and, as such, under Dutch private international law rules the rights of our shareholders and the civil liability of our directors and executive officers are governed in certain respects by the laws of the Netherlands. Most members of our management board and supervisory board are non-residents of the United States. The majorityability of our assetsshareholders in certain countries other than the Netherlands to bring an action against us, our directors and theexecutive officers may be limited under applicable law. In addition, substantially all of our assets of these persons are located outside the United States.
As a result, it may not be possible or may be very difficult,for shareholders to serveeffect service of process on such persons or us inwithin the United States upon us or our directors and executive officers or to enforce judgments obtainedagainst us or them in U.S. courts, against them or us based onincluding judgments predicated upon the civil liability provisions of the federal securities laws of the United States. In addition, it is not clear whether a Dutch court would impose civil liability on us or any of our directors and executive officers in an original action based solely upon the federal securities laws of the United States brought in a court of competent jurisdiction in the Netherlands.
There is no treaty betweenAs of the date of this annual report, the United States and the Netherlands do not have a treaty providing for the mutualreciprocal recognition and enforcement of judgments, (otherother than arbitration awards)awards, in civil and commercial matters. Therefore, a final judgmentWith respect to choice of court agreements in civil or commercial matters, it is noted that the Hague Convention on Choice of Court Agreements entered into force for the payment of moneyNetherlands, but has not entered into force for the United States. Accordingly, a judgment rendered by any federal or statea court in the United States, based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not automatically be enforceable inrecognized and enforced by the Netherlands unless the underlying claim is relitigated beforecompetent Dutch courts. However, if a Dutch court of competent jurisdiction. Under current practice, however,person has obtained a Dutch court will generally, subject to compliance with certain procedural requirements, grant the same judgment without a review of the merits of the underlying claim if such judgment (i) is a final judgment and has been rendered by a court which has established itsin the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to a foreign judgment if (i) the jurisdiction vis-à-visof the relevant Dutch Companies or Dutch Company, as the case may be,foreign court was based on the basis of internationally accepted groundsa ground of jurisdiction that is generally acceptable according to international standards, (ii) has not beenthe judgment by the foreign court was rendered in violationlegal proceedings that comply with the Dutch standards of elementary principlesproper administration of fair trial,justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such foreign judgment is not contrary to theDutch public policy of the Netherlands,order (openbare orde) and (iv) the judgment by the foreign court is not incompatible with (a) a prior judgment of a Netherlands courtdecision rendered in a dispute between the same parties by a Dutch court, or (b)with a prior judgment of a foreign courtprevious decision rendered in a dispute between the same parties concerningby a foreign court in a dispute that concerns the same subject matter and is based on the same cause, of action, provided that such prior judgment is capable of being recognizedthe previous decision qualifies for recognition in the Netherlands. Even if such a foreign judgement is given binding effect, a claim based thereon may, however, still be rejected if the foreign judgment is not or no longer formally enforceable. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Dutch court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Code of Civil Procedure.Procedure (Wetboek van Burgerlijke Rechtsvordering).
Based on the foregoing, there can be no assurance thatlack of a treaty as described above, U.S. investors willmay not be able to enforce against us or our directors, representatives or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws, against us or members of our management board and supervisory board, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States. In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our management board and supervisory board, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.laws.
We rely on the foreign private issuer and controlled company exemptions from certain corporate governance requirements under Nasdaq rules.
As a foreign private issuer whose ADSs are listed on Nasdaq, we are permitted to follow certain home country corporate governance practices pursuant to exemptions under Nasdaq rules. A foreign private issuer must disclose in its annual reports filed with the SEC each requirement under Nasdaq rules with which it does not comply, followed by a description of its applicable home country practice. Our Dutch
home country practices may afford less protection to holders of our ADSs. We follow in certain cases our home country practices and rely on certain exemptions provided by Nasdaq rules to foreign private issuers, including, among others, an exemption from the requirement to hold an annual meeting of shareholders no later than one year after an issuer’s fiscal year end, exemptions from the requirement that a board of directors be comprised of a majority of independent directors, exemptions from the requirements that an issuer’s compensation committee should be comprised solely of independent directors, and exemptions from the requirement that share incentive plans be approved by shareholders. See “Item 16 G.16G: Corporate governance.governance” for more information on the significant differences between our corporate governance practices and those followed by U.S. companies under Nasdaq rules. As a result of our reliance on the corporate governance exemptions available to foreign private issuers, you will not have the same protection afforded to shareholders of companies that are subject to all of Nasdaq’s corporate governance requirements.
In addition to the exemptions we rely on as a foreign private issuer, we also rely on the “controlled company” exemption under Nasdaq corporate governance rules. A “controlled company” under Nasdaq corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group or another company. Our principal shareholder, Expedia Group, controls a majority of the combined voting power of our outstanding shares, making us a “controlled company” within the meaning of Nasdaq corporate governance rules. As a controlled company, we have elected not to comply with certain of corporate governance standards, including the requirement that a majority of our supervisory board members are independent and the requirement that our compensation committee consist entirely of independent directors.
Furthermore, because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. As a result, you may not be provided with the same benefits as a holder of shares of a U.S. issuer.
Risks related to taxation
We may become taxable in a jurisdiction other than Germany, and this may increase the aggregate tax burden on us.
Since our incorporation,we intend to have had, on a continuous basis, our place of effective management in Germany. Therefore, we believe that we are a tax resident of Germany under German national tax laws. By reason of our incorporationAs an entity incorporated under Dutch law, however, we are also deemedqualify as a tax resident inof the Netherlands under Dutch national tax laws. However, given that substantially all of our operations (along with all employees, management board members and fixed assets) are in Germany, based on our current management structure and current tax laws of the United States, Germany and the Netherlands, as well as applicable income tax treaties, and current interpretations thereof, we believe that we are tax resident solely in Germany for the purposes of the 2012 convention between the Federal Republic of Germany and the Netherlands for the avoidance of double taxation with respect to taxes on income.
The applicable tax laws, tax treaties or interpretations thereof applicable to us may change. Furthermore, whether we have our place of effective management in Germany and are as such wholly tax resident in Germany is largely a question of fact and degree based on all the circumstances, rather than a question of law, which facts and degree may also change. Changes to applicable tax laws, tax treaties or interpretations thereof and changes to applicable facts and circumstances (e.g., a change of board members or the place where board meetings take place), or changes to applicable income tax treaties, including a change to the MLI tie-breaker reservation, may result in usour also becoming a tax resident of athe Netherlands or another jurisdiction other(other than Germany,Germany), potentially also triggering an exit tax liability in Germany. As a consequence, our overall effective income tax rate and income tax expense could materially increase, which could have a material adverse effect on our business, results of operations, financial condition and prospects, which could cause our ADS price and trading volume to decline.
Application of existing tax laws, rules or regulations are subject to interpretation by taxing authorities.
The application of various national and international income and non-income tax laws, rules and regulations to our historical and new services is subject to interpretation by the applicable taxing authorities. These taxing authorities have become more aggressive in their interpretation and enforcement of such laws, rules and regulations over time, as governments are increasingly focused on ways to increase revenue. This has contributed to an increase in the audit activity and harsher stances taken by tax authorities. As such, additional taxes or other assessments may be in excess of our current tax reserves or may require us to modify our business practices to reduce our exposure to additional taxes going forward, any of which may have a material adverse effect on our business, results of operations, financial condition and prospects.
Significant degrees of judgment and estimation are required in determining our worldwide tax liabilities. In the ordinary course of our business, there are transactions and calculations, including intercompany
transactions and cross-jurisdictional transfer pricing for which the ultimate tax determination is uncertain or otherwise subject to interpretation. Tax authorities may disagree with our intercompany charges, including the amount of or basis for such charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals in which case we may be subject to additional tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our cash flows,business, results of operations, financial condition and prospects.
Amendments to existing tax laws, rules or regulations or enactment of new unfavorable tax laws, rules or regulations could have an adverse effect on our business and financial performance.
Many of the underlying laws, rules or regulations imposing taxes and other obligations were established before the growth of the Internet and e-commerce. If the tax or other laws, rules or regulations were amended, or if new unfavorable laws, rules or regulations were enacted, the results could increase our tax payments or other obligations, prospectively or retrospectively, subject us to interest and penalties, decrease the demand for our services if we pass on such costs to the user, result in increased costs to update or expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we decided not to conduct business in particular jurisdictions. As a result, these changes may have a material adverse effect on our business, results of operations, financial condition and prospects.
In addition, in the past, Germany and foreign governments have introduced proposals for tax legislation, or have adopted tax laws, that could have a significant adverse effect on our tax rate, or increase our tax liabilities, the carrying value of deferred tax assets, or our deferred tax liabilities. For example, in October 2015, the Organization for Economic Co-Operation and Development (OECD) released a final package of measures to be implemented by member nations in response to a 2013 action plan calling for a coordinated multi-jurisdictional approach to “base erosion and profit shifting” (BEPS) by multinational companies. Multiple member jurisdictions, including the countries in which we operate, have begun implementing recommended changes, such as proposed country-by-country reporting beginning as early as 2016. In June 2017, almost 70By December 2020, 95 member jurisdictions, including Germany, have ratifiedsigned the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting”. Additional multilateral changes are anticipated (MLI), which allows member jurisdictions to amend existing bilateral double taxation treaties according to results from the OECD BEPS project. Out of these 95 jurisdictions, 60 have also ratified the MLI. Germany has ratified the MLI in upcoming yearsDecember 2020 and it will enter into force in connectionApril 2021. Additionally, several countries have unilaterally adopted digital services taxes, with other countries planning to adopt such taxes in the action plan against “base erosion and profit shifting”future. There have also been other initiatives at the level of the OECD that may impact the digital economy through the reallocation of taxing rights in respect of income attributable to countries where digital enterprises have their target markets or digital presence. Such digital services taxes and other multi-jurisdictional measuresinitiatives could result, depending on how they are ultimately implemented, in incremental taxes, and initiatives like the Anti-Tax Avoidance Directive Ithus may adversely impact our business, results of operations, financial condition and the Anti-Tax Avoidance Directive II of the European Union. In addition, there have been also developments in the national level in many countries that have targeted the digital economy. prospects.
Any changes to national or international tax laws could impact the tax treatment of our revenues or earnings and adversely affect our profitability. We continue to work with relevant authorities and legislators to clarify our obligations under existing, new and emerging tax laws and regulations.
We are constantly exploring changes to our business structures to support our operations while managing operational and financial risk for ourselves and our shareholders and to make our services more financially attractive to our customers. Though these changes would be undertaken to manage operational and financial risk, we may experience unanticipated material tax liabilities which could have a material adverse effect on our business, results of operations, financial condition and prospects.
Our effective tax rate in the future could also be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or the discontinuation of beneficial tax arrangements in certain jurisdictions.
We may be classified as a passive foreign investment company, or PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders of the ADSs.
Based on the market price of our ADSs and the composition of our income, assets and operations, we do not expect tobelieve that we should be treated as a PFIC for U.S. federal income tax purposes for the current taxable year ended December 31, 2020 or in the foreseeable future. However, the application of the PFIC rules to us is subject to certain ambiguity. In addition, this is a factual determination that must be made annually after the close of each taxable year. Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable year ended December 31, 2020 or for any future taxable year. We would be classified as a PFIC for any taxable year if, after the application of certain look-through rules, either: (1) 75% or more of our gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended), or (2) 50% or more of the value of our assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. Certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Item 10: Additional information - E. Taxation - Material tax considerations-Material U.S.
federal income tax considerations”) if we are treated as a PFIC for any taxable year during which such U.S. Holder holds ADSs.
Certain of our ADS holders may be unable to claim tax credits to reduce German withholding tax applicable to the payment of dividends.
We do not anticipate paying dividends on our ADSs for the foreseeable future. As a Dutch-incorporated but German tax resident company, however, if we pay dividends, such dividends will be subject to German (and potentially Dutch) withholding tax. Currently, the applicable German withholding tax rate is 26.375% of the gross dividend. This German tax can be reduced to the applicable double tax treaty rate, which is generally 15%, however, by an application filed by the tax payer containingfor a specific German tax certificate with the German Federal Central Tax Office (Bundeszentralamt für Steuern). If a tax certificate cannot be delivered to the ADS holder due to applicable settlement mechanics or lack of information regarding the ADS holder, holders of the shares or ADSs of a German tax resident company may be unable to benefit from any available double tax treaty relief andwhile they may be unable to file for a credit of such withholding tax in its jurisdiction of residence. Further, the payment made to the ADS holder equal to the net dividend may, under the tax law applicable to the ADS holder, qualify as taxable income that is in turn subject to withholding,tax, which could mean that a dividend is effectively taxed twice. The company has listedOur ADSs have been issued by a depositary with a direct link to the U.S. Depository Trust Company, or DTC, which should reduce the risk that the applicable German withholding tax certificate cannot be delivered to the ADS holder. However, there can be no guarantee that the information delivery requirement can be satisfied in all cases, which could result in adverse tax consequences for affected ADS holders.
Investors should note that the interpretation circular (Besteuerung von American DepositoryDepositary Receipts (ADR) auf inländische Aktien) issued by the German Federal Ministry of Finance (Bundesministerium der Finanzen) dated May 24, 2013 (reference number IV C 1-S2204/12/10003), or ADR Tax Circular, is not binding for German courts and it is not clear whether or not a German tax court will follow the ADR Tax Circular in determining the German tax treatment of our specific ADSs. Further concerns regarding the applicability of the ADR Tax Circular may arise due to the fact that the ADR Tax Circular refers only to German stock and not to shares in a Dutch N.V. If the ADSs are determined not to fall within the scope of application of the ADR Tax Circular, and thus profit distributions made with respect to the ADSs are not treated as a dividend for German tax purposes, the ADS holder would not be entitled to a refund of any taxes withheld on the dividends under German tax law. See “Item 1010: Additional information - E. Taxation—German taxation—Taxation - German taxation of ADS holders”holders”).
If we ever pay dividends, we may need to withhold tax on such dividends payable to holders of our ADSs in both Germany and the Netherlands.
We do not intend to pay any dividends to holders of ADSs. However, if we do pay dividends, we may need to withhold tax on such dividends both in Germany and the Netherlands. As an entity incorporated under Dutch law, but with itsany dividends distributed by us are subject to Dutch dividend withholding tax on the basis of Dutch domestic law. However, on the basis of the double tax treaty between Germany and the Netherlands, the Netherlands will be restricted in imposing these taxes if we continue to be a tax resident of Germany and our place of effective management is in Germany (and not in the Netherlands), our dividends are generally subject to German dividend withholding tax and not Dutch withholding tax.Germany. However, Dutch dividend withholding tax is still required to be withheld from dividends if and when paid to Dutch resident holders of our ADSs (and non-Dutch resident holders of our ADSs that have a permanent establishment in the Netherlands to which their shareholding is attributable). As a result, upon a payment of dividends, we will be required to identify our shareholders and/or ADS holders in order to assess whether there are Dutch residents (or non-Dutch residents with a permanent establishment in the Netherlands to which the shares are attributable) in respect of which Dutch dividend tax has to be withheld. Such identification may not always be possible in practice. If the identity of our shareholders and/or ADS holders cannot be assessed upon a payment of dividend,determined, withholding of both German and Dutch dividend tax from such dividend may occur.occur upon a payment of dividends.
Furthermore, the withholding tax restriction referred to above is based on the current reservation made by Germany under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the "MLI") with respect to the tie-breaker provision included in Article 4(3) of the double tax treaty between Germany and the Netherlands (the "MLI tie-breaker reservation"). If Germany changes its MLI tie-breaker reservation, we will not be entitled to any benefits of the double tax treaty between Germany and the Netherlands, including the withholding tax restriction, as long as Germany and the Netherlands do not reach an agreement on our tax residency for purposes of the double tax treaty between Germany and the Netherlands, except to the extent and in such manner as may be agreed upon by the authorities. As a result, any dividends distributed by us during the period no such agreement has been reached between Germany and the Netherlands, may be subject to withholding tax both in Germany and the Netherlands.
General risk factors
Our share price may be volatile or may decline regardless of our operating performance.
The market price for our ADSs has been, and will likely continue to, be volatile, and there continues to be relatively few ADSs outstanding, resulting in relatively low liquidity in our ADSs. Our results of operations are also subject to material quarterly fluctuations that may affect the volatility of our ADSs. In addition, the market price of our ADSs may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
•actual or anticipated fluctuations in our results of operations;
•variance in our financial performance from the expectations of market analysts or from the financial guidance that we have communicated;
•announcements by us or our competitors of significant business developments, acquisitions or expansion plans;
•changes in the prices of our competitors or those paid to us by our customers;
•our involvement in litigation or regulatory investigations;
•our sale of ADSs or other securities in the future;
•a sale of ADSs by our major shareholders in the future;
•market conditions in our industry;
•changes in key personnel;
•the trading volume of our ADSs;
•changes in the estimation of the future size and growth rate of our markets; and
•general economic and market conditions.
The stock markets, including Nasdaq, have in the past experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many Internet companies.
Future sales and/or issues of our ADSs, or the perception in the public markets that such sales may occur, may depress our ADS price.
Sales of a substantial number of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the price of our ADSs and could impair our ability to raise capital through the sale of additional ADSs. Our Founders continue to hold a significant shareholding in us, and one of them has made significant sales of ADSs in recent years. Our Founders may conduct further significant sales of ADSs in the future. See "Item 7: Major shareholders and related party transactions - A. Major Shareholders" for more information.The ADSs are freely tradable without restriction under the Securities Act, except for any of our ADSs that may be held or acquired by our management board members, supervisory board members, executive officers and other affiliates, as that term is defined in the Securities Act or ADSs sold in transactions not subject to the registration requirements of the Securities Act, which will in each case be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
Our Class B shares are convertible into Class A shares, which may be sold subject to certain restrictions in the Amended and Restated Shareholders’ Agreement.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of ADSs issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ADSs. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our ADS price could decline.
The trading market for our ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analyst coverage results in downgrades of our ADSs or publishes inaccurate or unfavorable research about our business, our ADS price would likely decline.
Our global operations involve additional risks.
Our platform is available in a number of jurisdictions. We face complex, dynamic and varied risk landscapes in the jurisdictions in which our platform is available. We must tailor our services and business models to the unique circumstances of each of the many countries and markets in which our platform is available. This can be complex, difficult, costly and divert management and personnel resources. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with global operations in general. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses or our failure to adapt our practices, systems, processes and business models effectively to the user and supplier preferences in each country in which our platform is available, could slow our growth. Certain markets in which we operate are characterized by lower margins in our business and related businesses than is the case in more mature markets, which could have a negative impact on our overall margins as our revenue from these markets grows over time.
In addition to the risks outlined elsewhere in this section, our global operations are subject to a number of other risks, including:
•changing political conditions, including risk of rising protectionism, restrictions on immigration or imposition of new trade barriers;
•local political or labor conditions, including being individually targeted by local regulators or being adversely affected by national labor strikes;
•compliance with various regulatory laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety, and advertising and promotions;
•differences, inconsistent interpretations and changes in various laws and regulations, including international, national and local tax laws;
•weaker or uncertain enforcement of our contractual and intellectual property rights;
•preferences by local populations for local providers;
•slower adoption of the Internet as an advertising, broadcast and commerce medium and the lack of appropriate infrastructure to support widespread Internet usage in those markets;
•our ability to support new technologies that may be more prevalent in certain local markets; and
•uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of precedent.
Item 4: Information on the company
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A. | History and development of the company |
A.History and development of the companytrivago was conceived by graduate school friends Rolf Schrömgens, Peter Vinnemeier and Stephan Stubner, who initially operated trivago out of a garage in Düsseldorf, Germany. trivago GmbH was incorporated in 2005, and its business eventually developed into a leading global hotel and accommodation search platform. Mr. Stubner left the company in 2006 and another graduate school friend, Malte Siewert, joined the founding team.
Between 2006 and 2008, several investors invested €1.4 million in trivago. In 2010, Insight Venture Partners acquired 27.3% of the equity ownership of trivago for €42.5 million. Expedia Group acquired 63.0% of the equity ownership in trivago in 2013, purchasing all outstanding equity from non-Founders and some outstanding equity from the Founders and subscribing for a certain number of newly issued shares for a total of €477 million. Expedia Group subsequently increased its shareholdings slightly in the second and fourth quarter of 2016 through the purchase of shares held by certain employees who had previously exercised stock options.
We were incorporated on November 7, 2016 as travel B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under Dutch law. On December 16, 2016, we completed our initial public offering, or IPO, on the Nasdaq Stock Exchange. In connection with our IPO, we converted into a public company with limited liability (naamloze vennootschap) under Dutch law pursuant to a deed of amendment and conversion and changed our legal name to trivago N.V. On September 7, 2017, we consummated the cross-border merger of trivago GmbH into and with trivago N.V.
We are registered with the Trade Register of the Chamber of Commerce in the Netherlands (Kamer van Koophandel)Koophandel) under number 67222927. Our corporate seat is in Amsterdam, the Netherlands, and our registered office is at Bennigsen-Platz 1, 40474Kesselstraße 5 - 7, 40221 Düsseldorf, Germany (under number HRB 79986). Our telephone number is +49-211-3876840000.
Our agent in the United States is Cogency Global Inc., and its address is 10122 East 40th42nd Street, 10th floor,18th Floor, New York, NY 10016.10168.
Principal capital expenditures and divestitures
AlthoughFor information on our growth has primarily been organic, we have madeprincipal capital expenditures and divestitures, see Note 3 - Acquisitions and divestitures, and Note 19 - Subsequent events in the following small strategic acquisitions since January 1, 2015:notes to our consolidated financial statements.
In July 2015, we acquired 61.3% of the equity of myhotelshop, a German online marketing management service provider for hotels, for a total purchase consideration of €0.6 million consisting of cash and the settlement of pre-existing debt at the closing of the acquisition. On December 15, 2017, myhotelshop GmbH issued 8,074 new myhotelshop common shares for a total of €0.1 million to a minority shareholder, who was and continues to be an unrelated party to trivago. This capital infusion diluted our share in myhotelshop from 61.3% to 49.0%. Following the increase in capital, in addition to the removal of certain put/call rights and other changes made through the capital infusion, we lost our controlling financial interest in myhotelshop.
In August 2015, we acquired 52.3% of the equity of base7booking, a Swiss cloud-based property management service provider for hotels, for total purchase consideration of €2.1 million in cash, which was concluded to create synergies with our rate connect offerings. The operations of base7booking were subsequently transferred to Germany. On December 22, 2016, we exercised our call option in order to purchase the remaining 47.7% noncontrolling interest in base7booking for a cash consideration of approximately €0.9 million. As such, we became the sole owner of base7booking.
In August 2017, we acquired all material assets of tripl, a German online platform for personal travel recommendations, for a total purchase consideration of €0.7 million, consisting of cash and trivago N.V. shares. tripl was acquired to enhance our product with personalization technology that uses big data and
a customer-centric approach. tripl's algorithm gives users tailored travel recommendations by identifying trends in users' social media activities and comparing it with in-app data of like-minded users. The alternative intelligence-driven product is designed to imitate the way a travel agent would recommend hotel experiences relevant to the customer, and combines it with the ease of online services.
These acquisitions were conducted with no external financing.
Public takeover offers
Since January 1, 2017,2019, there have been no public takeover offers by third parties with respect to our shares, and we have not made any public takeover offers in respect of any other company’s shares.
Segment reporting
Beginning in the second quarter of 2016, managementManagement has identified three reportable segments, which correspond to our three operating segments: the Americas, Developed Europe and the Rest of World. The change from one to three reportable segments was the result of a management reorganization to more effectively manage the business. This reorganization was performed to align the management of the business to our focus on unique market opportunities and competitive dynamics inherent within each of the operating segments. Our Americas segment is comprised of Argentina, Barbados, Brazil, Canada, Chile, Columbia,Colombia, Costa Rica, Ecuador, Mexico, Panama, Peru, Puerto Rico, the United States and Uruguay. Our Developed Europe segment is comprised of Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Our Rest of World segment is comprised of all other countries, the most significant by revenue of which are Australia, Japan, Turkey, India and New Zealand and Hong Kong. Segment revenue is comprised entirely of referral revenue.Zealand. Other revenue is included in Corporate and eliminations, along with all corporate functions and expenses except for direct advertising.
We determined our operating segments based on how our chief operating decision makers manage our business, make operating decisions and evaluate operating performance. Our primary operating metric is returnReturn on advertising spend,Advertising Spend, or ROAS, for each of our segments, which compares referral revenuesReferral Revenue to advertising spend.Advertising Spend.
For additional information relating to the development of our company, see “Item 4 B.4: Information on the company—company - B. Business overview.”
B. Business overview.”
Overview
trivago is a global hotelaccommodation search platform. We are focused on reshaping the way travelers search for and compare different types of accommodations, such as hotels, vacation rentals and private apartments, while enabling hotelour advertisers to grow their businesses by providing them with access to a broad audience of travelers via our websites and apps. Our platform allows travelers to make informed decisions by personalizing their hotel search for accommodation and providing them with access to a deep supply of hotelrelevant information and prices. In the year ended December 31, 2017,2020, we had 727.1240.6 million Qualified Referrals and, as of that date, offered access to more than 1.85.0 million hotels and other types of accommodation, including 3.8 million units of alternative accommodation such as vacation rentals and private apartments, in over 190 countries. See “Item 55: Operating and financial review and prospects” for a further description of qualified referrals.
We have positioned our brand as a key part of the process for travelers in finding their ideal hotel. Our fast and intuitive hotel search platform enables travelers to find their ideal hotel by matching individual traveler preferences with detailed hotel characteristics, such as price, location, availability, amenities and ratings, across a vast supply of accessible hotels globally.Qualified Referrals.
We believe that the number of travelers accessing our websites and apps makes us an important and scalable marketing channel for our hotel advertisers, which include OTAs, hotel chains, independent hotels and providers of alternative accommodation. Additionally, our ability to refine user intent through our search function allows us to provide advertisers with transaction-ready referrals. We generate revenues primarily on a “cost-per-click,” or CPC, basis, whereby an advertiser is charged when a user clicks on an advertised rate for a hotel and is referred to that advertiser’s website where the user can complete the booking. The CPC bids submitted by our advertisers play an important role in determining the prominence given to offers and their placement in our search results. Our CPC bidding function enables advertisers to influence their own return on investment and the volume of referral traffic we generate for them. Recognizing that advertisers on our marketplace have varying objectives and varying levels of marketing resources and experience, we provide a range of services to enable advertisers to improve their performance on our marketplace.
Our hotel and accommodation search platform can be accessed globally via 5554 localized websites and apps available in 3332 languages. Users can search our platform on desktop and mobile devices, butand benefit from a familiar user interface, resulting in a consistent user experience. In the year ended December 31, 2017,2020, our revenue share from mobile websites and apps exceededcontinued to exceed 60%.
We have grown significantly since our incorporation in 2005. In the yearsyear ended December 31, 2015, 2016 and 2017,2020, we generated revenue of €493.1€248.9 million, €754.2net loss of €245.4 million, and €1,035.4 million respectively. During the same periods, we had net losses of €(39.4) million, €(51.4) million and €(13.0) million, respectively. In the years ended December 31, 2015, 2016 and 2017, our adjusted EBITDA was €(1.1) million, €28.2 millionloss of €12.3 million. See "Item 5: Operating and €6.7 million, respectively. See "Item 5 Operating review—financial review and prospects - Results of operations—Operations - Revenue" for referral revenueReferral Revenue by segment, representing a breakdown according to principal geographic markets. See “Item 3 A. Key information—Selected5: Operating and financial data”review and prospects - H. Non-GAAP financial measures" for an additional description of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss.income/(loss).
trivago's search platform
We believe that we are reshaping hotel discovery for our users, while changing the way hotel advertisers identify, engage with and acquire travelers. Our accommodation search platform forms the core of our user experience, and can be accessed globally via 55 localized websites and apps in 33 languages.experience. As we provide a hotel search website, users do not book directly on our platform. When they click on an offer for a hotel room or other accommodation at a certain price, they are referred to our advertisers’ websites where they can complete their booking. We maintain one of the largest searchable databases of hotelsaccommodations in the world. As of December 31, 2017,2020, our database included more than 1.85.0 million (2019: 4.5 million) hotels and other types of accommodation,accommodations, gathered through OTAs, hotel chains, independent hotels and providers of alternative accommodations.
As of December 31, 2020, we offered access on our search platform to more than 3.8 million (2019: 3.3 million) units of alternative accommodation, such as vacation rentals and private apartments.
Our users initially search via a text-based search function, which supports searches across a broad range of criteria. This leads through to a listings page that displaysThe search results and allows for further refinement based on more nuanced filters. Our platform organizes a large amount of information from multiple sources and gives each user what we believe to be the optimal basis to make a decision. We help users to convert initial interest into a clear and specific booking intention.
Additionally, we enhance our users’ experience by giving them the choice to display their search results in listings or map formats. Users can search our platform on desktop and mobile devices, and benefit from a familiar user interface, resulting in a consistent user experience.
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Initial search bar parameters | Subsequent search filters |
Location
(City, Region, Country, Point of Interest)
| Hotel stars
(1 star to 5 stars)
Popularity/Our recommendations
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Check-in date | trivago ratings
(Below average, Satisfactory, Good, Very Good, Excellent) |
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Check-out date | Price range |
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Room type
(single, double, family, multiple) | Distance from landmarks |
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Hotel name | Top amenities options
(Pets, Beach, Free WiFi, Breakfast, Pool) |
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| Hotel name or address |
Performing a search showsshow a user a hotelan accommodation listing page. ThisFor hotels, the page contains broad, aggregated information, including:
Hotel information: •Accommodation information: We display information that we believe is relevant to the user, such as the hotel name, pictures, amenities, star rating and distance to selected location;
•trivago ratings index: index: We aggregate millions of ratings globally. We produce a score for each property, which is updated daily to render relevant and valuable insights for our users while saving them time when searching for the ideal hotel.hotel or other accommodation. The rating is a single, easy-to-use score out of ten;
Reviews: •Reviews: We provide reviews from third parties in a clear and concise format; and
•Price comparison: comparison: We prominently display a suggested advertised deal for each hotel or other accommodation, while also listing additional available offers from our advertisers in a list format, including room types, amenityamenities and payment options. To learn more about how we select this suggested deal,determine the prominence given to offers and their placement in our search results, see "—"Marketplace" below.
Our products are accessible anytime and anywhere, online and on mobile devices. We provide our services through mobile websites and apps. m.trivago.com (or its localized versions) is our mobile-optimized website available on mobile device browsers, and our full-featured native mobile app is available on iPhone, iPad, Android Phone and Android Tablet.
Product changes in 20172020
Below are someDuring 2020, we added a variety of new features to our existing trivago core product, including enhancements to how we display results, new price comparison features, filtering enhancements, and other visual display improvements. We also launched the more significant developments in our search product during 2017:
Optimizationfirst version of our back-end structurenew "Discover" product, designed to accelerate future product improvements. We reorganized our hotel search teampromote local travel searches, providing users with inspiration to focus on separating user interface aspects from the service layer that connects the user interfacetravel to our back-end systems. While we made only small changes to the user interface, we believe the strengthening of our infrastructure will create a foundation for growth and scalability of new technology in the long term.
Introduction of the "boundless maps" feature, which gives users a more fluid navigation experience when finding hotels in map view. The map reloads automatically as the user scrolls to view hotels by location.
Other product changes. We also made improvements to the user interface with a simplified rating scale and the introduction of tabs for slide-outs. To better show our images, we integrated a new gallery and tagged our images to present the most relevant content to our users.
nearby destinations. In 2017,2020, we also continuedbegan to implement measures aimed at optimizingoffer our platformsadvertisers the ability to promote their brands through display-based advertising placements 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. Since we make these changes by optimizing for traffic quality instead of volume, these changes will tend to have a negative impact on the number of Qualified Referrals, but we believe advertisers will increase their CPC bids in response to improved traffic quality in terms of booking conversion, which would have a long-term positive impact on Revenue per Qualified Referral (RPQR).
Alternative accommodation
On November 7, 2017, we started the technical integration of HomeAway's vacation rental inventory into our hotel search platform, running tests relating to the integration in Germany, Italy, Canada, the United Kingdom and the United States. We plan to gradually roll out additional readily bookable vacation rentals during the course of 2018. Vacation rentals are part of our alternative accommodation inventory, which complements our hotel offering. We are in the process of integrating this inventory with the aim of making it a part of our universal search experience. As of December 31, 2017, over 250,000 units of alternative accommodation were availablesponsored listings on our platform.websites. For us, this was another major step forward in adapting to more diverse traveler expectations and in understanding better how to display vacation rental inventoryinformation on our platform. This integration opened a new marketing channel for vacation rental platforms and increased diversity in our marketplace.sponsored listings, see "Marketplace" below.
Marketing
Through test-driven marketing operations, we have positioned our brand as a key part of the process for travelers in finding their ideal hotel.hotel or other accommodation. We organizefocus the efforts of our marketing teams and spend allocations to focus onAdvertising Spend towards building effective and efficient messaging tofor a broad audience across multiple geographies and languages.audience. We believe that building and maintaining theour brand and clearly articulating our our role in travelers' hotel or other accommodation discovery journey will continue to drive both travelers and advertisers to our platform to connect in a mutually beneficial way.
Our application of data-led improvement and innovation also informs our marketing strategy, which we believe enables us to become increasingly more effective with our marketing spend. We have built tools
that capture data and calculate our return on many elements of our brand and performance marketing.marketing measures.
Brand marketing
To grow brand awareness and increase the likelihood that users will visit our websites and use our apps, we invest in brand marketing globally across a broad range of media channels, including TV marketing video marketing (such as YouTube) and out-of-homeonline video advertising.
The amount and nature of our marketing spendAdvertising Spend varies across our geographic markets, depending on multiple factors including the emphasis we wish to place on profitability versus traffic growth, cost efficiency, marginal effectiveness of our Advertising Spend, local media dynamics, the size of the market and our existing brand presence in that market.
We also generate hoteltravel content as a means of engaging with travelers, which is distributed online including via social media. Mobile app marketing is becoming increasingly important with the continuous shift from desktop to mobile.media, our online magazine and email.
Performance marketing
We market our services and directly acquire traffic tofor our websites by purchasing travel and hotel-related keywords from general search engines and through advertisements on other online marketing channels. These activities include advertisements through search engines, such as Baidu, Bing, Google, Naver and Yahoo! (commonly referred to as Search Engine Marketing or SEM), as well asand through display advertising campaigns on advertising networks, affiliate websites and social networking sites (commonly referred to as Display, Email and Affiliate Advertising or DEA).media sites. Mobile app marketing remains important given the high usage of that device type.
Allocation of marketing spend
We take a data-driven, testing-based approach to making decisions about allocating marketing spend, where we use tools, processes and algorithms, many of which are proprietary, to measure and optimize performance end-to-end, starting with the pretesting of the creative concept and ending with the optimization of mediamedia spend.
In 2017,We continue to develop the methodologies we started the implementation of our new model for allocating our marketing spend, which we referuse to as our attribution model, with the aim of optimizing our investment mix going forward by focusing less on revenue generated in each user session and more on the end-to-end booking value of the user that we generate through our platform. The new attribution model focuses on whether a user who comes to us from a performance marketing channel proceeds to book a hotel, and reflects 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 informsinform decisions we make about how much we spend on each marketing channel. We look at a range of metrics including behavior on the trivago website as well as subsequent booking behavior with our partners to determine the optimal mix of spend.
In the third quarter, we completed the roll-out of this new attribution model in our DEA channel, after which we started to implement the new attribution model in our SEM channel. Following the roll-out of the new attribution model in our DEA channel in the third quarter, we experienced higher volatility and a slowdown in Qualified Referral growth compared to prior periods. We expect similar effects in the near-term resulting from the implementation of the new model in our SEM channel, but we believe this change will improve traffic quality in terms of booking conversion, which will have a long-term positive impact on advertisers' CPC bids and Revenue per Qualified Referral, or RPQR. For more information on Qualified Referrals and RPQR, see "Item 5 Operating and financial review and prospects—Operating result—Key factors affecting our financial condition and results of operations."
Advertiser relations
Sales
Our advertiser relationssales team seeks to provide tailored advice to each of our existing and prospective OTA,OTAs, providers of alternative accommodation, hotel chainchains and independent hotel advertisers. We have dedicated sales teams that manage the process of onboarding advertisers, maintain ongoing relationships with advertisers, work with advertisers to ensure they are optimizinghelp them optimize their outcomes from the trivago platform and provide guidance on additional tools and features that could further enhance advertisers’ experience.
We aim to remain in close dialogue with OTAs and sophisticated hotel chains to better understand each advertiser’s specific needs and objectives in order to offer optimal solutions through our marketplace.
Relationship building with smaller advertisers, including some independent hotels, differs from those with OTAs and sophisticated hotel chains as they are often less familiar with CPC bidding models and online advertising more broadly. This typically ensures a longer sales cycle where the starting point can be building awareness of the relevance of our marketplace or articulating the opportunities that our independent platform offers. It often requires onboarding by encouraging the optimization of theirsuch advertisers' information and profiles on our site, upsellingoffering products to further enhance their profiles, and encouragement to start biddingrunning a CPC or CPA campaign directly on our marketplace. This often multi-stage process requires our sales team to develop close relationships with each hotel. As of December 31, 2017, over 400,000 hotels engaged through Hotel Manager (described below) directly with our platform (as of December 31, 2016: 240,000), of which over 45,000 subscribed to Hotel Manager Pro (as of December 31, 2016: 30,000).accommodation provider.
Marketing tools and services for advertisers
We offer our advertisers a suite of marketing tools to help promote their listings on our platform and drive traffic to their websites. The followingOur tools and services, including the subscription-based trivago Business Studio Pro Apps Package, provide tailored solutions for OTAs, hotel chains and independent hotelshotel advertisers to help them manage their presence on our marketplace and steer their investments according to their budget and traffic needs. Our tools include:
trivago Hotel Manager, a marketing platform that gives each hotelier control over its hotel profile.
trivago Hotel Manager “Basic,” a free administration tool specifically for hotels, helping them build and manage a unique hotel profile on trivago to enhance their presence. This includes the ability to manage visual and static content, including adjusting contact details, pictures, amenities and service listings, as well as refining descriptions. Using the Hotel Manager tool, each hotel can ensure that our marketplace accurately captures their offerings, helping attract guests.
trivago Hotel Manager “Pro,” which is sold on a one-year subscription basis and allows hotels to enhance their profile with more advanced features and functionalities. With Hotel Manager Pro, hotels can increase promotion with exclusive news about their hotel and prominent contact details, helping them stand out and drive more bookings. Furthermore, we provide hoteliers with additional analytics about who searches for them as well as benchmarking against their competition.
trivago Hotel Manager “Rate Connect,” which enables independent hotels to publish their website rates directly on their profiles, helping them to increase direct bookings and their prominence in our marketplace. Hotels set a monthly budget, and we create an optimized marketing campaign, automatically calculating CPC bids that are competitive with other advertisers and targeted to increase referrals. A dedicated team of marketing experts is available via email or phone to support hotels.
trivago Intelligence, a marketing platform for multi-property management that enables hotel chains and OTAs to manage their inventory and CPCs.
trivago Intelligence, which provides holistic control for our advertisers that wish to closely manage and analyze their advertising on our marketplace. It allows them to bid on individual hotels with a high degree of granularity and control, provides metrics and feedback on specific advertising campaigns and offers advice to optimize bidding strategy and drive additional referrals.
Automated Bidding, which allows OTAs, hotel chains and independent hotels to bid efficiently on listings. Advertisers are able to decide the traffic volumes or return on advertising investment they wish to reach and the tool will automatically set and adjust bids according to the target. We believe this is an especially valuable tool for advertisers that are less familiar with online bidding models, although it is our belief that larger, more experienced advertisers will also value the efficiency Automated Bidding provides.
Express Booking, which is developed to help our advertisers drive bookings by providing the option of an easy booking method within our marketplace. Although the booking information is completed on our site, the advertiser processes payment directly, confirms the booking and provides any booking support. We
also prominently feature the brand of the advertiser taking the booking, allowing our advertisers to continue to build their own brand within our marketplace.
Direct Connect for Chains, which enables hotel chains to publish rates from their website directly on their inventory using their existing Central Reservation System and Internet Booking Engine. This helps them increase direct bookings and their prominence on our marketplace. Hotel chains that run direct connect campaigns also get access to Automated Bidding and Express Booking tools.
Marketplace
We design our algorithm to showcase the hotel room and other accommodation rate offers that we believe will be of most interest to our users, emphasizing those offers that are more likely to be clicked and ultimately booked on our advertisers' websites. We prominently display a suggested deal for each hotel, which is determined based on our algorithm as described below, while also listing additional offers made available to us from our advertisers in a list format.
We consider the completion of hotel and other accommodation bookings, which we refer to as conversion, to be a key indicator of user satisfaction on our website. At the core of our ability to match our users’ searches with large numbers of hotel and other accommodation offers is our auction platform, which we call our marketplace. With our marketplace, we provide advertisers a competitive forum to access user traffic by facilitating a vast quantity of auctions on any particular day. Advertisers do this by submitting hotel room rates on
CPC Bidding Model
Our advertisers continue to participate in our marketplace andprimarily through CPC, or cost-per-click, bidding. Advertisers that use this method submit CPC bids for each user click on an advertised rate for a hotel. By clicking on a given rate, an individual user is referred to that advertiser’s website where the user can complete the booking. Advertisers can submit and adjust CPC bids on our marketplace frequently - as often as daily - on a property-by-property and market-by-market basis and provide us with information on hotel room and other accommodation rates and availability on a near-real time basis. With "bid modifiers", advertisers can adjust their bids for referrals according to a variety of dimensions, including time-to-travel and length-of-stay.
In 2020, we also began to offer our advertisers the opportunity to advertise and promote their business through hotel/accommodation sponsored placements on our websites. This service is generally also priced on a CPC basis, and guarantees that advertiser placement in a pre-selected slot at the top of our search results.
Cost-per-acquisition model
In response to the changing market environment in 2020, we began to offer our advertisers the opportunity to participate in our marketplace on a CPA, or cost-per-acquisition, basis, whereby an advertiser pays us a percentage of the booking revenues that ultimately result from a referral. The CPA model enables our advertisers to be charged only in the event a user ultimately completes a booking and allows advertisers to reduce their risk as they only pay when an actual booking takes place. Advertisers may set multiple CPA campaigns in a given market, and update CPA inputs for each campaign frequently. When an advertiser opts to participate in our marketplace on a CPA basis, we calculate a CPC bid-equivalent based on potential booking value and conversion and the CPA inputs. This equivalent is then used for the purpose of the ranking and sorting algorithm described below.
Ranking and sorting algorithm
In determining the prominence given to offers and their placement in our search results, including in hotel comparison search results for a given location and on detail pages for a given property, our proprietary algorithm considers a number of factors in a dynamic, self-learning process. These include (but are not limited to) the advertiser’s offered rate for the hotel room or other accommodation, the likelihood the offer will match the user’s hotelaccommodation search criteria, data we have collected on likely booking conversion and user experience (as reflected in our relevance assessment) and the CPC bids submitted by our advertisers.advertisers (or CPC equivalent, as the case may be).
The CPC bids submitted by our advertiserslevels play an important role in determining the prominence given to offers and their placement in our search results. Advertisers can analyze the number of referrals obtained from their advertisements on our marketplace and the consequent value generated from a referral based on the booking value they receive from users referred from our site to determine the amount they are willing to bid.pay. Generally, the higher the potential booking value or conversion generated by a qualified referralQualified Referral and the more competitive the bidding, the more an advertiser is willing to bid for a hotelan accommodation advertisement on our marketplace. This means that the levels of advertisers’ CPC bids generally reflect their view of the likelihood that each click on an offer will result in a booking by a user. We exclude from our marketplace auction offers where the CPC has been set to a de minimis level, as this typically denotes hotel room inventory that the advertiser has for some period of time withdrawn from its active inventory on trivago.
Our relevance assessment focuses on the quality of users' experience after clicking out to an advertiser from our website. The relevance assessment approximates the relative ease or difficulty for users of completing a booking on our advertisers’ websites and advantages that advertisers might derive from non-standard website designs, and then results in an upward or downward adjustment to those advertisers’ CPC bids in our marketplace's auction process based on that evaluation, which in turn can affect the prominence given to the offers in our search results (with offers more likely to lead to a booking given greater prominence). During the fourth quarter of 2017, we upgraded our relevance assessment, by introducing an automated calculation, new factors to approximate the user experience and general optimizations of the algorithm.
By managing their CPC bids, relevance assessmentstheir CPA campaigns and hotel room and other accommodation rates submitted on our marketplace, our advertisers can influence their own returns on investment and the volumes of referral traffic we generate for them. We believe that by providing tools and services such asto help our Automated Bidding tool,advertisers, we can increase competition and create a more level playing field for our advertisers. By doing this, we aim to mitigate competitive disadvantages for smaller advertisers on our marketplace and to deliver more choice for our users.
Our strategy
Our mission is "to be your companion to experience our world." We seek to enable people to navigate the world of travel and experiences through products that make the vast number of available options accessible and comparable for our users and offer inspiration. To fulfill our mission and successfully support our customers and partners, our strategy is focused on continuous improvement of our existing products, as well as enhancing our value proposition to serve our customers across a broader spectrum of their travel and leisure needs.
As mentioned under “—trivago’sOur core travel search platform” above, we prominently displayproduct is tailored towards users that have a suggested deal for each hotel, which is determined based on our algorithm as described above, while also listing additional offers made available to us from our advertisersvery specific trip or experience in a list format. In late 2017, we started to roll out a broadened selection of offers we displaymind and modified how we display them. When the lowest rate in the marketplace auctionare searching for the hotel room in question is lower than the suggested deal that our algorithm places in the top position, we include that offer along with additional offers that users can access.
Our market opportunity
As hotel discovery, evaluation and booking increasingly move online, travelers and advertisers face distinct challenges.
Challenges for travelers
best way to fulfill their needs. With the digitalization of the hotel industry, there is an ever-increasing quantum of information available about hotels including amenities, style, reviews, location and pictures. Additionally, details on pricing and availability are continually updated in or near real-time. This information has empowered travelers, providing a level of insight that was previously unavailable. However, this information is often delivered via multiple, fragmented sources, including OTAs, hotel chains, independent hotels, Internet search engines and other review sites. Also, many websites, including those that aggregate disparate information, are slow, confusing to navigate, and may not display the best available hotel or pricing for travelers. Furthermore, many local OTAs and smaller hotels only display their information in the local language, which creates an additional layer of complexity for travelers looking to find the ideal hotel in a foreign destination. These developments can make booking a hotel a frustrating experience for travelers.
Challenges for hotel advertisers
Hotel advertisers operate in a competitive market with a broad range of participants, each having specific needs. OTAs need to drive high volumes of traffic to their websites to generate revenues, while hotel chains and independent hotels who operate high fixed cost models focus on ensuring their inventory is filled. Both OTAs and hotel advertisers aspire to reach a targeted audience of travelers with their marketing.
Traditional offline advertising media, including TV, radio, print and outdoor, focus on reaching a broad audience and can be an expensive media for reaching the few travelers seeking hotels in a specific location on specific dates.
There are challenges with online advertising as well. Many advertisers spend an increasing amount of their marketing budgets on online advertising where it is possible to economically reach a very broad audience through a website. However, the fragmentation of travelers online makes it difficult to scale cost effectively. Furthermore, OTAs, smaller hotel chains and hotels may not have the resources to develop sophisticated websites and as a result, provide a limited user experience in terms of attractiveness, comprehensiveness of information and ease of booking. Such websites often only publish information in local languages, limiting their reach to a local market.
Benefits for our users
Global aggregation of real-time hotel supply
We aggregate hotel availability from a range of advertisers globally. This supply is continually updated, so users can view current availability from a broad range of advertisers. We believe travelers use our hotel search platform as their entry point for hotel research, confident that they receive comprehensive coverage of theiraccommodation options to book a hotel.
Increased price competitionacross markets, accommodation categories and reduced search costs
Enhanced price competition results in the display of rooms with a broad range of pricingrate options, available from our advertisers.
Tailored hotel search function
Our search function is designedwe strive to enable individual users to find their ideal hotel. We personalize results based on a user’s search terms, selected filters and other interactions with trivago’s platform. In addition, we aggregate and analyze multiple sources of information to build a profile for each individual hotel. trivago’s search algorithms, which are refined by millions of searches each day, create matches among the sets of information.
Deep content and easy-to-use information on hotels
We obtain hotel information from many sources, such as travel booking sites, hotel websites, review sites, directly from hotels and internal resources. This information includes pictures, descriptions, reviews, ratings and amenities. We synthesize and enrich this information. For example, our rating score distills review information from multiple sources into a single easy-to-use score for the traveler.
Key benefits for advertisers
Broad traveler reach
We offer advertisers a highly scalable channel of travelers, given our broad presence across multiple geographies and languages. Additionally, for many travelers, we believe we are the entry point to their hotel search, enabling advertisers to engage with potential new customers.
Delivery of transaction-ready referrals
We provide advertisers with motivated travelers who have proactively expressed their specific intent via our search platform. Due to the breadth of hotel information we provide and our personalized matching algorithms, travelers referred by trivago often already have a comprehensive understanding of the hotel and its value proposition for them, which we believe makes them more likely to complete a booking on the advertiser’s site.
Market-driven, referral-based pricing structure
We believe our advertisers value the flexibility to control the pricing and volume of referrals they generate from our marketplace. Our CPC bidding model makes it easy for advertisers to evaluate the performance of their spend and influence their own return on investment.
Improve advertisers’ competitiveness
Hotel advertisers have varying levels of experience, scale and resources to dedicate to their marketing efforts. We provide our advertisers with advice, actionable data insights and advertiser tools to help them optimize their investment on our marketplace by improving the quality of available content about their hotel.
Our strengths
We believe that our competitive advantages are based on the following key strengths:
Industry-leading product and user experience
We believe that we provide the most effective and intuitive hotel search platform for travelers. We have invested in our product over many years and continue to spend significant time and resources on further refining our websites and apps to provide the best possible user experience. We regularly test and enhance multiple aspectsserve a key need of our websites and apps, believing that incremental advancements over time add up to improvements in overall user experience. This approach benefits both our users and advertisers by enabling more satisfying and effective engagement with our platform.
Significant scale
We have achieved significant scale, with more than 1.8 million hotels and other types of accommodation available on our platform as of December 31, 2017, supported by 55 localized versions of our websites and apps served in 33 languages. Additionally, we believe we work with almost all significant international, regional and local OTAs. Our business benefits from our engaged and often long-established relationships with local advertisers globally. In the year ended December 31, 2017, we had 727.1 million qualified referrals. Bringing together advertisers and users at this scale creates powerful network effects, improving the quality of the trivago experience for all parties.
High brand recognition
We have continuously invested in our brand over many years and have achieved strong brand recognition globally. Our brand drives traffic to our site by underpinning the connection travelers make between trivago and hotel search.
Powerful data and analytics
We capture large amounts of data across our platform, including traveler data, advertiser data, publicly available content and insights on how travelers and advertisers interact with our platform. As our businessability has grown, the volume of information we can analyze has also correspondingly increased. We take a data-driven, testing-based approach, where we use our proprietary tools and processes to measure and optimize end-to-end performance of our platform. Our ability to analyze and rapidly respond to this data enables us to continuously improve our platform.
Our strategy
We create value to our users and our advertisers through the power of technology. We believe that the strength of our brand andbuilt our position as a first source of information for travelers drive customer demand,leading global accommodation search platform. We intend to enhance our core offering while assessing which when combined with our global scale and broad based accommodation supply gives us a unique position in the ongoing migration of travel from offline to online. Our primary focuscomplementary search services are technology and product innovation, measures to increase lifetime value of our customers as well as our continued efforts in building our brand as part of our ongoing global expansion.
Product improvements
Our technology teams drive innovation to help users navigate through a vast number of hotel offerings to find the hotel that is ideal for them. In 2017, we continued to invest in our technology platform, rebuilding large parts of our back-end infrastructure. We believe that this effort will create a foundation for growth and scalability of new technology in the long term. We have released features improving the user interface, for example adding boundless maps to simplify hotel search based on location. Furthermore, we have recently taken steps to integrate alternative accommodation supply from HomeAway and other suppliers into our main search functionality. We have run tests relating to the integration in various countries, such as the United States, the United Kingdom and Germany. We plan to gradually roll out additional readily bookable alternative accommodation, such as vacation rentals or resorts, during the course of 2018.
We continue to focus our product innovations on increasing value deliveredbeneficial to our users by customizing our hotelto help improve their overall search experience.
More recent product developments are focused on users who want to our users’ interests beyond locationtravel but are in need of inspiration as to where and price comparisons.
Marketplace improvementswhen to travel. We have started to develop a product that offers inspiration for local travel and tools for advertisers
In late December 2016, we first introduced the relevance assessment, which is an adjustment to advertisers’ CPC bids on our marketplace’s auction process. During the fourth quarter of 2017, we upgraded our relevance assessment by introducing an automated calculation, new factors to approximate the user experience and general optimizations of the algorithm. Wewill continue to focus on giving advertisers the flexibilityexpand our offering to test and optimize their landing pages while promoting an experience on our website that we believe is optimal for our users.
We remain focused on ensuring a healthy marketplace that connects our broad and deep supply of hotels and other accommodation with our user base. Apart from the steps we are taking to increase diversity on our marketplace described above, we aim to mitigate competitive disadvantages for smaller advertisers on our marketplace. We believe that by providing tools and services, especially for advertisers with less technical infrastructure and experience, we can increase competition and create a more level playing field for advertisers.
Focus on lifetime value of the customer
We are implementing initiatives that are designed to focus more on the end-to-end booking value ofinspire our users and less onto experience the revenue generated in session. We believe that these initiatives will help us increase booking conversion rates, RPQR and, ultimately, our financial performance over the long term. Some of these changes include:world.
Measures aimed at optimizing our platforms and product, as described above, with the intention of increasing booking conversion and user engagement on our site, thus reducing the number of click-outs required to ultimately make a booking;
Our relevance assessment, which is an adjustment to advertisers’ CPC bids in our marketplace auction process based on our assessment of the quality of users' experience after leaving our website, as described above; and
Our attribution model, which is our model for allocating our performance marketing spend. We continuously modify this attribution 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). The attribution model informs decisions we make about how much we spend on different performance marketing channels. We continually change the model to focus on whether a user who comes to us from a performance marketing channel proceeds to book a hotel.
Going forward, we plan to focus on changes to our platform, marketplace and advertising spend to optimize for traffic quality instead of volume. We aim to increase the value of our referrals by shortening the booking funnel.
Brand building
We continue to focus on building our trivago brand. In 2017, we ran and tested over 800 different TV spots globally. As a result, our aided brand awareness has reached over 75 percent in the U.S. market and more than 80 percent in the large European markets and in Australia. We still see potential for increasing brand awareness, especially in our faster-growing Rest of the World segment.
We intend to be each traveler’s first source of hotel information by growing our engagement with travelers through continuous investment in both online and offline marketing to build our brand efficiently and drive strong user acquisition and retention. We plan to continue enhancing our mobile offerings and user engagement on mobile devices, thereby further increasing access for travelers to our services anytime and anywhere. We believe that investing in our brand combined with product innovations will help us further improve customer loyalty and retention.
Our customers
Customers that pay to advertise on trivago include:
•OTAs, including large international players, as well as smaller, regional and local OTAs;
•Hotel chains, including large multi-national hotel chains and smaller regional chains;
Independent•Individual hotels;
•Providers of alternative accommodation, such as vacation rental or private apartments; and
•Industry participants, including metasearch and content providers.
We generate the large majority of our revenueReferral Revenue from OTAs. Certain brands affiliated as of the date hereof with our majority shareholder, Expedia Group, including Brand Expedia, Hotels.com, Orbitz, Travelocity, Hotwire, Wotif, Vrbo and ebookers, in the aggregate, accounted for 39%, 36% and 36%28% of our total revenueReferral Revenue for the yearsyear ended December 31, 2015, 2016 and 2017, respectively.2020. Booking Holdings and its affiliated brands, including Booking.com, Agoda and through 2015, Agoda,priceline.com, accounted for 27%, 43% and 44%46% of our total revenueReferral Revenue for the yearsyear ended December 31, 2015, 2016 and 2017, respectively.2020.
Nearly all of our agreements with advertisers, including our agreements with our three largest advertisers, may be terminated at will or upon three to seven days’ prior notice by either party. For more information on risks related to the concentration of our revenue and our relationship with our largest advertisers, see "Item 3"Item 3: Key information - D. Risk factors".
Competition
We compete with other advertising channels for hotel advertisers’ marketing spend. These include traditional offline media and online marketing channels. In terms of user traffic, we compete on the basis of the quality of referrals, CPC rates and advertisers’ implied return on investment. While we compete with OTAs, hotel chains and independent hotels for user traffic, these parties also represent the key contributors to our revenue and supply of hotels and other accommodation.
Competition for users
We compete to attract users to our websites and apps to help them research and find hotels.hotels and other accommodation. Given our position at the top of the online hotel search funnel, many companies we compete with are also our customers.
Our principal competitors for users include:
•Online metasearch and review websites, such as Google Hotel Ads, Kayak, Qunar, TripAdvisor and Google Hotel Ads;TripAdvisor;
•Search engines, such as Baidu, Bing, Google, Naver and Yahoo!;
•Independent hotels and hotel chains, such as Accor, Hilton and Marriott;
•OTAs, such as Booking.com, Ctrip and Brand Expedia; and
•Alternative accommodation providers, such as Airbnb and HomeAway.Vrbo.
Competition for advertisers
We compete with other advertising channels for hotel advertisers’ marketing spend. These include traditional offline media and online marketing channels. In terms of user traffic, we compete on the basis of the quality of referrals, CPC rates and advertisers’ implied return on investment.
Our principal competitors for advertisers’ marketing spend include:
•Print media, such as local newspapers and magazines;
•Other traditional media, such as TV and radio;
•Search engines, such as Baidu, Bing, Google, Naver and Yahoo!;
•Online metasearch and review websites, such as Kayak, Qunar, TripAdvisor and Google Hotel Ads;
•Social networking services, such as Facebook and Twitter;
•Websites offering display advertising;
•Email marketing software and tools;
•Online video channels, such as YouTube; and
•Mobile app marketing.
Our employees and culture
We believe that our entrepreneurial corporate culture flexible working hours and flat organizational structure areis a key ingredients iningredient to our success. These haveIt has been designed to reflect the fast-moving technology space in which we operate, as well as our determination to remain pioneers in our field. Our employees actoperate as entrepreneurs in their areas of responsibility, continuously striving for innovation and improvement. We encourage our employees to take on new challenges within the company regularly to broaden their perspective, accelerate their learning, ensure a high level of motivation and foster communication. Cultural fit is a key part of our recruiting process, as we seek to hire individuals comfortable working in a flat organizational structure that rewards those who take initiative and continuallycontinuously seek to understand and learn, take risks and innovate. We regard failure as an opportunity to learn and inform improvedimprove approaches going forward.
Internally, we distill our values into six core qualities:
Trust: •Trust: We want to build an environment in which mutual trust can develop that gives employeesto give us the confidencecomfort and safety to discuss matters openly and to act freely.
Authenticity: •Authenticity: We aim to be authentic by staying true to ourselves and appreciate constructivewelcoming discussion and straight feedback.
controversy as we believe that there is no progress without friction.•Entrepreneurial passion:Passion: We aim to be passionate drivers of change, motivated to question the status quo - for both the organization and ourselves. We believe that entrepreneurial passion drivesintrinsic motivation empowers us forward to continuously try out newtake on ownership, to take appropriate risks and improved ways of thinking and doing.
to be confident to make decisions.•Power of proof: Proof: We believe thatempirical data used correctly, can leadenables us to empirical, proof-based decision making acrossmake sensible decisions. We want to explore and understand the organization.
driving forces behind why our projects succeed or fail.Focus: •Unwavering Focus: We are focused on reshapingproviding our users with an amazing, five-star experience. We aim to set our priorities based on the way travelers searchadded value we believe is generated for and compare hotels, while enabling hotel advertisers to grow their businesses by providing access to a broad audience of travelers via our websites and apps.trivago. We believe that multiple small, incremental improvements towards this goal add up to long-term success.
Learning: •Fanatic Learning: We never stand stillaim to improve our competitive position by reacting quickly to findings based on our collective experiences, successes and choosefailures. We strongly believe that power comes from sharing knowledge, not from keeping it to remainourselves. We are open mindedto continuously changing our beliefs and inquisitive.processes based on changing evidence. We try new ideas and continuesee change as an opportunity to challenge received wisdom.
In April 2017, we introduced our new leadership framework, which is another step we have taken that is intended to keep our company agile. Under the new framework, we have broken up the traditional reporting lines into three dimensions, allowing each employee to progress on the dimensions he or she is most excited about and suitable for.improve.
We have identified three core leadership roles:
responsibility leads, who are responsible forconsider these values as the developmentfoundations of an operational area at trivago;
talent leads, who are responsible for individuals' professionalour corporate culture and personal development at trivago; and
knowledge leads, who are responsible for sharing expertise and developing knowledge within trivago on a specific topic.
We envision that different individuals will often take on different leadership roles and will move into different roles as they learn what interests them and what role is most suitable for them. Asencourage our employees move into different roles within trivago, we intend for themthrough regular feedback processes to have one constant talent lead, who generally works on a different team.
We believe that moving employees into different leadership roles will help them use the expertise they have gained at trivago to challenge our thinking in different areasact and to promote innovation. Our new leadership framework is intended to prevent us from forcing employees into pre-determined career development paths, which they did not actively choose to follow, and to create an environment where each employee can naturally come across opportunities to help them learn and grow. By doing this, we plan to give employees the necessary freedom in their work in order for them to shape their own professional journeys while at trivago.accordance with such values.
Seasonality
We experience seasonal fluctuations in the demand for our services as a result of seasonal patterns in travel. For example, hotel searches and consequently our revenue are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. Our revenue typically decreases in the fourth quarter. We generally expect to experience higher returnReturn on advertising spendAdvertising Spend in the first and fourth quarter of the year as we typically expect to advertise less in the periods outside of high travel seasons, although the expected increase in return on advertising spend was less pronounced in the fourth quarter of 2017.seasons. Seasonal fluctuations affecting our revenue also affect the timing of our cash flows.
We typically invoice once per month, with customary payment terms. Therefore, our cash flow varies seasonally with a slight delay to our revenue, and is significantly affected by the timing of our advertising spending. The continued growthAdvertising Spend. Changes in the relative revenue share of our offerings in countries and areas where seasonal travel patterns vary from those described above may influence the typical trend of our seasonal patterns in the future. It is difficult to forecast the seasonality for future periods, given the uncertainty related to the duration of the impact from COVID-19 and the shape and timing of any sustained recovery.
Intellectual property
Our intellectual property, including trademarks, is an important component of our business. We rely on confidentiality procedures and contractual provisions with suppliers to protect our proprietary technology and our brands. In addition, we enter into confidentiality and invention assignment agreements with our employees and consultants.
We have registered domain names for websites that we use in our business, such as www.trivago.com, www.trivago.de andand www.trivago.co.uk. Our registered trademarks include: trivago, "Hotel? trivago," Room5, Youzhan, our "WABI" trivago logo and our trivago logo. These trademarks are registered in various jurisdictions.
Government regulation
trivago provides, receives and shares data and information towith its users, advertisers and advertisersother online advertising providers and conducts consumer facing marketing activities that are subject to consumer protection laws in jurisdictions in which we operate, regulating unfair and deceptive practices. For example, the United States and the European Union, or EU (including at Member Statemember state level) - but also many other jurisdictions - are increasingly regulating commercial and other activities on the Internet, including the use of information retrieved from or transmitted over the Internet, the display, moderation and use of user-generated content, and are adopting new rules aimed at ensuring user privacy and information security as well as increasingly regulating online marketing, advertising and promotional activities and communications, including rules regarding disclosures in relation to the role of algorithms and price display messages in the display practices of platforms.
There are also new or additional rules regarding the taxation of Internet products and services, the quality of products and services as well as theaddressing liability for third-party activities. Moreover, the applicability to the Internet of existing laws governingaddressing issues such as intellectual property ownership and infringement is uncertain and evolving.
In particular, we are subject to an evolving set of data privacy laws. As of May 25, 2018, a new EU data protection regime (EU’sThe EU’s General Data Protection Regulation 2016/679, or GDPR) will become applicable that providesGDPR, has been in effect since May 25, 2018. The GDPR and national GDPR implementation acts on an EU member state level provide for a number of changes to the existing EU data protection regime. The GDPR applies to any company established in the EUEuropean Union, as well as to those outside the EUEuropean Union if they collect and use personal data in connection with the offering of goods or services to individuals in the EUEuropean Union or the monitoring of their behavior (for example, trip booking services). The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and
onerous new obligations on services providers. Non-compliance with the GDPR can trigger steep fines of up to €20 million or 4% of total worldwide annual turnover, whichever is higher. We may also be exposed to civil litigation including claims for damages and other adverse consequences. We may incur substantial expense in complying with the new obligations to be imposed by the GDPR and we may be required to make significant further changes in our business operations and product and services development, all of which may adversely affect our revenues and our business overall.
Further, the United Kingdom’s exit from the European Union has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, while the Data Protection Act of 2018, which implements and complements the GDPR achieved Royal Assent on May 23, 2018 is now effective in the United Kingdom alongside a UK only adaptation of the GDPR which took effect on January 1, 2021, it is still unclear whether transfer of data from the EU to the United Kingdom will remain lawful under the GDPR without additional safeguards. We may also incur costs to comply with new requirements and restrictions for data transfers between the European Union and the United Kingdom based on applicable regulations. Other substantial markets such as Brazil and California have implemented privacy laws with similar provisions. The United States could implement a federal privacy law. Australia and New Zealand have or are amending their privacy laws. As a result of Brexit, the existing privacy laws in the United Kingdom could change. Many other markets are implementing privacy legislation. This may require relevant financial effort to implement.
In addition, EU laws regulate transfers of EU personal data to third countries, such as the United States, that have not been found to provide adequate protection to such personal data. A number of our service providers and hotels operate in such jurisdictions. ThereThe laws, rules, and regulations regarding cross-border transfers of personal data, including laws relating to transfer of personal data outside the EU are recent regulatory concerns about certain measures that can be usedrapidly evolving and likely to validate suchremain uncertain for the foreseeable future. Recent legal developments in the EU have created complexity and uncertainty regarding transfers of personal data export, as well as litigation challenging somefrom the EU to the United States and other jurisdictions. For example, on July 16, 2020, the European Court of Justice, or CJEU, invalidated the EU-U.S. Privacy Shield framework, or Privacy Shield, which provided companies with a mechanism to comply with data protection requirements when transferring personal data from the EU to the United States. The same decision also cast doubt on the ability to use one of the mechanisms for adequate data transfer (i.e.,primary alternatives to the standard contractual clauses). We could be impacted by changes in law as a result of the current challenges to these mechanisms by regulators and inEU-U.S. Privacy Shield framework, namely, the European courtsCommission’s Standard Contractual Clauses, to lawfully transfer personal data from Europe to the United States and most other countries. At present, there are few if any viable alternatives to the Privacy Shield Frameworks and the Standard Contractual Clauses for the foregoing purposes, which may lead to governmental enforcement actions, litigation, fines and penalties or adverse publicity which could have an adverse effect on our reputation and business.
Many governmental authorities in the markets in which we operate are also considering additional and potentially diverging legislative and regulatory proposals that would increase the level and complexity of regulation on Internet display, disclosure and advertising activities (for example, the P2B Regulation in the European Union's New Deal for Consumers, The EU's Data Governance Act, The EU's Digital Markets Act, The EU's Digital Services Act).
Many governmental authorities in the markets in which we operate are also considering alternative legislative and regulatory proposals that would increase regulation on Internet display, disclosure and advertising activities. For example, the EU legislators are preparing a new ePrivacy Regulation which is supposed to amend and replace the ePrivacy Directive (2002/58/EC) as amended and respective EU member state implementation laws. This change in the law on an EU level may have significant impact on the legal requirements for electronic communication including the operation of and user interaction with websites (such as possibly requiring browsers to block access and use of device data and storage by default) and may require relevant financial effort to implement the new laws. Whereas it is currently still unclear if and when the proposed ePrivacy Regulation will enter into effect, European regulators and courts tend to apply the current law more restrictively in a way which effectively anticipates opt-in requirements under the proposed ePrivacy Regulation. European regulators increasingly take efforts to enforce their positions.
It is impossible to predict whether further new taxes or regulations will be imposed on our services and whether or how we might be affected. Increased regulation of the Internet could increase the cost of doing
business or otherwise materially adversely affect our business, financial condition or results of operations.
In addition, the application and interpretation of existing laws and regulations to our business is often uncertain, given the highly dynamic nature of our business and the sector in which trivago operates.
Technology and infrastructure
Data and proprietary algorithms
We process a large amount of information about user traffic and behavior, advertisers and direct connections into the databases of many of our advertisers. We believe it is central to the success of our business that we effectively capture and parse this data. To achieve this, we have developed proprietary algorithms that drive key actions across our platform, including search, listings and bidding tools. We continue to explore new ways to capture relevant data and feed this into our platform to further enhance the experience for both our users and advertisers.
Infrastructure
We host our platform at fivefour different locations in Germany, the United States and Hong Kong, and China, while also selectively leveraging cloud hostedcloud-hosted services, which we believe offers us secure and scalable storage and processing power at limitedmanageable incremental expense. While much of the data we receive and capture is not sensitive, our data centers are compliant with the highest security standards. ItWhere required, our data centers are payment card industry (PCI) compliant and accordingly, it is our policy to store separately the limited amount of relevant sensitive data that we do capture. Where required, our data centers are PCI compliant. We have designed our websites, apps and infrastructure to be able to support high volumehigh-volume demand.
Software
We develop our own software through our teams based in Germany, the Netherlands and Spain, employing a rigorous iterative approach. This includes the proprietary algorithm underlying our search function, internal management tools, data analytics and advertiser tools.
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C. | C. Organizational structure |
trivago N.V. historically acted as a holding company of trivago GmbH, the historical operating company of the trivago group. As described in more detail below under "—Post-IPO merger", the merger of trivago GmbH into and with trivago N.V. became effective on September 7, 2017. In this annual report, unless the context otherwise requires, the terms “we,” “us,” “our,” “trivago” and the “company” refer to trivago GmbH, travel B.V. and trivago N.V., and their respective consolidated subsidiaries, as applicable.
Pre-IPO corporate reorganization
On December 21, 2016, trivago N.V. completed its IPO. In connection with the IPO, we underwent a pre-IPO corporate reorganization, and trivago N.V. became the parent holding company of trivago GmbH. Prior to the pre-IPO corporate reorganization, Expedia owned 63.5% and the Founders owned 36.5%, in aggregate, of the voting power in trivago GmbH. On December 16, 2016, Expedia contributed pursuant to the pre-IPO corporate reorganization all of its units in trivago GmbH to travel B.V. in a capital increase in exchange for newly issued Class B shares of travel B.V. In connection with the change of legal form of travel B.V. into trivago N.V., such shares were converted into Class B shares of trivago N.V.
The Founders contributed 1,081 units, including units contributed to satisfy the underwriters’ exercise of the over-allotment option, of trivago GmbH, representing 7.7% of their aggregate shareholding in trivago GmbH, to travel B.V. in a capital increase in exchange for newly issued Class A shares of travel B.V., which were converted into Class A shares of trivago N.V. and subsequently sold as ADSs in the IPO.
Post-IPO merger
Following our IPO, we requested binding tax rulings from the German tax authorities regarding the tax neutrality to trivago GmbH, trivago N.V. and the Founders of our plan to merge trivago GmbH into and with trivago N.V., which we refer to as the post-IPO merger. Based on the facts presented in the requests for the rulings, the tax rulings confirmed the tax neutrality of the post-IPO merger for trivago GmbH, trivago N.V. and the Founders under German tax law in all material respects. Following receipt of such tax rulings, we consummated the post-IPO merger, which became effective on September 7, 2017. Pursuant to the post-IPO merger, the Founders exchanged all of their units in trivago GmbH remaining after the pre-IPO corporate reorganization for Class B shares of trivago N.V. As of December 31, 2017 and after all trivago GmbH units were exchanged for Class B shares of trivago N.V., the Founders held 34.3% of the voting power in trivago N.V., and Expedia held 64.7% of the voting power in trivago N.V.
Current organizational structure
The following chart depicts our corporate structure and percentages of economic interest as of the date hereof based on the number of shares outstanding as of December 31, 2017:2020:
* The holders of our Class B shares are entitled to ten votes per share, and holders of our Class A shares are entitled to one vote per share. For more information about the voting rights of our Class A and Class B shares, see Exhibit 2.6 hereto. Each Class B share is convertible into one Class A share at any time by the holder thereof, while Class A shares are not convertible into Class B shares under any circumstances. On June 2, 2020, Mr. Vinnemeier entered into a Rule 10b5-1 sales plan with a broker to sell 3,500,000 ADSs. The chart above assumes Mr. Vinnemeier has sold all ADSs that are the subject of the trading plan, which is, however, scheduled to remain in effect until March 31, 2021.
trivago N.V. is the direct or indirect holding company of our subsidiaries. As of December 31, 2017,2020, we do not own, directly or indirectly, any subsidiaries that we consider to be "significant". We used the three-part test set out in Section 1-02 (w) of Regulation S-X under the Exchange Act to determine significance. We do not have any other subsidiaries
D. Property, plant and equipment
In June 2018, we believe are material based on other, less quantifiable, factors.
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D. | Property, plant and equipment |
Our corporatemoved into our new headquarters are located in Düsseldorf, Germany where we lease office space of 17,761 square meters, in the aggregate, under separate lease agreements expiring between June 2018 and December 2019.
On July 23, 2015, we entered into a lease agreement forsseldorf's media harbor. The building comprises 26,107 square meters of office space at another locationand has been certified with LEED core & shell Gold - representing a state-of-the-art workplace for trivago. The lease provides for a fixed ten-year term plus two renewal options, each for a term of five years. trivago N.V. is the sole tenant of the building, and it has been built to our specifications.
As a result of recent negotiations of our lease contract for the Campus in Düsseldorf, Germany, we signed an amendment to the contract, which became effective in January 2021. The agreement includes the return of unused office spaces and a corresponding reduction of rent, as well as the sale of certain fixed assets related to the space to the landlord. Please refer to Note 19 - Subsequent eventsfor a ten-year fixed term commencing upon finalizationfurther details.
We have additional 2,951 square meters of the constructionleased office space in Germany and 381 square meters of the facilities. We intend to relocate our corporate headquarters to such facilitiesleased office space in 2018 when construction is expected to be completed.Spain.
Item 4A: Unresolved staff comments
Not applicable.
None.
Item 5: Operating and financial review and prospects
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with“Item 3 A. Key information—Selected financial data” of this annual report and our consolidated financial statements and related notes appearing elsewhere in this annual report. In addition to historical information, this discussion contains forward-looking statements based on our current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk“Item 3: Key information - D. Risk factors” and “Special note regarding forward-looking statements” sections and elsewhere in this annual report.
For a discussion of the year ended December 31, 2019 compared to December 31, 2018, refer to the section contained in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, "Item 5: Operating and financial review and prospects."
A. Operating results
Overview
Our total revenue for the years ended December 31, 2015, 20162019 and 20172020 was €493.1 million, €754.2€838.6 million and €1,035.4€248.9 million, respectively, representing an increasea decrease of 53% from 2015 to 2016 and 37% from 2016 to 2017.70%. Our Referral Revenue for the years ended December 31, 2015, 20162019 and 20172020 was €490.2 million, €745.8€823.6 million and €1,020.3€238.4 million, respectively.respectively, representing a decrease of 71%.
The decrease in Referral Revenue grew by 37%was broadly similar across all segments with a year-over-year from 2016 to 2017. Ourdecrease of 71%, 70% and 73% in Americas, Developed Europe and Rest of World segments wereWorld.
We recorded a goodwill impairment charge of €207.6 million in the main contributorsyear ended December 31, 2020, see Note 8 - Goodwill and intangible assets, net in the notes to that growth, with year-over-year increases of 37% and 84%, respectively, from 2016 to 2017, while Referral Revenue in our Developed Europe segment also grew by 22% year over year.consolidated financial statements.
Our net lossesincome for the yearsyear ended December 31, 2015, 2016 and 2017 were €39.42019 was €17.2 million, €51.4while our net loss for the year ended December 31, 2020, was €245.4 million, and €13.0representing an decrease of €262.6 million respectively, increasing by 30% from 20152019 to 2016 and decreasing by 75% from 2016 to 2017.2020.
Adjusted EBITDA for the years ended December 31, 2015, 20162019 and 2017 amounted to €(1.1) million, €28.22020 was €70.0 million and €6.7€(12.3) million, respectively. This implies an Adjusted EBITDA margin (calculated as Adjusted EBITDA divided by total revenue) of (0.2)%, 3.7% and 0.6%, respectively.
Key factors affecting our financial condition and results of operations
How we earn and monitor revenue
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 Revenue. Each advertiser determines the amount that it wants to pay for each referral by bidding for advertisements on our marketplace. In the third quarter of 2020, we started to offer our advertisers the option to participate in our marketplace on a cost-per-acquisition, or CPA, basis and plan to onboard additional advertisers to CPA billing in 2021. See “Item 4: Information on the company - B. Business overview - Marketplace."
We also earn subscription fees for certain services we provide to advertisers, such as Hotel Managertrivago Business Studio Pro Apps Package, although such subscription fees do not represent a significant portion of our revenue.
Key metrics we use to monitor our revenue include the number of Qualified Referrals we make, the revenue we earn for each Qualified Referral, or RPQR, and our returnReturn on advertising spend,Advertising Spend, or ROAS.
Qualified Referrals
We use the term “referral” to describe each time a visitor to one of our websites or apps clicks on a hotel offer in our search results and is referred to one of our advertisers. We charge our advertisers for each referral on a cost-per-click, or CPC, basis.
Since a visitor may generate several referrals on the same day, but typically intends to only make one booking on a given day, we track and monitor the number of Qualified Referrals from our platform. We define a "Qualified Referral" as a unique visitor per day that generates at least one referral. For example, if a single visitor clicks on multiple hotelaccommodation offers in our search results in a given day, they count as multiple referrals, but as only one Qualified Referral. While we charge advertisers for every referral, we believe that the Qualified
Referral metric is a helpful proxy for the number of unique visitors to our site with booking intent, which is the type of visitor our advertisers are interested in and which we believe supports bidding levels in our marketplace.
We had 334.6 million, 535.3 million and 727.1 million Qualified Referrals for the years ended December 31, 2015, 2016 and 2017, respectively, representing annual growth rates of 60.0% and 35.8% in 2016 and 2017, respectively.
We believe the primary factors that drive changes in our Qualified Referral developmentlevels are the number of visits to our websites and apps, the booking intent of our visitors, the number of available hotelsaccommodations on our hotel search platform, content (the quality and availability of general information, reviews and pictures about the hotels), hotel room prices (the price of accommodation as well as the number of price sources for each accommodation), hotel ratings, the user friendliness of our websites and apps and the degree of customization of our search results for each visitor. In the short term, our Qualified Referral levels are also heavily impacted by changes in our investment in Advertising Spend, as we rely on advertisements to attract users to our platform. Ultimately, we aim to increase the number and booking conversion of Qualified Referrals we generate by focusing on making incremental improvements to each of these parameters. In addition to continuously seeking to expand our number of relationships withnetwork in hotel advertisers and alternative accommodations, we partner with such hotels or service providers to improve content, and we constantly test and improve the features of our websites and apps to improve the user experience, including our interface, site usability and personalization for each visitor.
The following table sets forth the number of Qualified Referrals for our reportable segments for the periods indicated:
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| | | Year ended December 31, | | | | % Change |
(in millions) (unaudited) | | | 2019 | | 2020 | | | | 2020 vs 2019 |
Americas | | | 146.1 | | | 70.5 | | | | | (51.7) | % |
Developed Europe | | | 195.4 | | | 90.9 | | | | | (53.5) | % |
Rest of World | | | 180.5 | | | 79.2 | | | | | (56.1) | % |
Total | | | 522.0 | | | 240.6 | | | | | (53.9) | % |
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| Year ended December 31, | | % Change |
(in millions) (unaudited) | 2015 |
| | 2016 |
| | 2017 |
| | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | 87.1 |
| | 149.1 |
| | 203.4 |
| | 71.2 | % | | 36.4 | % |
Developed Europe | 183.7 |
| | 255.4 |
| | 295.5 |
| | 39.0 | % | | 15.7 | % |
Rest of World | 63.8 |
| | 130.8 |
| | 228.3 |
| | 105.0 | % | | 74.5 | % |
Total | 334.6 |
| | 535.3 |
| | 727.1 |
| | 60.0 | % | | 35.8 | % |
Note: Some figures may not add due to rounding.
Revenue per Qualified Referral (RPQR)
We use average Revenue per Qualified Referral, or RPQR, to measure how effectively we convert Qualified Referrals to revenue. RPQR is calculated as Referral Revenue divided by the total number of Qualified Referrals in a given period. Alternatively, RPQR can be separated into its price and volume components and calculated as follows:
RPQR = RPR x click-out rate
where
RPR = revenue per referral
click-out rate = referrals / Qualified Referrals
RPQR is determined by the CPC bids our advertisers submit on our marketplace as the CPC bids submitted by our advertisers play an important role in determining the prominence given to offers and their placement in our search results. Advertisers can analyze the number of referrals obtained from their advertisements on our marketplace and the consequent value generated from a referral based on the booking value they receive from users referred from our site to determine the amount they are willing to bid. Accordingly.Accordingly, the bidding behavior of our advertisers is influenced by the rate at which our qualified referralsQualified Referrals result in bookings on our advertisers’their websites, or booking conversion, and the amount our advertisers obtain from Qualified Referrals as a result of hotels and other accommodation booked on their sites, or booking value, andvalue. The quality of the degree to which advertisers are willing to share with us the overall estimated booking revenues generated bytraffic we generate for our advertisers from our referrals, increases when aggregate booking conversion and/or revenue share, which we also refer to as "commercialization".aggregate booking value increases. We estimate overall booking conversion and booking value from data voluntarily provided to us by certain advertisers to better understand the drivers
in our marketplace and, in particular, to gain insight into how our advertisers manage their advertising campaigns. Generally,Assuming unchanged dynamics in the market beyond our marketplace, we would expect that the higher the potential booking value or conversion generated by a qualified referralQualified Referral and the more competitive the bidding, the more an advertiser is willing to bid for a hotel advertisement on our marketplace. This meansThe dynamics in the market beyond our marketplace are not static, and we believe that the levels of advertisers' CPC bids reflect their view of the likelihood that each click on an offer will result in a booking by a user. Reflecting these dynamics, 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, even though we invoice the majoritycontinuously review their Advertising Spend on our platform and on other advertising channels, and continuously seek to optimize their allocation of their spending among us and our advertisers in euro and have relatively little direct foreign currency translation with respect to our revenue.competitors.
RPQR is a key financial metric that describesindicates the quality of our referrals, the efficiency of our marketplace and, as a consequence, how effectively we monetize the referrals we provide our advertisers. Furthermore, we use RPQR to help us detect and analyze changes in market dynamics. For the years ended December 31, 2015, 2016 and 2017, RPQR was €1.46, €1.39 and €1.40, respectively.
The following table sets forth the RPQR for our reportable segments for the periods indicated (based on Referral Revenue):
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| | | Year ended December 31, | | | | % Change |
RPQR in € (unaudited) | | | 2019 | | 2020 | | | | 2020 vs 2019 |
Americas | | | 2.09 | | 1.27 | | | | (39.2)% |
Developed Europe | | | 1.78 | | 1.13 | | | | (36.5)% |
Rest of World | | | 0.95 | | 0.58 | | | | (38.9)% |
Total | | | 1.58 | | 0.99 | | | | (37.3)% |
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| Year ended December 31, | | % Change |
RPQR in € (unaudited) | 2015 | | 2016 | | 2017 | | 2016 vs 2015 | | 2017 vs 2016 |
Americas | | 1.97 | | | 1.92 | | | 1.93 | | (2.5)% | | 0.5% |
Developed Europe | | 1.41 | | | 1.37 | | | 1.44 | | (2.8)% | | 5.1% |
Rest of World | | 0.92 | | | 0.85 | | | 0.89 | | (7.6)% | | 4.7% |
Total | | 1.46 | | �� | 1.39 | | | 1.40 | | (4.8)% | | 0.7% |
The following tables set forth the percentage change year-on-yearyear-over-year in each of the components of RPQR for our reportable segments for the years indicated. Percentages calculated below are based on the unrounded amounts and therefore may not recalculate on a rounded basis.
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| | | | Year ended December 31, |
% decrease in RPR (unaudited) | | | | 2020 vs 2019 |
Americas | | | | (35.9) | % |
Developed Europe | | | | (30.6) | % |
Rest of World | | | | (33.3) | % |
Total | | | | (31.1) | % |
|
| | | | | | |
| | Year ended December 31, |
% increase in RPR (unaudited) | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | | 7.7 | % | | 8.6 | % |
Developed Europe | | 6.8 | % | | 19.1 | % |
Rest of World | | 3.6 | % | | 10.3 | % |
Total | | 6.5 | % | | 10.2 | % |
51
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| | Year ended December 31, |
% increase in number of referrals (unaudited) | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | | 54.6 | % | | 25.9 | % |
Developed Europe | | 23.5 | % | | 2.8 | % |
Rest of World | | 82.3 | % | | 64.5 | % |
Total | | 42.7 | % | | 24.4 | % |
| | | | | | | | | | |
| | | | Year ended December 31, |
% decrease in number of referrals (unaudited) | | | | 2020 vs 2019 |
Americas | | | | (54.8) | % |
Developed Europe | | | | (57.2) | % |
Rest of World | | | | (60.4) | % |
Total | | | | (57.7) | % |
|
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| | Year ended December 31, |
% increase in Qualified Referrals (unaudited) | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | | 71.2 | % | | 36.4 | % |
Developed Europe | | 39.0 | % | | 15.7 | % |
Rest of World | | 104.9 | % | | 74.6 | % |
Total | | 60.0 | % | | 35.8 | % |
| | | | | | | | | | |
| | | | Year ended December 31, |
% decrease in Qualified Referrals (unaudited) | | | | 2020 vs 2019 |
Americas | | | | (51.7) | % |
Developed Europe | | | | (53.5) | % |
Rest of World | | | | (56.1) | % |
Total | | | | (53.9) | % |
|
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| | Year ended December 31, |
% increase (decrease) in click-out rate referrals (unaudited) | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | | (9.7 | )% | | (7.7 | )% |
Developed Europe | | (11.1 | )% | | (11.1 | )% |
Rest of World | | (11.0 | )% | | (5.8 | )% |
Total | | (10.8 | )% | | (8.4 | )% |
| | | | | | | | | | |
| | | | Year ended December 31, |
% decrease in click-out (unaudited) | | | | 2020 vs 2019 |
Americas | | | | (5.9) | % |
Developed Europe | | | | (8.1) | % |
Rest of World | | | | (10.1) | % |
Total | | | | (8.4) | % |
Return on advertising spendAdvertising Spend (ROAS)
We track the ratio of our Referral Revenue to our advertising expenses, or ROAS. We believe that ROAS is an indicator of the effectiveness of our advertising. Our ROAS was 113%, 120%advertising, and 115% for the years ended December 31, 2015, 2016 and 2017, respectively. Our ROAS in the Americas, Developed Europe and the Rest of World was 102%, 133% and 87% for the year ended December 31, 2015, respectively, as compared to 118%, 136% and 90% for the year ended December 31, 2016, respectively, and 116%, 131% and 92% for the year ended December 31, 2017, respectively.it is our primary operating metric. We believe the development of our ROAS among the reportable segments is primarily related to the different stages of development of our markets. For example, in Developed Europe, where we have operated the longest on average, we have historically experienced the highest average ROAS. Our ROAS in the Rest of World segment, where we have the lowest average ROAS, is also impacted significantly by the number of markets in the segment, including markets that we have recently entered and thus require significant advertising spend to reach scale. Over time, as our markets continue to develop, we believe that we will experience further increases in the efficiency of our advertising spend and thus improvements in our average ROAS. Given that advertising expenses account for the significant majority of our operating expenses, we believe this will have a direct impact on our operating margins and Adjusted EBITDA.lowest brand awareness.
Historically, we believe that our advertising has been successful in generating additional revenue. We invest in many kinds of marketing channels, such as TV, out-of-home advertising, radio, search engine marketing, display and affiliate marketing, email marketing, social media, online video, mobile app marketing and content marketing.
Our ROAS by reportable segment for the years ended December 31, 2015, 20162019 and 20172020 was as follows:
| | | | | | | | | | | | | |
| | | Year ended December 31, |
ROAS by segment (unaudited) | | | 2019 | | 2020 |
Americas | | | 130.4 | % | | 156.8 | % |
Developed Europe | | | 150.7 | % | | 169.3 | % |
Rest of World | | | 112.5 | % | | 143.2 | % |
Consolidated ROAS | | | 133.6 | % | | 158.9 | % |
|
| | | | | | | | |
| Year ended December 31, |
(unaudited) | 2015 |
| | 2016 |
| | 2017 |
|
Americas | 102 | % | | 118 | % | | 116 | % |
Developed Europe | 133 | % | | 136 | % | | 131 | % |
Rest of World | 87 | % | | 90 | % | | 92 | % |
Total | 113 | % | | 120 | % | | 115 | % |
In 2020, Consolidated ROAS improved to 158.9% compared to 133.6% in the same period in 2019. ROAS improved by 26.4ppts, 18.6ppts and 30.7ppts in Americas, Developed Europe and RoW, respectively, compared to the same period in 2019.
The increases in ROAS were mainly driven by significant reductions in brand marketing activities and higher ROAS targets in our performance marketing channels in reaction to the COVID-19 pandemic. As a result, Advertising Spend decreased by 75.6%, 73.6%, 78.9% in Americas, Developed Europe and RoW, respectively. Across all segments, the reductions in Advertising Spend more than offset the decline in Referral Revenue resulting from lower Qualified Referrals and RPQR.
Marketplace dynamics
Our advertisers regularly adjust the CPC bids they submit on our marketplace to reflect the levels of referrals, customers, bookings or revenue and profit they intend to achieve with their marketing spend on our platform. In recent years, we have observed a number of factors can influence their bidding behavior on our marketplace, including:
•The fees advertisers are willing to pay based on how they manage their advertising costs and their targeted return on investment;
•Our advertisers' testing of their bidding strategies and the extent to which they make their inventories available on our marketplace;
•Responses of advertisers to elevated levels of volatility on our marketplace;
•Advertiser competition for the placement of their offers; and
•Our advertisers’ response to changes made to our marketplace, such as bid modifiers.
Recent and ongoing trends in our business
The following recent and ongoing trends have contributed to the results of our consolidated operations, and we anticipate that they will continue to impact our future results:results.
Marketplace dynamicsCOVID-19 Pandemic
During 2020, the COVID-19 pandemic, and increased volatility
Changesmeasures to contain the virus, including government travel restrictions and quarantine orders, have had a significant negative impact on us, as well as the travel industry generally. Since the onset of the COVID-19 pandemic in marketplace dynamics, particularly as a resultearly 2020, Qualified Referrals and RPQR have been significantly below prior year levels. The COVID-19 pandemic has negatively impacted consumer sentiment and consumers' ability to travel, and many of changing bidding strategies and testing by our advertisers, particularly hotels, continue to operate at reduced service levels. We have contributed to the increased volatility of our financial results and to the substantial slowdown in revenue growth that wealso experienced in the second half of 2017. In the first half of 2017, we benefited from the introduction of our relevance assessment, which is an adjustment to advertisers’ CPC bids based on our assessment of the quality of users’ experience after leaving our website. In the first half of 2017, some advertisers compensated for their lower relevance assessment by submitting higher CPC bids. This development positively impacted Referral Revenue and increased levels of commercialization of our platform. Starting in the final weeks of June 2017, some of our significant advertisers optimized their websites and bidding strategies in response to the introduction of the relevance assessment. As a result, advertisers were able to lower their CPC bids starting in the third quarter of 2017, which resulted in an algorithm-driven pull back in our performance marketing advertising spend in the third quarter of 2017 and was accompanied by a deceleration of our brand marketing expenditure growth. The second half of 2017 was also negatively impacted by lower levels of commercialization and increasedelevated volatility on our marketplace due to significant testing activities bymandated travel restrictions, and our largest advertisers. Some of our largest advertisers also conducted significant testing activities on our marketplace at elevated levels as they looked to optimize their own advertising spend on our platform and those of our competitors. Some advertisers have withdrawn from our marketplace for periodsimplemented varied bidding strategies, as their expectations regarding cancellations differ in significant respects. The pandemic has also had broader economic impacts, including an increase in unemployment levels and reduction in economic activity, which may lead to prolonged recessions and further a reduction in consumer or business spending on travel activities, which may negatively impact the timing and level of timea recovery in certain geographic markets, including in some of our key markets, and have also deactivated some of their inventory, most frequently inventory that they alone advertised or was inactive. During the fourth quarter of 2017, we also upgraded our relevance assessment, by introducing an automated calculation, new factors to approximate the user experience and general optimizationstravel demand. As a result of the algorithm. Some of the testing referred to above included advertisers’ testing of their landing pages in response to the relevance assessment, which, together with changing advertiser bidding strategies, significantly impacted CPC bids and levels of commercialization on our marketplace. As volatility increased on our marketplace, advertisers had less certainty about marketplace dynamics and less clarity surrounding CPC bids to make informed decisions about their bidding and strategy, which also impacted marketplace dynamics during affected periods.
Changes in our levels of commercialization
Changes in commercialization are reflected in our Referral Revenue and RPQR levels as our advertisers adjust the CPC bids they submit on our marketplace. Although we believe we will ultimately receive a portion of the additional booking value we generate for our advertisers, the fact that a significant portion of our Referral Revenue is generated from brands affiliated with Booking Holdings and Expedia can permit them to obtain the same or increased levels of referrals, customers, bookings or revenue and profit at lower cost. During 2017, we observed a number of trendsCOVID-19 cases that impacted levelsintensified in October 2020 and related implementations of revenue share and commercialization of our marketplace:
Our advertisers' testing of their bidding strategies and the extent to which they make their inventories available on our marketplace;
Responses of advertisers to elevated levels of volatility on our marketplace;
Advertiser competition for the placement of their offers;
The fees advertisers are willing to pay based on how they manage their advertising costs and their targeted return on investment; and
Our advertisers’ response to changes made to our marketplace, such as the relevance assessment.
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 Europeadditional travel restrictions in the fourth quarter of 2017. Increasing brand awareness and usage2020, particularly in Europe, we have seen recent reversals of our platform are important partssomewhat improved financial results in the summer period, when the spread of strategy asthe virus had been contained to varying degrees in certain countries, some travel restrictions had been lifted and some consumers had become more comfortable traveling, particularly to domestic locations.
We expect COVID-19 to continue to significantly impact our financial and operating results well into 2021. However, the full duration and total impact of COVID-19 remains uncertain, and it is difficult to predict how the recovery will play out for the travel industry and, in particular, our business. For at least the first
quarter of 2021, we planexpect strict mobility restrictions to returncontinue to growthbe imposed across most of our major markets. While we expect that some restrictions might start to be eased in the second halfquarter of 2018,2021, our ultimate financial performance in that period will depend on factors outside of our control, including the progress and effectiveness of the vaccination programs, individuals’ confidence in resuming travel activities and many other uncertainties.
There is considerable uncertainty to what extent and when our largest advertisers will resume advertising on our platform in the future at levels similar to (or approaching) those preceding the pandemic. Our eventual recovery after the COVID-19 pandemic may be affected by a number of factors including:
•our advertisers’ future willingness to emphasize us as a traffic acquisition channel and to increase their bids on our marketplace to pre-pandemic levels;
•our future marginal returns on Advertising Spend once we resume significant marketing activities (particularly on TV);
•the effect on our advertising strategy as a result of the accelerated shift from linear TV to digital formats;
•travelers' preferences for types of destinations (e.g., cities) or accommodation types that we have historically been better able to monetize but have had a declining share during the pandemic;
•the timing of the recovery, if any, of certain kinds of travel (e.g., business travel) as a result of the pandemic;
•further industry consolidation;
•the continued effect of competition on us, particularly from Google Hotel Ads; and
•the continued declining share of first-time users that we can deliver to our largest OTA advertisers, which may have been accelerated by the pandemic and may, in turn, negatively affect RPQR.
Restructuring and maintenance of liquidity position
In response to this timechallenging environment, we took a number of steps during 2020 to maintain our cash liquidity and our relationships with our advertisers:
•To preserve our cash reserves, we undertook a restructuring, making significant headcount reductions and consolidating our office locations, which resulted in restructuring costs of €6.2 million in 2020. We also signed an amendment to our lease contract for our campus in Düsseldorf, which became effective in January 2021. As amended, the agreement provides for the return of unused office space as of January 1, 2021 and a corresponding reduction of rent, as well as the sale to the landlord of certain fixed assets related to the space. As a result of this amendment and the restructuring, we expect to continuereduce our personnel and office related expenses in 2021 in an aggregate amount of approximately €25 million compared to invest2019. This reduction is expected to relate primarily to technology and content, selling and marketing and general and administrative expenses. As of the date of this annual report, we do not expect to incur material restructuring charges in marketing.2021, and do not expect the restructuring to have a material impact on revenue in 2021. See Note 9 - Restructuring in the notes to our consolidated financial statements for further details.
Rapid changes•We significantly reduced Advertising Spend, our largest variable expense. For the year 2020, our consolidated Advertising Spend was €150.0 million, compared to €616.7 million in Referral Revenue resulting from dynamics on our marketplace and changes in advertiser behavior can occur with little2019. We were able to reduce or no notice to us, and have resulted in our not having enough time to pull backdelay our advertising spend, particularly on television, quickly enoughcommitments, with very few exceptions where previous commitments could not be reduced.
•Our account management and finance teams worked very closely with our advertisers to respondfind solutions to manage our receivables that were outstanding at the speedoutset of the changeCOVID-19
pandemic. We accommodated the requests of many advertisers to extend payment dates and to pay outstanding invoices in revenue levels. This was the case in the third quarter of 2017, when weinstallments and were initially unableable 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 spentcollect the great majority of our revenue on advertising, our inabilitysuch receivables.
As a result of these efforts, total cash, cash equivalents and restricted cash amounted to pull back advertising negatively impacted our operating results in 2017.€210.8 million as of December 31, 2020 compared to €220.5 million as of December 31, 2019.
Measures designed to maximize the lifetime value
Goodwill impairment charge
As a result of the user
We are implementing initiatives that are designedcontinued deterioration of our business due to focus less on revenue generated in each user sessionthe COVID-19 outbreak, we performed a goodwill impairment analysis during the first quarter of 2020. After analyzing the expected economic and financial impacts of the pandemic, we recorded an impairment charge of €207.6 million. For more information on the end-to-end booking value of our users. Some of these measures include:
Measures aimed at optimizing our platformsimpairment charge, see Note 8 - Goodwill and product, withintangible assets, net in 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 changesnotes to our product that we believe, when considered together, will result in improvements to our product and platform; andconsolidated financial statements.
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.
Global penetration
Our Referral Revenue from the Americas, Developed Europe and the Rest of World were 38.0%, 46.3% and 14.7% of our total revenue, respectively, for the year ended December 31, 2016 and were 37.8%, 41.0% and 19.7% of our total revenue, respectively, for the year ended December 31, 2017. We believe the relative growth in Referral Revenue across our reportable segments is primarily related to the different stages of development of our markets. We generate the most Referral Revenue in Developed Europe, our segment that includes the markets where we have operated the longest and where we have the highest level of brand awareness but relatively moderate growth. We typically expect to have higher growth rates in newer markets, and as a result, expect our Referral Revenue in the Americas and the Rest of World to increase at a faster rate than Referral Revenue in Developed Europe. We continue to improve the localization of our websites and apps for each market in an effort to augment the user experience and to grow our user base globally. We invest heavily in marketing campaigns across our markets.
Mobile products
Travelers increasingly access the Internet from multiple devices, including desktop computers, smartphones and tablets. We continue to develop our websites and apps to further enhance our hotel search experience across all devices. We offer responsive mobile websites and several apps that allow travelers to use our services from smartphones and tablets running on Android and iOS. In the year ended December 31, 2017,2020, our revenue share from mobile websites and apps exceededcontinued to exceed 60%.
Visitors to our hotel search platform via mobile phonephones and tablettablets generally result in bookings for our advertisers at a lower rate than visitors to our platform via desktop. We believe this is due to a general difference in the usage patterns of mobile phones and tablets. We believe many visitors use mobile phones and tablets as part of their hotel search process, but prefer finalizing hotel selections and completing their bookings on desktop websites. This may be due in part to users generally finding the booking completion processes, including entering payment information, somewhat easier or more secure on a desktop than on a mobile device. We believe that over time and as more travelers become accustomed to mobile transactions, this sentiment may shift.
We have historically had, and currently have, a single bidding price structure for referrals from both desktop and mobile. We may choose to adopt a differentiated pricing model between mobile and desktop applications, which would likely lead to an increase in desktop revenue share, as the pricing for desktop applications would increase due to higher conversion rates, while the pricing for apps on mobile and tablets would likely decrease. We do not expect this to have a material impact on revenue, as long as there are sufficient active participants on both desktop and mobile to ensure our marketplace functions effectively, as we believe that the current bids advertisers place on our CPC-based bidding system reflect the overall efficacy of the combined desktop and mobile prices they receive.
Advertiser structure
We believe mobile websites and apps will continue to gain popularity, and we expect to continue to commit resources to improve the features, functionality and conversion rates of our mobile websites and apps.
Advertiser diversification and direct relationships with hotels
We generate most of our revenueReferral Revenue from a limited number of OTAs. Certain brands affiliated as of the date hereof with our majority shareholder, Expedia Group, including Brand Expedia, Hotels.com, Orbitz, Travelocity, Hotwire, Wotif, Vrbo and ebookers, in the aggregate, accounted for 39%, 36% and 36%28% of our total revenueReferral Revenue for the yearsyear ended December 31, 2015, 2016 and 2017, respectively.2020. Booking Holdings and its affiliated brands, Booking.com, Agoda and Agoda,priceline.com accounted for 27%, 43% and 44%46% of our total revenueReferral Revenue for the yearsyear ended December 31, 2015, 2016 and 2017, respectively. We2020. Although we believe that our business success inwe will ultimately receive a portion of the long term will be enhanced by diversification amongadditional booking value we generate for our advertisers, in particular by meansthe fact that a significant portion of expanding our direct relationshipsReferral Revenue is generated from brands affiliated with independent hotels, hotel chainsExpedia Group and providersBooking Holdings can permit them to obtain the same or increased levels of alternative accommodationreferrals, customers, bookings or revenue and continuing to act as a platform that enables travelers to compare hotel rooms that are offered by smaller and local OTAs or independent hotels or by the leading international brands.profit at lower cost.
We have recently taken steps to increase advertiser diversity on our marketplace, including increasing the representation of individual hotels into our inventory, making investments in our advertisement relations team and integrating HomeAway’s vacation rental inventory onto our hotel search platform, with the aim of integrating additional inventory of alternative accommodation going forward. Advertiser diversification allows us to improve the user experience by expanding the depth of our hotel offerings to facilitate price transparency as well as to improve the content quality, availability and usability of our advertisers’ offers, thereby increasing the value our users derive from our websites and apps. For example, some independent hotels and smaller hotel chains rely exclusively on their own websites and/or an OTA to distribute their offerings. Our engagement with such advertisers permits us to display an offer on behalf of that advertiser directly, making the offer accessible to our users, or increasing the number of offers if an accommodation was previously only available through an OTA. Direct engagement also permits an advertiser to have more control of the content and placement of its offer, since we are able to offer tools and assistance to optimize content and offer strategy on our marketplace. In addition, we recently began offering a booking engine product for our direct hotel relationships in order to make it easier for our users to book an accommodation online for an advertiser that did not otherwise have an online booking engine available.
We believe advertiser diversification could mitigate some of the risks we face with respect to consolidation within the travel content marketplace, as consolidation could over time reduce the number of offers we have available on our platform for each hotel, which could cause our services to become less valuable to users. Correspondingly, with fewer bids for offers from a consolidated group of advertisers, RPQR could decrease. We believe that as a result of the number of marketplace participants and the competition among various brands within consolidated OTAs, there has historically been sufficient liquidity on our marketplace to sustain competitive bid levels in our most relevant markets, such that if the top bidder leaves the platform, the next highest bidder moves into position to partially sustain our revenue. We have observed this to some extent as some of our largest advertisers have withdrawn from our marketplace for periods of time in certain geographic markets, although this testing activity had a significant negative impact on our financial results in the fourth quarter of 2017. In less liquid geographic markets, our initiative to connect hotels directly to our platform may mitigate, at least in small part, a potential decrease in OTA marketplace participants. As of December 31, 2017, we had direct relationships with over 400,000 hotels, representing over 22% of the total number of hotels advertised on trivago.
Results of Operations
Comparison of the years ended December 31, 2015, 20162019 and 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | % Change |
(in thousands) | | | | 2019 | | | 2020 | | | | 2020 vs 2019 |
Consolidated statement of operations: | | | | | | | | | | | | |
Revenue | | | | | € | 554,046 | | | | € | 181,491 | | | | | (67.2) | % |
Revenue from related party | | | | | 284,571 | | | | 67,430 | | | | | (76.3) | % |
Total revenue | | | | | 838,617 | | | | 248,921 | | | | | (70.3) | % |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of revenue | | | | | 9,159 | | | | 10,133 | | | | | 10.6 | % |
Selling and marketing | | | | | 664,155 | | | | 178,255 | | | | | (73.2) | % |
Technology and content | | | | | 69,924 | | | | 64,258 | | | | | (8.1) | % |
General and administrative | | | | | 55,543 | | | | 40,935 | | | | | (26.3) | % |
Amortization of intangible assets | | | | | 1,685 | | | | 373 | | | | | (77.9) | % |
Impairment of goodwill | | | | | — | | | | 207,618 | | | | | 100.0 | % |
Operating income/(loss) | | | | | 38,151 | | | | (252,651) | | | | | n.m. |
| | | | | | | | | | | | |
Other income/(expense) | | | | | | | | | | | | |
Interest expense | | | | | (33) | | | | (270) | | | | | n.m. |
| | | | | | | | | | | | |
Other, net | | | | | (428) | | | | (212) | | | | | (50.5) | % |
Total other income/(expense), net | | | | | (461) | | | | (482) | | | | | 4.6 | % |
| | | | | | | | | | | | |
Income/(loss) before income taxes | | | | | 37,690 | | | | (253,133) | | | | | n.m. |
Expense/(benefit) for income taxes | | | | | 20,982 | | | | (8,494) | | | | | n.m. |
Income/(loss) before equity method investment | | | | | 16,708 | | | | (244,639) | | | | | n.m. |
Income/(loss) from equity method investment | | | | | 453 | | | | (739) | | | | | n.m. |
Net income/(loss) | | | | | 17,161 | | | | (245,378) | | | | | n.m. |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
n.m. not meaningful
56
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
(in thousands) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Consolidated statement of operations: | | | | | | | | | | | | |
Revenue | | € | 298,842 |
| | | € | 485,942 |
| | | € | 667,802 |
| | 62.6 | % | | 37.4 | % |
Revenue from related party | | 194,241 |
| | | 268,227 |
| | | 367,581 |
| | 38.1 | % | | 37.0 | % |
Total revenue | | 493,083 |
| | | 754,169 |
| | | 1,035,383 |
| | 52.9 | % | | 37.3 | % |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Costs of revenue, excluding amortization | | 2,946 |
| | | 4,273 |
| | | 5,930 |
| | 45.0 | % | | 38.8 | % |
Selling and marketing | | 461,219 |
| | | 673,224 |
| | | 946,925 |
| | 46.0 | % | | 40.7 | % |
Technology and content | | 28,693 |
| | | 51,658 |
| | | 52,232 |
| | 80.0 | % | | 1.1 | % |
General and administrative | | 18,065 |
| | | 55,602 |
| | | 47,444 |
| | 207.8 | % | | (14.7 | )% |
Amortization of intangible assets | | 30,030 |
| | | 13,857 |
| | | 3,220 |
| | (53.9 | )% | | (76.8 | )% |
Operating income (loss) | | (47,870 | ) | | | (44,445 | ) | | | (20,368 | ) | | 7.2 | % | | 54.2 | % |
Other income (expense): | | | | | | | | | | | | |
Interest expense | | (147 | ) | | | (137 | ) | | | (44 | ) | | 6.8 | % | | 67.9 | % |
Gain on deconsolidation of entity | | — |
| | | — |
| | | 2,007 |
| | n.m. |
| | n.m. |
|
Other, net | | (2,667 | ) | | | (139 | ) | | | 592 |
| | 94.8 | % | | 525.9 | % |
Total other income (expense), net | | (2,814 | ) | | | (276 | ) | | | 2,555 |
| | 90.2 | % | | 1,025.7 | % |
Income (loss) before income taxes | | (50,684 | ) | | | (44,721 | ) | | | (17,813 | ) | | 11.8 | % | | 60.2 | % |
Expense (benefit) for income taxes | | (11,318 | ) | | | 6,670 |
| | | (4,764 | ) | | 158.9 | % | | (171.4 | )% |
Net loss | | (39,366 | ) | | | (51,391 | ) | | | (13,049 | ) | | (30.5 | )% | | 74.6 | % |
Net loss attributable to noncontrolling interests | | 239 |
| | | 710 |
| | | 568 |
| | 197.1 | % | | (20.0 | )% |
Net loss attributable to trivago N.V. | | € | (39,127 | ) | | | € | (50,681 | ) | | | € | (12,481 | ) | | (29.5 | )% | | 75.4 | % |
| | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2019 | | 2020 |
Consolidated statement of operations as a percent of total revenue: | | | | | |
Revenue | | | 66.1 | % | | 72.9 | % |
Revenue from related party | | | 33.9 | % | | 27.1 | % |
Total revenue | | | 100.0 | % | | 100.0 | % |
Costs and expenses: | | | | | |
Cost of revenue | | | 1.1 | % | | 4.1 | % |
Selling and marketing | | | 79.2 | % | | 71.6 | % |
Technology and content | | | 8.3 | % | | 25.8 | % |
General and administrative | | | 6.6 | % | | 16.4 | % |
Amortization of intangible assets | | | 0.2 | % | | 0.1 | % |
Impairment of goodwill | | | — | % | | 83.4 | % |
Operating income/(loss) | | | 4.5 | % | | (101.5) | % |
| | | | | |
Other income/(expense) | | | | | |
Interest expense | | | (0.0) | % | | (0.1) | % |
| | | | | |
Other, net | | | (0.1) | % | | (0.1) | % |
Total other income/(expense), net | | | (0.1) | % | | (0.2) | % |
| | | | | |
Income/(loss) before income taxes | | | 4.5 | % | | (101.7) | % |
Expense/(benefit) for income taxes | | | 2.5 | % | | (3.4) | % |
Income/(loss) before equity method investment | | | 2.0 | % | | (98.3) | % |
Income/(loss) from equity method investment | | | 0.1 | % | | (0.3) | % |
Net income/(loss) | | | 2.0 | % | | (98.6) | % |
| | | | | |
| | | | | |
|
| | | | | | | | |
| Year ended December 31, |
| 2015 |
| | 2016 |
| | 2017 |
|
Consolidated statement of operations as a percent of total revenue:
| | | | | |
Revenue | 60.6 | % | | 64.4 | % | | 64.5 | % |
Revenue from related party | 39.4 | % | | 35.6 | % | | 35.5 | % |
Total revenue | 100.0 | % | | 100.0 | % | | 100.0 | % |
Costs and expenses: | | | | | |
Cost of revenue, excluding amortization | 0.6 | % | | 0.6 | % | | 0.6 | % |
Selling and marketing | 93.6 | % | | 89.3 | % | | 91.5 | % |
Technology and content | 5.8 | % | | 6.8 | % | | 5.0 | % |
General and administrative | 3.7 | % | | 7.4 | % | | 4.6 | % |
Amortization of intangible assets | 6.1 | % | | 1.8 | % | | 0.3 | % |
Operating income (loss) | (9.7 | )% | | (5.9 | )% | | (2.0 | )% |
Other income (expense): | | | | | |
Interest expense | — | % | | — | % | | — | % |
Gain on deconsolidation of entity | — | % | | — | % | | 0.2 | % |
Other, net | (0.5 | )% | | — | % | | 0.1 | % |
Total other income (expense), net | (0.5 | )% | | — | % | | 0.2 | % |
Income (loss) before income taxes | (10.3 | )% | | (5.9 | )% | | (1.7 | )% |
Expense (benefit) for income taxes | (2.3 | )% | | 0.9 | % | | (0.5 | )% |
Net loss | (8.0 | )% | | (6.8 | )% | | (1.3 | )% |
Net loss attributable to non-controlling interests | 0.1 | % | | 0.1 | % | | 0.1 | % |
Net loss attributable to trivago N.V. | (7.9 | )% | | (6.7 | )% | | (1.2 | )% |
Revenue
Our total revenue in the year ended December 31, 2020 consisted of Referral Revenue of €238.4 million and other revenue of €10.6 million.
Total revenue for the year ended December 31, 20172020 was €1,035.4€248.9 million, representing an increasea decrease of €281.2€589.7 million, or 37.3%70.3%, compared to the year ended December 31, 2016. Revenue from related party for the year ended December 31, 2017 increased by €99.4 million, or 37.0%, compared to the year ended December 31, 2016, while revenue from third parties increased by 37.4% for the same period. The increase of revenue from third parties is due to the positive revenue effect in the first half of 2017 following the introduction of our relevance assessment as some third-party advertisers compensated for their lower relevance assessment by submitting higher CPC bids versus the Expedia group of companies on our marketplace. In the second half of 2017, advertisers were able to lower their CPC bids as these advertisers responded to the introduction of the relevance assessment, as described above.
Total revenue for the year ended December 31, 2016 was €754.2 million, representing an increase of €261.1 million, or 53.0%, compared to the year ended December 31, 2015.2019. Revenue from related parties for the year ended December 31, 2016 increased2020 decreased by €74.0€217.2 million, or 38.1%76.3%, compared to 2015,the year ended December 31, 2019, while revenue from third parties increaseddecreased by 62.6%€372.5 million, or 67.2% for the same period. The increase in
Referral revenue from related parties is due to higher bidding for advertising on our marketplace in 2016the year ended December 31, 2020 was €238.4 million, representing a decrease of €585.2 million, or 71.1%, compared to 2015the year ended December 31, 2019. Referral Revenue was negatively impacted by the Expedia groupsignificant declines in Qualified Referrals and RPQR. The number of companies, in the aggregate.
Our total revenueQualified Referrals decreased by 53.9% in the year ended December 31, 2017 consisted2020 compared to the same period in 2019, while RPQR decreased by 37.3%.
The year-over-year decline in Qualified Referrals was broadly similar among all segments. It was primarily driven by significant traffic volume declines resulting from the subdued levels of Referral Revenuetravel activities due to the COVID-19 pandemic and subsequent reductions in our Advertising Spend across all of €1,020.3 million and other revenue of €15.0 million. Our total revenueour segments.
RPQR decreased in all segments in the year ended December 31, 2016 consisted2020 primarily driven by cautious behavior of Referral Revenueour advertisers due to continued uncertainty around future cancellations, which is reflected in lower bidding levels across all segments, as well as by significant reductions by advertisers of €745.8 milliontheir bids on our platform and other revenuethe deactivations of €8.3 million. Our total revenuecampaigns made in initial response to the year ended December 31, 2015 consisted of Referral Revenue of €490.2 million and other revenue of €2.8 million.
COVID-19 outbreak.
Referral RevenueThis softness in bids was the year ended December 31, 2017 increased by €274.5 million, or 36.8%, compared to 2016. The number of Qualified Referrals increased by 35.8%primary driver for the year-over-year decline in the year ended December 31, 2017 compared to 2016. During the same period, RPQR increased by 0.7%. The growth in Referral Revenue was driven by strong advertising spend and the positive Referral Revenue effects during the first half of 2017 following the introduction of our relevance assessment as described above. We reinvested additional Referral Revenue from the relevance assessment in advertising, which also had a positive effect on Referral Revenue during the first half of 2017.across all segments. In the second half of 2017,2020, we additionally experienced a significant slowdownnegative impacts from foreign exchange rate effects, in Referral Revenue growth as some significant advertisers responded to the introduction of the relevance assessment as described above. This included an algorithm-driven pull back in our performance marketing advertising spend and a deceleration of our brand marketing expenditure growth. The second half of 2017 was also negatively impacted by lower levels of commercialization and increased volatility on our marketplaceparticular due to significant testing activities by our largest advertisers.
The increase in Qualified Referrals in the year ended December 31, 2017 was due to the increased awareness of our brand and continued strong TV advertising spend, as well as an increase in performance marketing spend in the first half of 2017. The significant slow-down in Qualified Referral growth rates in the second half of 2017 compared to the same period in 2016 was driven by a deceleration of our advertising spend growth and the impact of the new attribution model and ongoing product optimization as described above.
RPQR was positively impacted in the first half of 2017 by the introduction of the relevance assessment in our marketplace algorithm, which was partially offset in the second half of 2017 by the negative revenue effects described above relating to our advertisers’ response to the introduction of the relevance assessment as well as lower levels of commercialization and increased advertiser testing activities. The second half of 2017 was also negatively impacted by the relative weakening of the U.S. dollar and certain currencies in Latin Americas to the Asia Pacific region but was positively impacted by effects we observed from the continued roll-out of the new attribution model and the implementation of measures aimed at optimizing our platforms, which we believe contributed to increased levels of booking conversion. RPQR in 2017 was also negatively impacted by the increased weighting of RPQR in our Rest of World segment.
Referral Revenue in the year ended December 31, 2016 increased by €255.6 million, or 52.1%, compared to 2015. This growth was primarily due to an increase by 60.0% in the number of Qualified Referrals in the year ended December 31, 2016 compared to 2015. During the same period, RPQR decreased by 4.8%.euro.
The breakdown of Referral Revenue by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | % Change |
(in millions) | | | | 2019 | | | 2020 | | | | 2020 vs 2019 |
Americas | | | | | € | 305.1 | | | | € | 89.3 | | | | | (70.7) | % |
Developed Europe | | | | | 347.1 | | | | 102.9 | | | | | (70.4) | % |
Rest of World | | | | | 171.5 | | | | 46.1 | | | | | (73.1) | % |
Total | | | | | € | 823.6 | | | | € | 238.4 | | | | | (71.1) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
(in millions) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Americas | | € | 171.9 |
| | | € | 286.4 |
| | | € | 391.7 |
| | 66.6 | % | | 36.8 | % |
Developed Europe | | 259.6 |
| | | 348.9 |
| | | 425.0 |
| | 34.4 | % | | 21.8 | % |
Rest of World | | 58.7 |
| | | 110.5 |
| | | 203.6 |
| | 88.2 | % | | 84.3 | % |
Total | | € | 490.2 |
| | | € | 745.8 |
| | | € | 1,020.3 |
| | 52.1 | % | | 36.8 | % |
Note: Some figures may not add due to rounding.
Referral Revenue in the Americas in the year ended December 31, 2017 increased2020 decreased by €105.3€215.8 million, or 36.8%70.7%, compared to the year ended December 31, 2016. This growth2019. The year-over year decline in Referral Revenue in this segment was primarily due to an increasemainly driven by 36.4%a decline in the number of Qualified Referrals and RPQR as a result of the COVID-19 pandemic.
Qualified Referrals declined significantly after the outbreak of the COVID-19 pandemic. In the second half of 2020, this decline in Qualified Referrals was less pronounced. RPQR decreased by €0.82, or by 39.2% in the year ended December 31, 20172020 compared to the year ended December 31, 2016. The increasesame period in Referral Revenue was2019, primarily drivendue to reductions by advertisers of their bids on our platform and the positive impactdeactivations of the relevance assessmentcampaigns in the first half of 2017 and our advertisers'initial response to the introduction of the relevance assessmentCOVID-19 outbreak, as well as lower levels of commercialization and increased advertiser testing activitiesthe softness in bids described above. We also faced significant headwinds towards the end of 2017 as a result of the relative weakening of the U.S. dollar against the euro.
During the same period, RPQR in the Americas increasedRPR decreased by €0.01, or 0.5%, compared to 2016. The increase in RPR for the period of 8.6% was almost completely offset by a decline in the click-out rate of 7.7%. The decline in the click-out rate reflected the impacts of platform optimization measures and the new attribution model, which have led to fewer referrals per Qualified Referral. In addition, click-out rates tend to decrease
with a growing share of mobile visits and a growing customer base as users become more familiar with the platform.
Referral Revenue in the Americas in the year ended December 31, 2016 increased by €114.5 million, or 66.6%35.9%, compared to the year ended December 31, 2015. This growth was primarily due to an increase by 71.2% in the number of qualified referrals in the year ended December 31, 2016 compared to the year ended December 31, 2015. This growth was significantly driven by growth in the United States, where we focused our marketing activities to further develop our visibility with advertisers and travelers. During the same period, RPQR in the Americas decreased by €0.05, or 2.5%, compared to 2015 even though RPR for the period increased by 7.7%. This was due to a decrease in the click-out rate of the period of 9.7%, a consequence of our product optimization, which typically leads to fewer referrals per Qualified Referral, and an increasing share of Qualified Referrals from maturing markets in Latin America with a lower RPQR lowering the segment average.2019.
Referral Revenue forin Developed Europe in the year ended December 31, 2017 increased2020 decreased by €76.1€244.2 million, or 21.8%70.4%, compared to the year ended December 31, 2016.2019 which was mainly driven by the COVID-19 outbreak. Referral Revenue declined significantly at the outbreak of the COVID-19 pandemic but improved somewhat during the summer months, when the COVID-19 pandemic was relatively muted in Developed Europe. This growth was primarily due to an increase of 15.7%improvement reversed itself later in the numberyear as a result of Qualified Referralsthe reimplementation of additional travel restrictions in Developed Europe.
RPQR decreased by €0.65, or by 36.5% in the year ended December 31, 20172020 compared to 2016. The increase in Referral Revenue was driven by the positive impacts of the relevance assessment in the first half of 2017. In the second half of 2017, we experienced a significant slowdown in Referral Revenue growth as a result of the negative revenue effects described above relating to our advertisers’ response to the introduction of the relevance assessment. In Developed Europe, the impact of lower levels of commercialization and testing activities of our largest advertisers in the second half of 2017 was more pronounced, negatively affecting Referral Revenue in that period. In 2017, RPQR in Developed Europe increased by €0.07, or 5.1%, even though RPR increased by 19.1% for the period, which was partly offset by a reduction in the click-out rate for the period by 11.1%, reflecting the impacts of platform optimization measures and the new attribution model, which have led to fewer referrals per Qualified Referral.
Referral Revenue for Developed Europe in the year ended December 31, 2016 increased2019 due to reductions by €89.3 million, or 34.4%advertisers of their bids on our platform and the deactivations of campaigns in initial response to the COVID-19 outbreak, as well as the softness in bids described above. The RPR for the period decreased by 30.6%, compared to the year ended December 31, 2015. This growth was primarily due to an increase by 39.0%2019.
Referral Revenue in the number of Qualified ReferralsRoW in the year ended December 31, 2016 compared to 2015. During the same period, RPQR in Developed Europe2020 decreased by €0.04, or 2.8%, even though RPR increased by 6.8% for the period due to a reduction in the click-out rate for the period of 11.1%.
Referral Revenue for the Rest of World in the year ended December 31, 2017 increased by €93.1€125.4 million, or 84.3%73.1%, compared to the year ended December 31, 2016.2019, which was mainly driven by the COVID-19 outbreak. Referral Revenue declined significantly at the outbreak of the COVID-19 pandemic. This growthdecline was primarily due toless pronounced during the 74.6% increasesecond half of 2020, when the COVID-19 pandemic was relatively muted in RoW. This improvement reversed itself later in the numberyear as a result of Qualified Referralsthe reimplementation of additional travel and warnings in RoW. RPQR decreased by €0.37, or 38.9% in the year ended December 31, 20172020 compared to the year ended December 31, 2016. The increase2019 due to reductions by advertisers of their bids on our platform and the deactivations of campaigns in Referral Revenue was primarily driven by the positive impacts of the relevance assessment in the first half of 2017. In the second half of 2017, we experienced a significant slowdown in Referral Revenue growth as a result of the negative revenue effects described above relating to our advertisers’initial response to the introduction ofCOVID-19 outbreak, as well as the relevance assessment and lower levels of commercialization and increased advertiser testing activities. We also faced significant headwinds towards the end of 2017 as a result of the relative weakening of the U.S. dollar against certain currenciessoftness in the Asia Pacific region. During the same period, RPQR in Rest of World increased by €0.04, or 4.7% even thoughbids described above. The RPR even increased by 10.3% for the period due to a reduction in the click-out rate for the period of 5.8%. The decline in the click-out rate reflected the impacts of platform optimization measures and the attribution model, which have led to fewer referrals per Qualified Referral.
Referral Revenue for Rest of World in the year ended December 31, 2016 increaseddecreased by €51.8 million, or 88.2%,33.3% compared to the year ended December 31, 2015. This growth was primarily due to an increase by 104.9% in the number of Qualified Referrals in the year ended December 31, 2016 compared to 2015. During the same period, RPQR in Rest of World decreased by €0.07, or 7.6%,even though RPR increased by 3.6% for the period due to a reduction in the click-out rate for the period by 11.0%. Increased marketing in newer regions in our Rest of World segment, particularly in Japan, had a significant impact on our Referral Revenue growth in the segment for the year ended December 31, 2016 as compared to the year ended December 31, 2015.2019.
Cost of Revenue and Expenses
Cost of revenue including related party
Our cost of revenue consists primarily of our third-party cloud-related service provider expenses, data center costs, personnel-related expenses and share-based compensation for our data center operations staff and our customer service team.
Cost of revenue including from related party, was €2.9€10.1 million €4.3 million and €5.9 million for the years ended December 31, 2015, 2016 and 2017, respectively.
Cost of revenue for the year ended December 31, 20172020, and increased by €1.6€0.9 million, or 37.2%10%, compared to the year ended December 31, 20162019. The increase was primarily driven by higher personnel-related costs of €0.7 million mainly due to an increasehigher headcount included in maintenance fees for servers and depreciation of €1.1 million and €0.6 million, respectively, as we continued to extend and upgrade our data center operations and continue to make investments to reach scale. Our personnel-related costs increased by €0.6 million due to an increase in headcount from 26 employees as of December 31, 2016 to 60 employees as of December 31, 2017 and were offset by a €0.6 million decrease in share-based compensation due to fluctuations in the fair value accounting treatment of awards which were classified as liability awards in the prior periods. See Note 10—Share based awards and other equity instruments in the notes to our consolidated financial statements.
Costcost of revenue, foras well as higher third-party IT service providers costs. Share-based compensation decreased by €0.1 million in the year ended December 31, 2016 increased by €1.4 million, or 48.3%,2020, compared to the year ended December 31, 2015 due to a €1.2 million increase in depreciation and maintenance of servers and a €0.2 million increase in personnel-related costs. The increase in personnel-related costs was primarily driven by increases in share-based compensation expense of €0.5 million due to fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods. See Note 10—Share based awards and other equity instruments in the notes to our consolidated financial statements. The €0.5 million increase was partially offset by a €0.3 million decrease of other personnel-related costs due to a decrease in headcount from 39 employees as of December 31, 2015 to 26 employees as of December 31, 2016 due to reallocation of certain IT employees to general and administrative.2019.
Selling and marketing
Selling and marketing consists of all selling and marketing related costs and is divided into advertising expense and other selling and marketing expenses, includingas well as share-based compensation expense.
Advertising expense consists of fees that we pay for our various marketing channels like TV, out-of-home advertising, radio, search engine marketing, search engine optimization, display and affiliate marketing, email marketing, online video, app marketing and content marketing.
Other selling and marketing expenses include research costs,personnel-related expenses for our marketing, sales and hotel relations teams, as well as production costs for our TV spots and other marketing material, and other professional fees such as well as personnel-related expenses and share-based compensation for our marketing, sales, hotel relations and country development teams.market research costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | % Change |
(in millions) | | | | | | 2019 | | | 2020 | | | | 2020 vs 2019 |
Advertising expense | | | | | | € | 616.7 | | | | € | 150.0 | | | | | (75.7) | % |
% of total revenue | | | | | | 73.5 | % | | | 60.3 | % | | | | |
Other selling and marketing | | | | | | 45.1 | | | | 27.1 | | | | | (39.9) | % |
% of total revenue | | | | | | 5.4 | % | | | 10.9 | % | | | | |
Share-based compensation | | | | | | 2.4 | | | | 1.2 | | | | | (50.0) | % |
% of total revenue | | | | | | 0.3 | % | | | 0.5 | % | | | | |
Total selling and marketing expense (1) | | | | | | € | 664.2 | | | | € | 178.3 | | | | | (73.2) | % |
% of total revenue | | | | | | 79.2 | % | | | 71.6 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
(in millions) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Advertising expense | | € | 432.2 |
| | | € | 623.5 |
| | | € | 884.7 |
| | 44.3 | % | | 41.9 | % |
% of total revenue | | 87.6 | % | | | 82.7 | % | | | 85.4 | % | | | | |
Other selling and marketing | | 25.7 |
| | | 38.8 |
| | | 58.7 |
| | 51.0 | % | | 51.3 | % |
% of total revenue | | 5.2 | % | | | 5.1 | % | | | 5.7 | % | | | | |
Share-based compensation | | 3.4 |
| | | 10.9 |
| | | 3.5 |
| | 220.6 | % | | (67.9 | )% |
% of total revenue | | 0.7 | % | | | 1.4 | % | | | 0.3 | % | | | | |
Total selling and marketing expense | | € | 461.3 |
| | | € | 673.2 |
| | | € | 946.9 |
| | 45.9 | % | | 40.7 | % |
% of total revenue | | 93.6 | % | | | 89.3 | % | | | 91.5 | % | | | | |
Selling and marketing expenses for the year ended December 31, 2017 increased2020 decreased by €273.7€485.9 million, or 40.7%73.2%, compared to the year ended December 31, 2016,2019, primarily driven by overall increased advertising
spendsignificant reductions in Advertising Spend across all regions. segments due to the COVID-19 pandemic.
Advertising spend was at elevated levelsSpend decreased by €466.7 million, or 75.7%, in the first half of 2017 as we reinvested additional Referral Revenue from the introduction of the relevance assessment into our marketing activities. As most of our advertisers changed their landing pages in responseyear ended December 31, 2020 compared to the introduction ofyear ended December 31, 2019.
In reaction to the relevance assessmentCOVID-19 pandemic, we reduced our Advertising Spend significantly starting at the end of the secondfirst quarter of 2017, we reduced our advertising spend2020. This reduction continued across all segments throughout 2020. During the summer months in Developed Europe where the second half of 2017 to account forCOVID-19 pandemic was relatively muted, the reduction in our commercialization; howeverAdvertising Spend was less pronounced as we were initially unabletook advantage of a slight recovery in travel demand in that segment.
We reduced our Advertising Spend to pull back planned TV advertising spend quickly enough€57.0 million, €60.8 million and €32.2 million in Americas, Developed Europe and RoW, respectively, compared to respond to the speed of the RPQR slowdown€233.9 million, €230.3 million and €152.5 million, in the second half of 2017, reflecting our inability to reduce planned TV advertising spend due to commitments in some markets. Sellingyear ended December 31, 2019.
Other selling and marketing expenses excluding share-based compensation for the year ended December 31, 2016 increased2020 decreased by €211.9€18.0 million, or 45.9%39.9%, compared to the year ended December 31, 2015,2019, primarily driven by an increase€8.5 million in marketing activitiesreduced television advertisement production costs, and by lower personnel-related costs. Personnel-related costs for the year ended December 31, 2020 decreased by €4.7 million, or 23.4%, mainly due to lower headcount and employee benefits. This was slightly offset by restructuring costs incurred in the year ended December 31, 2020 (see "Costs across all markets.multiple categories" below).
Other sellingProfessional fees and marketingother expenses for the year ended December 31, 2017 increased2020 decreased by €19.9€4.8 million, compared to the same period in 2019, mainly driven by lower office-related expenses (see "Costs across multiple categories" below) and lower marketing analytics costs. Additionally, we incurred lower digital sales taxes due to the decrease in Referral Revenue caused by the COVID-19 pandemic.
Share-based compensation decreased by €1.2 million, or 51.3%,50.0% in the year ended December 31, 2020 compared to the year ended December 31, 2016 primarily by increases in production costs for TV advertisements, notably in Rest of World and Developed Europe, higher personnel costs and increased spending on marketing material. We also increased our headcount from 521 employees as of December 31, 2016 to 606 employees as of December 31, 2017,2019, which was mainly related to employees hired for hotel sales teams to increase the acquisition of new hotels on our marketplace and expand our hotel services sales. This led to an increase in personnel-related expense of €6.1 million for the year ended December 31, 2017. Other selling and marketing expenses for the year ended December 31, 2016 increased by €13.1 million, or 51.0%, compared to the year ended December 31, 2015 due to higher personnel-related expenses primarily driven by an increase in headcount from 433 employees as of December 31, 2015 to 521 employees as of December 31, 2016.award forfeitures, partly offset by new grants during the year.
Share-based compensation decreased by €7.4 million, or 67.9%, in the year ended December 31, 2017 compared to the year ended December 31, 2016, which was primarily driven by fluctuations in the fair value accounting treatment of awards which were classified as liability awards in the prior periods. Share-based compensation increased by €7.5 million, or 220.6%, in the year ended December 31, 2016 compared to the year ended December 31, 2015, which was primarily driven by fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods.
Technology and content
Technology and content expense generally consists primarily of expenses for technology development, product development and contenthotel search personnel and overhead, depreciation and amortization of technology assets including hardware, purchased and internally developed software and other professional fees (primarily licensing and maintenance expense), including share-based compensation expense.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | % Change |
(in millions) | | | | 2019 | | | 2020 | | | | 2020 vs 2019 |
Personnel | | | | | € | 40.0 | | | | € | 37.4 | | | | | (6.5) | % |
Share-based compensation | | | | | 6.0 | | | | 3.8 | | | | | (36.7) | % |
Depreciation of technology assets | | | | | 6.2 | | | | 7.2 | | | | | 16.1 | % |
Professional fees and other | | | | | 17.8 | | | | 15.8 | | | | | (11.2) | % |
Total technology and content | | | | | € | 69.9 | | | | € | 64.3 | | | | | (8.0) | % |
% of total revenue | | | | | 8.3% | | | 25.8 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | % Change |
(in millions) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Personnel | | € | 17.0 |
| | | € | 24.0 |
| | | € | 34.0 |
| | 41.2 | % | | 41.7 | % |
Share-based compensation, net of capitalized internal use software and website development costs | | 4.5 |
| | | 15.8 |
| | | 3.6 |
| | 251.1 | % | | (77.2 | )% |
Depreciation of technology assets | | 1.4 |
| | | 3.9 |
| | | 4.0 |
| | 178.6 | % | | 2.6 | % |
Professional fees and other | | 5.8 |
| | | 8.0 |
| | | 10.6 |
| | 37.9 | % | | 32.5 | % |
Total technology and content | | € | 28.7 |
| | | € | 51.7 |
| | | € | 52.2 |
| | 80.1 | % | | 1.0 | % |
% of total revenue | | 5.8 | % | | | 6.9 | % | | | 5.0 | % | | | | |
Technology and content expense for the year ended December 31, 2017 increased2020 decreased by €0.5€5.6 million, or 1.0%8.0%, compared to the year ended December 31, 2016. The increase was primarily driven by increases in2019, mainly due to lower personnel-related costs as we grew our headcount and made investments in content expansion, which was largely offset by lower share-based compensation expense. The increase in personnel-relatedcompensation.
Personnel-related costs amounted to €10.0 million, or 41.7%, as we continue to make investments in product content and therefore increased our headcount from 499 employees as offor the year ended December 31, 2016 to 652 employees as of December 31, 2017. This increase in personnel-related costs was largely offset by lower share-based
compensation of €12.2 million, or 77.2%, which was due to the fluctuations in the fair value accounting treatment of awards which were classified as liability awards in the prior periods. Professional fees and other increased2020 decreased by €2.6 million, or 32.5%6.5%, as we continuedmainly due to invest in projects related to visual content, hotel descriptionlower headcount, lower employee benefits and profiling to improve the qualityincreased capitalization of our product, whichdevelopers' salaries. This was partly offset by restructuring costs incurred higher website development expenses. In addition, depreciation of technology assets increased by €0.1 million, or 2.6% in the year ended December 31, 2017 compared to the year ended December 31, 2016.2020 (see "Costs across multiple categories" below).
Technology and content expenseShare-based compensation decreased by €2.2 million, or 36.7%, for the year ended December 31, 2016 increased by €23.0 million, or 80.1%, compared to the year ended December 31, 2015, primarily due to an increase of €11.3 million, or 251.1% in share-based compensation2020, which was mainly driven by fluctuations inaward forfeitures partly offset by new grants during the fair value accounting treatment of awards which were classified as liability awards in the prior periods, and an increase in personnel-related costs of €7.0 million, or 41.2%, to support key technology projects primarily for our corporate technology function, which resulted in an increase in headcount from 381 employees as of December 31, 2015 to 499 employees as of December 31, 2016. In addition, depreciation of technology assets increased by €2.5 million, or 178.6%, and professionalyear.
Professional fees and other expenses increaseddecreased by €2.2€2.0 million, or 37.9%11.2%, mainly due to a €1.5 million decrease in the year ended December 31, 2016.office-related expenses (see "Costs across multiple categories" below) and a €1.3 million decrease in external content development costs. These decreases were partly offset by higher third-party IT service provider costs and capitalized software depreciation due to a larger underlying asset.
General and administrative
General and administrative expense consists primarily of professional fees for external services including legal, tax and accounting, personnel-related costs including those of our executive leadership, finance, legal and human resource functions, sharedas well as professional fees for external services costs calculatedincluding legal, tax and allocated by Expedia to us, and other costs includingaccounting. It also includes other overhead costs, depreciation and share-based compensation.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended December 31, | | | | % Change |
(in millions) | | | | 2019 | | | 2020 | | | | 2020 vs 2019 |
Personnel | | | | | € | 18.6 | | | | € | 16.6 | | | | | (10.8) | % |
Share-based compensation | | | | | 11.3 | | | | 9.9 | | | | | (12.4) | % |
| | | | | | | | | | | | |
Professional fees and other | | | | | 25.6 | | | | 14.4 | | | | | (43.8) | % |
Total general and administrative | | | | | € | 55.5 | | | | € | 40.9 | | | | | (26.3) | % |
% of total revenue | | | | | 6.6% | | | 16.4% | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
(in millions) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Personnel | | € | 5.4 |
| | | € | 9.8 |
| | | € | 15.3 |
| | 81.5 | % | | 56.1 | % |
Share-based compensation | | 6.0 |
| | | 26.3 |
| | | 8.8 |
| | 338.3 | % | | (66.5 | )% |
Related party shared services allocation | | 2.8 |
| | | 4.2 |
| | | 0.1 |
| | 50.0 | % | | (97.6 | )% |
Professional fees and other | | 3.9 |
| | | 15.3 |
| | | 23.2 |
| | 292.3 | % | | 51.6 | % |
Total general and administrative | | € | 18.1 |
| | | € | 55.6 |
| | | € | 47.4 |
| | 207.2 | % | | (14.7 | )% |
% of total revenue | | 3.7 | % | | | 7.4 | % | | | 4.6 | % | | | | |
General and administrative expense for the year ended December 31, 20172020 decreased by €8.2€14.6 million, or 14.7%26.3%, compared to the year ended December 31, 2016,2019, primarily due to a decrease of €17.5 million of share-based compensation expense mainly driven by fluctuations in the fair value accounting treatment of awards which were classified as liability awards in the prior periods. Professionalprofessional fees and other for the year ended December 31, 2017 increased by €7.9expenses of €11.2 million, or 51.6%43.8%. The decrease resulted mainly from a legal provision recognized in the fourth quarter of 2019, as well as lower consulting expenses compared to the year ended December 31, 2016, mainlysame period in 2019. The decrease was further driven by an increaselower office-related expenses (see "Costs across multiple categories" below) and lower charitable contributions. These were partly offset by the impact of €7.0 milliona cyber-related fraud case, which occurred in legal and consulting fees, including audit and financial consultancy fees. At the same time, legal, tax, and other service costs performed by Expedia on our behalf that were pushed down to us declined by €4.1 million. first quarter of 2020.
Personnel-related costs for the year ended December 31, 2017 increased2020 decreased by €5.5€2.0 million, or 56.1%10.8%, primarily as a result of lower headcount and employee benefits. These were partly offset by restructuring costs incurred in the year ended December 31, 2020 (see "Costs across multiple categories" below).
Share-based compensation decreased by €1.4 million, or 12.4%, for the year ended December 31, 2020, which was mainly driven by award forfeitures partly offset by new grants during the year.
Costs across multiple categories
In connection with our restructuring activities, we incurred charges of €6.2 million in the year ended December 31, 2020, primarily consisting of severance and benefits charges. Charges recorded in technology and content expense were €2.9 million,€1.8 million in selling and marketing expense and €1.5 million in general and administrative expense. See Note 9 - Restructuring for further details.
Office-related expenses decreased by €3.7 million in the year ended December 31, 2020, compared to the year ended December 31, 2016, primarily driven by an increase in headcount in our Human Resources and Finance departments from 187 employees as of December 31, 2016 to 291 employees as of December 31, 20172019, as we continuedterminated unused office space leases in November 2019 and consolidated our office locations in 2020 as part of our restructuring initiatives.
In addition, trivago reduced employee benefits and events due to build up internal expertisethe COVID-19 pandemic in these areas.
General and administrative expense for the year ended December 31, 2016 increased2020, leading to reductions in personnel-related costs.
As result of the above explained office-related expenses and employee benefits costs decreases, technology and content expense decreased by €37.5€3.4 million, or 207.2%,selling and marketing expense by €2.2 million and general and administrative expense by €1.5 million in the year ended December 31, 2020, compared to the year ended December 31, 2015, primarily due to an increase in share-based compensation expense of €20.3 million, which was primarily driven by fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods. Professional fees and other for the year ended December 31, 2016 increased by €11.4 million, or 292.3%, compared to the year ended December 31, 2015, a significant portion of which was due to an increase of €5.1 million in professional fees incurred primarily in conjunction with the preparation of the registration statement filed with the SEC on December 5, 2016 in2019.
connection with our IPO, including consolidated U.S. GAAP financial statements and related audits. Other factors contributing to the increase included an increase in bad debt expense of €3.5 million, higher overhead costs due to increased headcount of €1.4 million, rent expense associated with the build-to-suit lease for our new corporate headquarters of €0.9 million and increased rent of €0.5 million. Personnel costs for the year ended December 31, 2016 increased by €4.4 million, or 81.5%, compared to the year ended December 31, 2015, primarily driven by an increase in headcount from 121 employees as of December 31, 2015 to 187 employees as of December 31, 2016. Further, we incurred increased related party shared service costs of €1.4 million, or 50.0%, primarily attributable to an increase in legal, tax, treasury, audit and corporate reorganization that was incurred by Expedia on our behalf of €0.8 million and an increase in IPO and corporate reorganization costs of €0.6 million pushed down by Expedia.
Amortization of intangible assets
Amortization of intangible assets was €3.2€0.4 million in the year ended December 31, 2017,2020 and €13.9decreased by €1.3 million and €30.0 million incompared to the yearsyear ended December 31, 2016 and December 31, 2015, respectively. The decreases of €10.7 million and €16.1 million for2019, as the years ended December 31, 2017 and December 31, 2016, respectively, are due to certain technology assets that were fully amortized during the first quarters of 2017 and 2016, respectively. The amortization costs relate predominantly to intangibleunderlying assets, recognized by Expedia Group upon the acquisition of a majority stake in trivago GmbH in 2013. The2013, were fully amortized in the first quarter of 2020.
Impairment of goodwill
We recorded an impairment charge of €207.6 million in the year ended December 31, 2020. See Note 8 - Goodwill and intangible assets, net in the notes to our consolidated financial statements reflect Expedia’s basis of accounting due to this change in control in 2013.for further details.
Operating lossincome (loss)
Our operating loss was €20.4€252.7 millionfor the year ended December 31, 2020 compared to an operating income of €38.1 million for the year ended December 31, 20172019. The decline was mainly driven by an impairment of goodwill of €207.6 million recorded in the first quarter of 2020. The decline was further driven by a sharp decline in Referral Revenue due to the COVID-19 pandemic for the year ended December 31, 2020. Our operating loss was partly offset by reductions in operating expenses by €506.5 million, compared to an operating lossthe year ended December 31, 2019, mostly attributable to lower Advertising Spend, to the restructuring of €44.4our organization and to lower professional fees and production costs for television advertisement.
Other income/(expense)
Other expense was €0.5 million for the year ended December 31, 2016. We have seen our operating loss decrease when2020, and remained stable compared to the year ended December 31, 2016. Selling and marketing expenses reflected our inability to pull back planned TV advertising spend due to commitments in some markets. Our operating loss was impacted by a slight2019 as the increase in technologyforeign exchange rate losses and content costs and a decrease in general and administrative expenses, including lower share-based compensation primarily driven by fluctuations in the fair value accounting treatment of awards whichinterest expense were classified as liability awards in the prior periods and lower amortization of intangible assets.
Our operating loss was €44.4 million for the year ended December 31, 2016 compared to an operating loss of €47.9 million for the year ended December 31, 2015. The operating loss decreased primarily due to higher growth in revenue combined with a lower amortization of intangible assets, partially offset by increased costsgains recognized on disposals and expenses, particularly relating to share-based compensation primarily driven by fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods.interest income.
Other, net
Other, net is primarily comprised of a foreign exchange loss of €1.0 million and gains of €0.0 million and €0.1 million for the years ended December 31, 2015, 2016 and 2017, respectively, as well as income from ADSs offset by custodial fees related to ADSs of €0.3 million for the year ended December 31, 2017, other expenses of €0.2 million for the year ended December 31, 2016 and the reversal of an indemnification asset related to an uncertain tax position and the related interest of €1.7 million for the year ended December 31, 2015.
Expense (benefit) for income taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | | | % change |
(in millions) | | 2019 | | 2020 | | | | 2020 vs 2019 |
Expense/(benefit) for income taxes | | | | € | 21.0 | | | | € | (8.5) | | | | | 140.5 | % |
Effective tax rate | | | | 55.7 | % | | | 3.4 | % | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | % Change |
(in millions) | 2015 | | | 2016 | | | 2017 | | | 2016 vs 2015 |
| | 2017 vs 2016 |
|
Expense (benefit) for income taxes | | € | (11.3 | ) | | | € | 6.7 |
| | | € | (4.8 | ) | | 159.3 | % | | (171.6 | )% |
Effective tax rate | | 22.3 | % | | | (14.9 | )% | | | 26.7 | % | | | | |
The income tax expense/(benefit) is mainly driven by income/(loss) before income taxes of €(253.1) million in 2020 and €37.7 million in 2019. Our effective tax rate was 26.7%3.4% in 2017, (14.9)%2020 compared to 55.7% in 2016 and 22.3% in 2015. This is mainly due to non-deductible2019. Non-deductible share-based compensation of (pre-tax) €16.0€15.1 million in 2017, €53.72020 and €19.9 million in 20162019 had an impact on the effective tax rates of (1.9)% and €14.116.5% in the years ended December 31, 2020 and 2019, respectively. In 2020, non-deductible impairment expenses on goodwill of €207.6 million had an impact on the effective tax rate of (25.6)%. Movement in valuation allowance resulted in €0.5 million in 2015. Furthermore, corporate costs were pushed down from Expedia of (pre-tax) €0.52020 (nil in 2019). Additional details on the movement in valuation allowance are included in Note 12 - Income taxes in the notes to our consolidated financial statements. In 2020, €0.3 million for 2017, €4.2 million for 2016 and €2.8 million for 2015, which are non-deductible forrelated to foreign withholding tax purposes.deductions (nil in 2019). Other differences relate to one-off items during the year. In 2017, €3.2year, such as non-deductible expenses which are individually insignificant.
Income/(loss) from equity method investment
For the year ended December 31, 2020 included in income/(loss) from equity method investment is a €1.1 million is relatedimpairment charge relating to our investment in myhotelshop GmbH. See Note 3 - Acquisitions and divestitures in the recognition of previously unrecognized net operating losses. In 2016, €1.9 million is relatednotes to tax losses of the current yearour consolidated financial statements for which no deferred tax asset was recognized (valuation allowance). In 2015, €0.5 million of the total €0.8 million was related to the non-tax deductible expense for the release of a contingent asset at the level of trivago GmbH.further details.
Quantitative and qualitative disclosures about market risk
Market risk is the potential loss from adverse changes in interest rates, foreign exchange rates and market prices. Our exposure to market risk includes our credit facility, cash, accounts receivable, intercompany receivables, investments and accounts payable. We manage our exposure to these risks through established policies and procedures. Our objective is to mitigate potential income statement, cash flow and market exposures from changes in interest and foreign exchange rates.
Interest rate risk
Because the interest rate on our credit facility is tied to a market rate, we will be susceptible to fluctuations in interest rates if, consistent with our practice to date, we do not hedge the interest rate exposure arising from any advances under our credit facility. For the years ending December 31, 2017 and 2016, we had no amounts outstanding under our credit facility, and as of December 31, 2015, we had €20.0 million outstanding. Expedia currently guarantees our credit facility. If Expedia does not continue to guarantee our credit in the future, our borrowing costs could increase.
We did not experience any significant impact from changes in interest rates forand had no amounts outstanding under our credit facility during the yearsyear ended December 31, 2015, 2016 or 2017.2020. The facility was cancelled by the lender in early 2021.
Foreign exchange risk
We conduct business in many countries throughout the world. Because we operate in markets globally, we have exposure to different economic climates, political arenas, tax systems and regulations that could affect foreign exchange rates. Our primary exposure to foreign currency risk relates to transacting in foreign currency and recording the activity in euro. A large portion of our advertising expenses are incurred in the local currency of the particular geographic market in which we advertise, with a significant amount incurred in U.S. dollar. The vast majority of our revenue is denominated in euro. Changes in exchange rates between the functional currency of our consolidated entities and these other currencies will result in transaction gains or losses, which we recognize in our consolidated statements of operations. Our foreign exchange risk relates primarily to the exchange rate between the U.S. dollar and the euro.
Changes in foreign exchange rates can amplify or mute changes in the underlying trends in our revenues and RPQR. Although we 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.
Future net transaction gains and losses are inherently difficult to predict as they are reliant on how the multiple currencies in which we transact fluctuate in relation to the functional currency of our consolidated entities, the relative composition and denomination of current assets and liabilities for each period, and our effectiveness at forecasting and managing, through balance sheet netting, such exposures. As an example, if the foreign currencies in which we hold net asset balances were to depreciate by 10% against the euro and other currencies in which we hold net liability balances were to appreciate by 10% against the euro, we
would recognize foreign exchange losses of €1.6€1.8 million based on the net asset or liability balances of our foreign denominated cash, accounts receivable and accounts payable balances as of December 31, 2017.2020. As the net composition of these balances fluctuate frequently, even daily, as do foreign exchange rates, the example loss could be compounded or reduced significantly within a given period.
During the yearsyear ended December 31, 2015, 2016 and 2017,2020 we recordedincreased our net foreign exchange rate gains (losses) of €(1.0)losses to €0.8 million €0.0compared to €0.4 million and €0.1 million, respectively.in the year ended December 31, 2019.
Concentration of credit risk
Our business is subject to certain risks and concentrations including dependence on relationships with our advertisers, dependence on third-party technology providers, and exposure to risks associated with online commerce security. Our concentration of credit risk relates to depositors holding our cash and customers with significant accounts receivable balances.
Our customer base includes primarily OTAs, hotel chains and independent hotels. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses. We generally do not require collateral or other security from our customers. Expedia Group and affiliates represented 39%, 36%27% of our total revenue for the year ended December 31, 2020 and 36%20% of total accounts receivable as of December 31, 2020. Booking Holdings and its affiliates represented 44% of our revenue for the yearsyear ended December 31, 2015, 2016 and 2017, respectively, and 55%, 31%2020 and 47% of total accounts receivable as of December 31, 2015, 2016 and 2017, respectively. Booking Holdings and its affiliates represented 27%, 43% and 44% of our revenue for the years ended December 31, 2015, 2016 and 2017, respectively, and 21%, 48% and 28% of total accounts receivable as of December 31, 2015, 2016 and 2017, respectively.2020.
Critical Accounting Policies and Estimates
Our OperatingCritical accounting policies and Financial Review is based onestimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes which we have prepared in accordance with U.S. GAAP. The preparationgenerally accepted accounting principles in the United States. Preparation of the consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, andthe disclosure of contingent assets and liabilities as of the date of our consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. Our actual financial results could differ significantly from these estimates. The significant estimates underlying our consolidated financial statements, includeas well as revenue recognition; recoverability of current and long-lived assets, intangible assets and goodwill; income; loss contingencies; redeemable non-controlling interests; acquisition purchase price allocations; and share-based compensation. There have been no material adjustments to prior period estimates for any ofexpenses during the periods included in this annual report.reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:
•It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and
•Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
See For more information on each of these policies, see Note 2—2 - Significant accounting policies, in the notes to our consolidated financial statements. We discuss information about the nature and rationale for our critical accounting estimates below.
Leases
We have operating leases for office space and office equipment. Operating lease right-of-use ("ROU") assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Given the rate implicit in our leases is not typically readily determinable, we have to estimate the Incremental Borrowing Rate ("IBR") to be used as the discount rate in order to measure the present value of future lease payments.
On January 29, 2021, we entered into an amendment to the operating lease agreement for office space in our corporate headquarters, whereby the landlord agreed to grant us partial termination of the lease related to certain floor spaces. This amendment will be treated as a lease modification. See Note 19 - Subsequent events in the notes to our consolidated financial statements appearing elsewhere in this annual report for a description of all of our significant accounting policies. We believe that the following accounting policies are the most criticalfurther details.
The IBR will be used to aid you in fully understandingderive gain or loss on lease modification and evaluating our financial conditionadjustments to Operating lease ROU assets and results of operations.
Revenue recognition
We recognize revenue from services rendered when it is earned and realizable based on the following criteria: persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Revenue is generated each time a visitor to one of our websites or apps clicks on a hotel room offer in our search results and is referred to one of our advertisers. Advertisers pay on a per referral basis, with the aforementioned visitor click-through being considered a single referral. Given the naturelease liabilities as of the industry, it is not unusual for referrals to be generated from automated scripts designed to browse and collect data on our websites. However, review processes are in place to identify anomalies to ensure revenue recognition is appropriate. Pricing is determined through a competitive bidding process whereby advertisers bid on their placement priority for a specific room offer within each room listing. Bids can be placed as often as daily, and changes in bids are applied on a prospective basis on the following day. Additionally, a portion of our revenue is generated through subscription-based services earned through trivago Hotel Manager Pro applications. This revenue is recognized ratably over the subscription period and deferred revenue is recorded on the balance sheet for amounts invoiced in advance of revenue recognition.
Leases
We lease office space in several countries under non-cancelable lease agreements. We generally lease our office facilities under operating lease agreements. We recognize rent expense on a straight-line basis over the lease period. Any lease incentives are recognized as reductions of rental expense on a straight-line basis over the term of the lease. The lease term begins on theeffective date we become legally obligated for the rent payments or when we take possession of the office space, whichever is earlier.
We establish assets and liabilities for the estimated construction costs incurred under lease arrangements where we are considered the owner for accounting purposes only, or build-to-suit leases, to the extent that we are involved in the construction of structural improvements or take construction risk prior to commencement of a lease.
In July 2015, we entered into a lease for new corporate headquarters with 26,107 square meters of office space. Pursuant to the lease, the Landlord will build this office building in Düsseldorf, Germany. As a result of our involvement in the construction project and our responsibility for paying a portion of the costs of normal finish work and structural elements of the premises, the Company was deemed for accounting purposes to be the owner of the premises during the construction period pursuant to build-to-suit lease accounting guidance under ASC 840. Therefore, the Company recorded project construction costs during the construction period incurred by the landlord as a construction-in-progress asset and a related construction financing obligation on our consolidated balance sheets. The amounts that the Company has paid or incurred for normal tenant improvements and structural improvements had also been recorded as part of the construction-in-progress asset.
We have a lease that includes both building and land. We have bifurcated our lease payments pursuant to the premises into: a portion that is allocated to the building (a reduction to the financing obligation); and a portion that is allocated to the land on which the building was constructed. The portion of the lease obligations allocatedmodification. Estimating the IBR
requires assessing a number of inputs including an estimated synthetic credit rating, collateral adjustments and interest rates. Selecting different inputs for this estimation may result in materially different gain or loss on lease modification and adjustments to the land is treated as an operatingOperating lease that commenced in July 2015. For the years ended December 31, 2016ROU assets and 2017, we have recorded €1.7 million and €1.7 million respectively, of land rent expense in connection with this lease.lease liabilities.
Recoverability of goodwill and indefinite-lived intangible assets
Goodwill is assigned to our three reporting units, which correspond to our three operating segments, on the basis of their relative fair values as of the date of change in reporting units.values. We assess goodwill and indefinite-lived assets, neither of which are amortized, for impairment annually in the fourth quarteras of the year,September 30, or more frequently, if events and circumstances indicate that an impairment may have occurred. In the evaluation of goodwill for impairment, we typically first perform a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount, followed by performing a quantitative assessment by comparing the fair value of the reporting unit to the carrying value, if necessary. Effective October 1, 2017,Periodically, we prospectively adopted accounting guidance that simplified ourmay elect to bypass the initial qualitative assessment and proceed directly to the quantitative goodwill impairment testing by eliminating the requirement to calculate the implied fair value of goodwill (formerly "Step 2") in the event an impairment is identified. Instead, antest. An impairment charge is recorded based on the excess of the reporting unit's carrying amount over its fair value.
We generally base the measurement of fair value of our three reporting units on a blended analysis of the present value of future discounted cash flows and market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include our weighted average cost of capital, revenue growth rates, profitability of our business and long-term rate of growth and profitability of our business.growth. The market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors, such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples and the control premium applied in estimating the fair value of the reporting unit.
We believe the weighted use of discounted cash flows and market approach is the best method for determining the fair value of our reporting units because these are the most common valuation methodologies used within the travel and Internet industries and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis.
In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reporting units and corporate-level assets and liabilities in relation to the company’sCompany’s total fair value.value of equity as of the assessment date, which assumes our fully diluted market capitalization, using the average stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on observable transactions of comparable companies.
In our evaluation of our indefinite-lived intangible assets, we typically first perform a qualitative assessment to determine whether the fair value of the indefinite-lived intangible assets is more likely than not impaired. If so, we perform a quantitative assessment and an impairment charge is recorded for the excess of the carrying value of the indefinite-lived intangible assets over the fair value. Periodically, we may elect to bypass the initial qualitative assessment and proceed directly to the quantitative impairment test of indefinite-lived intangible assets. We base our measurement of the fair value of our indefinite-lived intangible assets, which consist of trade name, trademarks, and domain names using the relief-from-royalty method. This method assumes that the trade name and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. As withThis method requires us to estimate future revenue for the brand, the appropriate royalty rate and an applicable discount rate.
The use of different estimates or assumptions in determining the fair value of our goodwill periodically, weand indefinite-lived intangible assets may chooseresult in different values, which could result in an impairment, or in the period in which an impairment is recognized, could result in a materially different impairment charge.
We performed our most recent quantitative goodwill assessment as of September 30, 2020. We did not record any impairment charge as a result of this assessment as the fair value of the reporting units were assessed to forgobe higher than their carrying values. The amounts of goodwill allocated to the initial qualitative assessmentDeveloped Europe and perform a quantitative analysisAmericas reporting units were €197.5 million and €85.1 million, respectively. There was no goodwill allocated to the Rest of World reporting unit as of September 30, 2020. The percentages by which fair value exceeded carrying value as of September 30, 2020 were 2.1% and 10.8% for the Developed Europe and Americas reporting units, respectively.
The most significant assumptions used in our annual evaluationanalysis to determine the fair value of indefinite-lived intangible assets.the reporting units are our weighted average cost of capital ("WACC") and long-term growth rate. Assuming all other assumptions remain constant, the selected WACC would have to increase by 30 basis points and 160 basis points in the Developed Europe and Americas reporting units, respectively, for their fair values to fall below their carrying values. The selected long-term growth rate would have to decrease by 80 basis points and 510 basis points in the Developed Europe and Americas reporting units, respectively, for their fair values to fall below their carrying values.
Recoverability of intangible assets with definite lives and other long-lived assets
Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimated useful lives of generally less than seven years. We review the carrying value of long-lived assets or asset groups, including property and equipment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value.
The use of different estimates or assumptions in determining the fair value of our intangible assets with definite lives and other long-lived assets may result in different values, which could result in an impairment, or in the period in which an impairment is recognized, could result in a materially different impairment charge.
Income taxes
We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to
us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated results of
operations, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.
We account for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals or litigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the tax authority is recognized in the financial statements. Interest and penalties related to uncertain tax positions are classified in the financial statements as a component of income tax expense.
Advertising expense
Legal and tax contingencies
We incur advertising expense consistingrecord liabilities to address potential exposures related to business and tax positions we have taken that have been or could be challenged by taxing authorities. In addition, we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded when the likelihood of offline costs, including televisionpayment is probable and radio advertising, as well as online advertising expensethe amounts can be reasonably estimated. The determination for required liabilities is based upon analysis of each individual tax issue, or legal proceeding, taking into consideration the likelihood of adverse judgments and the range of possible loss. In addition, our analysis may be based on discussions with outside legal counsel. The ultimate resolution of these potential tax exposures and legal proceedings may be greater or less than the liabilities recorded.
Business combinations
We allocate the value of the consideration to promote our brands. Aacquire a business to tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. When determining the fair value of assets acquired and liabilities assumed, management makes significant portionestimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but not limited to future expected cash flows from customer relationships and trade names, and discount rates. Management's estimates of traffic from users is directed to our websites through our participation in display advertising campaigns on search engines, advertising networks, affiliate websites and social networking sites. We consider traffic acquisition costsfair value are based upon assumptions believed to be indirect advertising fees. We expense the production costs associated with advertisements in the period inreasonable, but which the advertisement first takes place. We expense the costs of communicating the advertisement (e.g., television airtime)are inherently uncertain and unpredictable and, as incurred each time the advertisement is shown. These costs are included in selling and marketing expense in our consolidated statements of operations. For the years ended December 31, 2015, 2016 and 2017, our advertising expense was €432.2 million, €623.5 million and €884.7 million, respectively. As of December 31, 2015, 2016 and 2017, we had €3.8 million, €5.3 million and €12.6 million, respectively, of prepaid marketing expenses included in prepaid expenses and other current assets.a result, actual results may differ from estimates.
Share-based compensation
Share-basedOur share-based compensation included in our consolidated financial statements relates to certain outstanding trivago employee options replaced with new trivago employee optionstock awards exercisable into trivago Class A shares, in connection with the controlling-interest acquisition of trivago by Expedia in 2013. During 2017, there were additional options granted in connection with the Omnibustrivago N.V. 2016 Incentive Plan to employeesPlan. Employee stock options primarily consist of trivago.
Theservice based awards, some of which also have company-based and market-based performance conditions. We measure the fair value of share options accounted for as equity settled transactions is measured at the grant date using the Black–ScholesBlack-Scholes option pricing model and the fair value of awards containing market-based conditions using a Monte Carlo simulation model. The valuation model incorporatesThese models incorporate various assumptions including expected volatility of equity, expected term and risk-free interest rates. As we do not have a trading history relatable to the expected term of our awards, the expected share price volatility for our Class A shares was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period commensurate to the expected term. Prior to the IPO, we previously based our expected term assumptions on the terms and conditions of the employee share option agreements, and scheduled exercise windows. Post IPO, we have used the simplified method in determining the term by using the midpoint between the vesting date and the end of the contractual term to estimate the term for all option grants subsequent to the IPO. The simplified method was used as we do not have sufficient relatable historical term data is available. Prior to the IPO, the share price assumption used in the model is based upon a valuation of trivago’s shares as of the grant date utilizing a blended analysis of the present value of future discounted cash flows and a market valuation approach. Post IPO, the share price assumption used in the model is based our publicly traded share price on the date of grant.rate. We amortize the fair value to the extent the awards qualify for equity treatment, over the vesting term on a straight-line basis. The majority of our share options are service-basedbasis, and for performance based awards which vest between one and three years and have contractual terms that align with prescribed liquidation windows.
We have performance-based share options which vest upon achievement of certain company-based performance conditions and service conditions. On the date of grant, we determine the fair value of the performance-based award using the Black-Scholes option pricing model. The awards are then assessed to
determine the probability of the award vesting. If assessedassess as probable we record compensation expense for these awardsof achieving the performance targets, over the total performance and service period using the accelerated method. At each reporting period, we reassessWe account for forfeitures as they occur. If any of the probability of achievingassumptions used in the performance targets, which requires judgment, and tomodels change significantly for future grant valuations, share-based compensation expense may differ materially in the extent actual results or updated estimates differfuture from our current estimates, the cumulative effect on current and prior periods of those changes will bethat recorded in the period estimates are revised, or the change in estimate will be applied prospectively depending on whether the change affects the estimate of total compensation cost to be recognized. The ultimate number of shares issuedcurrent period.
B. Liquidity and the related compensation expense recognized will be based on a comparison of the final performance metrics to the specified targets.capital resources
We classify certain employee option awards as liabilities when we deem it not probable that the employees holding the awards will bear the risk and rewards of stock ownership for a reasonable period of time. We remeasure these instruments at fair value at the end of each reporting period using a Black-Scholes option pricing model which relies upon an estimate of the fair value of trivago’s shares as of the reporting date which is determined using a blended approach as discussed above. Upon settlement of these awards, our total share-based compensation expense recorded from grant date to settlement date will equal the settlement amount.
We recognize the effect of forfeitures in the period that the award was forfeited.
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B. | Liquidity and capital resources |
On September 5, 2014, we entered into an uncommitted credit facility with Bank of America Merrill Lynch International Ltd. with a maximum principal amount of €10.0 million. Advances under this facility bear had
interest at a rate of LIBOR, floored at zero, plus 1.0% per annum. This facility may be terminated at any time by the lender. Our obligations under this facility are guaranteed by Expedia.annum. On December 19, 2014, we entered into an amendment to this facility pursuant to which the maximum principal amount was increased to €50.0 million. We utilized €20.0 million of our €50.0 million credit facility to fund capital requirements in 2015. During the year ended December 31, 2016, we utilized €20.0 million under our credit facility and subsequently repaid all obligations outstanding. We did not utilize the credit facility during the year ended December 31, 2017.2020. The credit facility was cancelled by the lender in early 2021.
For the year ended December 31, 2017,2020, total cash, cash equivalents and restricted cash equivalent decreased by €37.1€9.7 million to €190.2 million.€210.8 million, of which €208.5 million were included in current assets and €2.3 million of long-term restricted cash were included in other long-term assets in the balance sheet primarily relating to the new campus building. The decrease in total cash, cash equivalents and restricted cash was mainly driven by athe negative cash flowflows from investing activities, notably due to an increase in capital expenditures, and a negativepartly offset by positive cash flowflows from operating activities mainly resulting from accounts receivables increasing more than accounts payables as discussed in more detail below.activities.
Our known material liquidity needs for periods beyond the next twelve months are described below in “Item 55: Operating and financial review and prospects - F. Tabular disclosure of contractual obligations.” We believe that our cash from operations, together with our credit facility and cash balance are sufficient to meet our ongoing capital expenditures, working capital requirements and other capital needs for at least the next twelve months.
The following table summarizes our cash flows for the years ended December 31, 2015, 20162019 and 2017:2020:
| | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, |
(in millions) | | | | 2019 | | | 2020 |
Cash flows provided by/(used in) operating activities | | | | | € | 74.2 | | | | € | 7.9 | |
Cash flows used in investing activities | | | | | (18.0) | | | | (16.2) | |
Cash flows provided by/(used in) financing activities | | | | | (0.1) | | | | (0.2) | |
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| Year Ended December 31, |
(in millions) | 2015 | | | 2016 | | | 2017 | |
Cash flows provided by/(used in) operating activities | | € | (1.0 | ) | | | € | 31.1 |
| | | € | (10.3 | ) |
Cash flows used in investing activities | | (6.5 | ) | | | (9.0 | ) | | | (18.3 | ) |
Cash flows provided by/(used in) financing activities | | 19.0 |
| | | 187.6 |
| | | (7.2 | ) |
Cash Flows Provided by/(Used in) Operating Activities
For the year ended December 31, 2017, net cash used in operating activities increased by €41.5 million to €(10.3) million. This negative cash flow from operating activities was primarily driven by a change from a working capital benefit in 2016 into a working capital deficit in 2017 and decreased share-based compensation, due to a one-time call option exercised by Expedia in 2016. The working capital deficit was mainly driven by a standardization of related party payment terms, which delayed our receipt of related party revenue until after month-end close, resulting in increased accounts receivables.
For the year ended December 31, 2016,2020, net cash provided by operating activities increaseddecreased by €32.1€66.3 million to €31.1 million of cash provided. This was primarily due to an increase in operating income (after adjusting for impacts of depreciation and amortization of €13.7 million) from 2015 to 2016 and a change from a working capital deficit in 2015 to a working capital benefit in 2016.€7.9 million.
ForIn the year ended December 31, 2015,2020, net cash usedprovided by operating activities of €7.9 million was mainly driven by changes in operating activities increasedassets and liabilities, partly offset by €1.6negative effects from net loss excluding non-cash expenses.
Changes in operating assets and liabilities resulted in an increase in cash and cash equivalents of €25.7 million primarily due to a decrease in accounts receivable of €53.7 million resulting from €0.6 million fora sharp decline in revenue due to the COVID-19 pandemic in the year ended December 31, 20142020. Accounts payable decreased by €26.6 million as our advertising spend in the fourth quarter of 2020 was significantly lower than in the fourth quarter of 2019, as a reaction to €(1.0) million for the year ended December 31, 2015, primarily due to decreased benefits from working capital changes. COVID-19 pandemic.
Net cash provided by changes in operating assets and liabilities was partly offset by net loss excluding non-cash expenses of €17.9 million.
Cash Flows Used in Investing Activities
For the year ended December 31, 2017,2020, cash used in investing activities increaseddecreased by €9.3€1.8 million to €(18.3)€16.2 million, primarily due to increasedlower capital expenditures including internal-use software and website development and the acquisition of tripl GmbH for €0.7 million.
For the year ended December 31, 2016, cash used in investing activities increased by €2.5 million, to €(9.0) million, primarily due to increased capital expenditures including internal-use software and website development andas well as lower purchase of investments. This was partly offset by the prepayment of pending business acquisition of the base7 minority interest for €0.9 million.Weekengo, see Note 19 - Subsequent events.
For the year ended December 31, 2015, cash used in investing activities increased by €1.9 million, from €(4.6) million for the year ended December 31, 2014 to €(6.5) million for the year ended December 31, 2015, primarily due to acquisitions and increased capital expenditures including internal-use software and website development.
Cash Flows Provided by/(Used in) Financing Activities
For the year ended December 31, 2017,2020, cash used in financing activities increased by €194.9€0.1 million to €7.2€0.2 million of cash used. This was driven primarily by one-time IPO net proceeds in 2016 of €207.8 million, partially offset by a €20.0 million net payment on the credit facility during the year ended December 31, 2016. The negative cash flow from financing activities in 2017 was primarilymainly due to payments of IPO costs of €4.0 million and tax payments for shares withheld of €3.1 million.
For the year ended December 31, 2016, cash provided by financing activities increased by €168.7 million to €187.6 million. This was driven primarily by IPO net proceeds of €207.8 million, and a €20.0 million draw down on the credit facility during the year ended December 31, 2015 compared to a €20.0 million net payment on the credit facility during the year ended December 31, 2016.
For the year ended December 31, 2015, cash provided by financing activities increased by €18.0 million million, from €1.0 million for the year ended December 31, 2014 to €19.0 million for the year ended December 31, 2015 and primarily included €20.0 million in proceeds from a draw-downexercise of our credit facility, partially offset by the repayment of a €1.0 million loan from Expedia.option awards.
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C. | C. Research and development expenses, patents and licenses, etc. |
See “Item 4 B.4: Information on the company—company - B. Business overview.overview.”
D. Trend information
See “Item 55: Operating and financial review and prospects—prospects - A. Operating results.results.”
E. Off-balance sheet arrangements
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E. | Off-balance sheet arrangements |
Other than the items described below under “—Item 5: Operating and financial review and prospects - F. Tabular disclosure of contractual obligations,” as of December 31, 2017,2020, we do not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
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F. | F. Tabular disclosure of contractual obligations |
The following table summarizes our contractual obligations as of December 31, 2017:2020:
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| Payments due by period |
(in millions) | Total | Less than 1 year | 1 – 3 years | 4 – 5 years | More than 5 years |
Operating leases, including imputed interest (1)(2) | € | 126.6 | | € | 10.6 | | € | 14.5 | | € | 14.2 | | € | 87.3 | |
Finance lease obligations | 0.4 | | 0.2 | | 0.2 | | — | | — | |
Purchase obligations(3) | 17.8 | | 12.2 | | 5.6 | | — | | — | |
Total (4) | €144.8 | €23.0 | €20.3 | €14.2 | €87.3 |
(1) Operating lease obligations include leases for office space and office equipment. Certain leases contain renewal options. Lease obligations expire at various dates with the latest maturity in 2038. Refer to Note 2 - Significant accounting policies for detailed discussion on our accounting for operating leases. The lease obligations have not been reduced by minimum sublease rental income of €1.6 million due in the future under non-cancelable sublease agreements for unoccupied leased office space.
(2) Currently recognized on our balance sheet as of December 31, 2020 is an asset retirement obligation of €0.3 million for the cost to decommission office space. We have certain operating lease agreements that require us to decommission physical space for which we have not yet recorded an asset retirement obligation. Due to the uncertainty of specific decommissioning obligations, timing and related costs, we cannot reasonably estimate an asset retirement obligation for these properties and we have not recorded a liability at this time for such properties.
(3) Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors and marketing partners. These minimum obligations are less than our projected use for those periods. Payments may be more than the minimum obligations based on actual use.
(4) Excludes €2.9 million of net unrecognized tax benefits for which we cannot make a reasonably reliable estimate of the period of payment.
G. Safe Harbor
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| Payments due by period |
(in millions) | Total | | Less than 1 year | | 1 – 3 years | | 4 – 5 years | | More than 5 years |
Operating lease obligations(1) | | €73.4 | | | €7.5 | | | €18.0 | | | €15.7 | | | €32.2 |
Purchase obligations(2) | | 13.3 | | | 13.3 | | | 0.0 | | | 0.0 | | | 0.0 |
Total | | €86.7 | | | €20.8 | | | €18.0 | | | €15.7 | | | €32.2 |
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(1) | Currently recognized on our balance sheet as of December 31, 2017 is an asset retirement obligation of €1.0 million related to our main headquarters located in Düsseldorf, Germany. We have certain operating lease agreements that require us to decommission physical space for which we have not yet recorded an asset retirement obligation. Due to the uncertainty of specific decommissioning obligations, timing and related costs, we cannot reasonably estimate an asset retirement obligation for these properties and we have not recorded a liability at this time for such properties. |
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(2) | Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors and marketing partners. These minimum obligations are less than our projected use for those periods. Payments may be more than the minimum obligations based on actual use. |
See “Special note regarding forward-looking statements.statements.”
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H. | Non-GAAP financial measures |
See “Item 3 A. Key information—Selected
H. Non-GAAP financial data”measures
We report Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). We define Adjusted EBITDA as net income/(loss) adjusted for:
•income/(loss) from equity method investment,
•expense/(benefit) for income taxes,
•total other (income)/expense, net,
•depreciation of property and equipment and amortization of intangible assets,
•impairment of, and gains and losses on disposals of, property and equipment,
•impairment of intangible assets and goodwill,
•share-based compensation, and
•certain other items, including restructuring.
From time to time going forward, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as restructuring charges and significant legal settlements) that affect the period-to-period comparability of our operating performance.
Adjusted EBITDA is a descriptionnon-GAAP financial measure. A “non-GAAP financial measure” refers to a numerical measure of a company’s historical or future financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S. GAAP in such company’s financial statements. We present this non-GAAP financial measure because it is used by management to evaluate our operating performance, formulate business plans, and make strategic decisions on capital allocation. We also believe that this non-GAAP financial measure provides useful information to investors and others in understanding and evaluating our operating performance and consolidated results of operations in the same manner as our management, and the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure in comparing financial results between periods as these costs may vary independent of core business performance.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results reported in accordance with U.S. GAAP, including net income/loss. Some of these limitations are:
•Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect expenses, such as restructuring and other related reorganization costs;
•Although depreciation, amortization and impairments are non-cash charges, the assets being depreciated, amortized or impaired may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and
•Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
During the first quarter of 2020, we changed our definition of Adjusted EBITDA to better align with our industry and allow for a financial comparison across quarters that excludes the effects of impairment of intangibles assets and goodwill and certain other items, including restructuring.
The below table presents a reconciliation of Adjusted EBITDA to net loss.income/(loss), the most directly comparable GAAP financial measure.
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| | Year Ended December 31, |
(in thousands) | | 2018 | | | 2019 | | | 2020 |
Net income/(loss) | | € | (21,489) | | | | € | 17,161 | | | | € | (245,378) | |
Income/(loss) from equity method investment | | 63 | | | | 453 | | | | (739) | |
Income/(loss) before equity method investment | | € | (21,552) | | | | € | 16,708 | | | | € | (244,639) | |
Expense/(benefit) for income taxes | | 1,086 | | | | 20,982 | | | | (8,494) | |
Income/(loss) before income taxes | | € | (20,466) | | | | € | 37,690 | | | | € | (253,133) | |
Add/(less): | | | | | | | | |
Interest expense | | 1,839 | | | | 33 | | | | 270 | |
Other, net | | (539) | | | | 428 | | | | 212 | |
Operating income/(loss) | | € | (19,166) | | | | € | 38,151 | | | | € | (252,651) | |
Depreciation of property and equipment and amortization of intangible assets | | 13,054 | | | | 11,983 | | | | 10,852 | |
Impairment of, and gains and losses on disposals of, property and equipment | | 2,042 | | | | (111) | | | | 597 | |
Impairment of intangible assets and goodwill | | — | | | | — | | | | 207,618 | |
Share-based compensation | | 20,702 | | | | 19,891 | | | | 15,079 | |
Certain other items, including restructuring | | — | | | | — | | | | 6,235 | |
Adjusted EBITDA | | € | 16,632 | | | | € | 69,914 | | | | € | (12,270) | |
Note: We have reclassified certain amounts related to our prior period results to conform to our current period presentation.
Item 6: Directors, senior management and employees
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A. | A. Directors and senior management Senior management |
Members of our management board and supervisory board
The following tables present information about our senior management board members and our supervisory board members including their ages and position as of the date of this annual report. The current business addresses for the members of our management and supervisory boards is c/o trivago N.V., Bennigsen-Platz 1, 40474Kesselstraße 5 - 7, 40221 Düsseldorf, Germany.
Management Board
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Name | Age | Position |
Axel Hefer | 4043 | Managing Director for Legal, Marketing, Marketplace, People and Culture (Chief Executive Officer) |
James Carter | 34 | Managing Director for Product and Technology (Chief Product and Technology Officer) |
Matthias Tillmann | 37 | Managing Director for Finance Legal and International (chief financial officer) |
Andrej Lehnert*
| 49 | Managing Director for Marketing and Business Intelligence |
Rolf Schrömgens | 41 | Managing Director for Product, People and Culture (chief executive officer) |
Malte Siewert* | 43 | Managing Director for Marketplace |
Johannes Thomas | 30 | Managing Director for Advertiser Relations |
Peter Vinnemeier* | 43 | Managing Director for TechnologyCreative Production (Chief Financial Officer) |
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* | On February 28, 2017, we announced that Andrej Lehnart, Malte Siewert and Peter Vinnemeier would step back from their roles as managing directors at the general meeting of shareholders in June 2018. For more information, see "—New leadership structure" below.
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The following paragraphs set forth biographical information regarding our management board members.members as well as our chief financial officer.
Axel Hefercurrently serves as chief executive officer of the company. He was initially appointed as a managing director and chief financial officer of the company in 2016 and served as a managing director of trivago GmbH from 2016 until the post-IPO merger.2016. He also serves as a non-executive director of Spark Networks SE. Prior to joining trivago GmbH, Mr. Hefer was CFO and COO of Home24 AG, an online home furniture and decor company, and managing director of One Equity Partners, the former Private Equity Division of J.P. Morgan Chase. Mr. Hefer holds a diploma in management from Leipzig Graduate School of Management (HHL) and an M.B.A. from INSEAD.
Andrej Lehnert James Carter currently serves as our chief product and technology officer and was initially appointed as a managing director in 2020. He also serves as a member of the company in 2016 and served as a managing directorsupervisory board of trivago GmbH from 2015 until the post-IPO merger.Peakwork AG. Prior to joining trivago, GmbH in 2011, Mr. Lehnert led his own Internet venture from 2008 to 2011, after having been withCarter held the William Wrigley Jr. Company from 2001 to 2008, lastly intitle of Engineering Director at Google, responsible for the roleBoston engineering team working on Google's Hotel Ads product.
Matthias Tillmann currently serves as chief financial officer of Director, Global Market Intelligence. Mr. Lehnert holds a degree of business administration from University Erlangen-Nuremberg.
Rolf Schrömgens the company and was initially appointed as a managing director of the companyin 2020. Mr. Tillmann joined trivago in 2016 and servedhas held a variety of leadership responsibilities in the finance department. He most recently co-led the team as a managing directorSenior Vice President, Head of trivago GmbH from 2005 until the post-IPO merger.Corporate Finance and prior to that was Head of Strategy and Investor Relations. Prior to joining trivago, GmbH,he was a senior investment banker at Deutsche Bank AG. Mr. Schrömgens was founder and VP at ciao.com, a consumer review website, from 1999 to 2001. Mr. SchrömgensTillmann holds a diploma in mathematics and economics from the University of Münster (WWU).
Changes to our management from Leipzig Graduate Schoolboard in 2020
•On June 30, 2020, Johannes Thomas, the former managing director for Advertiser Relations, did not stand for reelection at our annual general meeting of Management (HHL).shareholders.
Malte Siewert was initially•On June 30, 2020, Matthias Tillmann and James Carter were appointed as managing directors at our annual general meeting of shareholders with a managing director of the companyterm expiring at our annual general meeting to be held in 2016 and served as a managing director of trivago GmbH from 2006 until the post-IPO merger. Prior to joining trivago GmbH, Mr. Siewert was an investment banker at HSBC Trinkaus und Burkhardt from 2001 through 2005 and Merrill Lynch in 2006. Mr. Siewert holds a diploma in management from Leipzig Graduate School of Management (HHL).
Johannes Thomas was initially appointed as a managing director of the company in 2016. He joined trivago GmbH in 2011 as Global Head of SEM and served as a managing director of trivago GmbH from 2015 until the post-IPO merger. Before joining trivago GmbH, Mr. Thomas worked as a Marketing Executive at isango!
2023.
(TUI today), a website for booking travel experiences from 2009 to 2010. He later founded his own company, which operated travel sites in Germany, Italy and Spain.
Peter Vinnemeier was initially appointed as a managing director of the company in 2016 and served as a managing director of trivago GmbH from 2005 until the post-IPO merger. Prior to joining trivago GmbH, Mr. Vinnemeier was founder and VP Technology at ciao.com. Mr. Vinnemeier holds a diploma in management from Leipzig Graduate School of Management (HHL).
Supervisory Boardboard
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Name | Age | Year of initial appointment | Expiration of current term |
Robert Dzielak | 50 | 2018 | 2021 |
Eric Hart | 45 | ** | ** |
Peter M. Kern | 53 | 2016 | 2022 |
Hiren Mankodi | 47 | 2016 | 2022 |
Frédéric Mazzella | 45 | 2016 | 2022 |
Niklas Östberg | 41 | 2016 | 2022 |
Rolf Schrömgens* | 44 | * | * |
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Name | Age | |
Mieke S. De Schepper | 42 | |
Robert Dzielak**On October 22, 2020, the Supervisory Board extended Rolf Schrömgen's term on the Supervisory Board. He was designated a temporary member of Supervisory Board effective upon the expiration of his prior term on December 31, 2020 until our next general meeting of shareholders. For more information, see "Changes to our supervisory board " below.
** On February 25, 2021, Eric Hart was designated as temporary member of our supervisory board, pending his appointment at our general meeting of shareholders in 2021. For more information, see "Changes to our supervisory board " below.
| 47 | |
Peter M. Kern | 50 | |
Frédéric Mazzella | 41 | |
Mark D. Okerstrom | 45 | |
Niklas Östberg | 37 | |
David Schneider | 35 | |
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* | On September 18, 2017, Robert Dzielak was designated as temporary member of our supervisory board, pending his appointment by our general meeting of shareholders in June 2018. For more information, see "—New leadership structure" below.
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The following is a brief summary of the business experience of our supervisory board members.
Mieke De Schepper is Chief Commercial Officer of Egencia, Inc., a subsidiary of Expedia, where she brings more than 15 years of experience in managing B2C and B2B businesses to the role. Before joining Egencia in 2017, she served as the Vice President Market Management Asia Pacific for the Lodging Partner Services organization in the Expedia group. During her tenure, Ms. De Schepper was responsible for driving key account management relationships with hotel partners in APAC and coordinating the execution of business strategy for Lodging Partner Services. Prior to joining Expedia, Ms. De Schepper was the managing director of Philips Lighting Singapore and emerging markets. She started her career at Philips in global product marketing for the Video & Multimedia Applications. Subsequently, Ms. De Schepper was appointed Senior Director of Consumer Lighting Marketing and Channel Development for Asia Pacific. Earlier in her career, Ms. De Schepper was a consultant at McKinsey & Company, based in Europe. A Dutch national, she moved to Singapore in 2004, her home ever since. Ms. De Schepper holds an MBA from INSEAD and an MSc in Industrial Design Engineering from the Delft University of Technology.
Robert J. Dzielak has served as Expedia’sExpedia Group’s Chief Legal Officer and Secretary since March 2018, previously serving as its Executive Vice President, General Counsel and Secretary since April 2012. Mr. Dzielak had previously served as Expedia’s Senior Vice President and acting General Counsel since October 2011. Since joining the Expedia Group as Assistant General Counsel in April 2006 and through his service as Vice President and Associate General Counsel between February 2007 and October 2011, Mr. Dzielak held primary responsibility for the worldwide litigation portfolio of Expedia Group and its brands. Prior to joining Expedia Group, Mr. Dzielak was a partner at the law firm of Preston, Gates and Ellis, LLP (now K&L Gates LLP), where his practice focused on commercial and intellectual property litigation. Mr. Dzielak received his J.D. from The John Marshall Law School.
Eric M. Hart has served as the Chief Financial Officer of Expedia Group since April 2020, overseeing Expedia Group’s accounting, financial reporting and analysis, investor relations, treasury, internal audit, tax, and real estate teams. Mr. Hart had served as acting Chief Financial Officer since the departure of the former Chief Financial Officer in December of 2019. Mr. Hart has also served as Expedia Group’s Chief Strategy Officer since November 1, 2019 with responsibility for Expedia Group's strategy and business development, as well as global M&A and investments. Prior to assuming the Chief Strategy Officer position, Mr. Hart served as the General Manager of Expedia Group’s CarRentals.com brand for nearly three years. Prior to that, he oversaw corporate strategy for the Expedia Group, leading some of Expedia Group’s largest acquisitions. Before joining Expedia Group, Mr. Hart spent time as a Vice President at Lake Capital, as a Project Leader at Boston Consulting Group, and as a Consultant at Accenture. Mr. Hart holds a bachelor’s degree from Georgia State University and a Master’s in Business Administration from University of Chicago Booth School of Business.
Peter M. Kernhas been a director of Expedia Group since completion of the IAC/Expedia Spin-Off.Group spin-off, has served as Vice Chairman of Expedia Group since June 2018, and has served as Chief Executive Officer of Expedia Group since April 2020. Mr. Kern served on the board of directors of Tribune Media Company from October 2016 through the completion of Tribune Media’s merger with Nextstar Media Group, Inc. in September 2019, and served as Tribune Media’s Chief Executive Officer from March 2017 through September 2019. Mr. Kern is a Managing Partner of InterMedia Partners VII, LP, a private equity firm. Prior to joining InterMedia, Mr. Kern was Senior Managing Director and Principal of Alpine Capital LLC. Prior to Alpine Capital, Mr. Kern founded Gemini Associates in 1996 and served as President from its inception through its merger with Alpine Capital in 2001. Prior to founding Gemini Associates, Mr. Kern was at the Home Shopping Network and Whittle Communications. In addition to serving as the Chairman of the Supervisory Board of trivago N.V., Mr. Kern has served on the Board of Directors of Tribune Media Company since October 2016, where healso currently also serves as Chief Executive Officer, and as Chairman of the Boardboard of Directors
directors of Hemisphere Media Group, Inc., a publicly-traded Spanish-language media company since April 2013.
Mr. Kern also servesand on the boards of several of private companies. Mr. Kern holds a B.S. degree from the Wharton School at the University of Pennsylvania.
Hiren Mankodi currently serves as Managing Director for Charlesbank Capital Partners, leading the firm’s technology investing efforts. Previously he was as a co-founding partner at Pamplona TMT, a private equity firm focusing on the technology, media and telecom private equity sector. Prior to that, he was a Managing Director at Audax Private Equity where he led the firm’s technology investing efforts. He has over 19 years of private equity and venture capital investing experience, including investments in the enterprise software, infrastructure software, digital media, healthcare IT, technology-enabled services, and industrial technology sectors.
Frédéric Mazzella isis the Founder and Chairman of Comuto S.A. (BlaBlaCar) since 2006BlaBlaCar and was Chief Executive Officer from 2006 toits CEO during the first decade until 2016. Since 2018, Mr. Mazzella is Co-President of France Digitale, the largest startup association in Europe representing 1,500 startups. Mr. Mazzella holds an M.B.a.M.B.A. from INSEAD, a Master's degree in computer scienceComputer Science from Stanford University and a Master's degree in physicsPhysics from École Normale Supérieure.
Mark D. Okerstrom has served as Expedia's President and Chief Executive Officer and as a director of Expedia since August 2017. Previously, he served as Expedia’s Chief Financial Officer and Executive Vice President of Operations from October 2014 until August 2017, Chief Financial Officer and Executive Vice President from September 2011 until October 2014, Secretary from October 2011 until April 2012, and Senior Vice President of Corporate Development from February 2009 to September 2011. Having joined Expedia in October 2006, Mr. Okerstrom had also previously served as Vice President, Corporate Development and as Senior Director, Corporate Development. Prior to joining Expedia, Mr. Okerstrom was a consultant with Bain & Company in Boston and San Francisco, and worked with UBS Investment Bank in London. Prior to that, Mr. Okerstrom practiced as an attorney with the global law firm of Freshfields Bruckhaus Deringer in London. Mr. Okerstrom holds an M.B.A. from Harvard Business School and a law degree from the University of British Columbia.
Niklas Östberg is the co-founder of Delivery Hero Holding GmbHSE and has served as its Chief Executive Officer since May 2011. He also served as director of the board until its Public Offeringpublic offering in July 2017. Prior to this, Mr. Östberg was co-founder and chairman of the board of Online Pizza Norden AB from 2008 and May 2011. Mr. Östberg holds a Master's degree from the Royal Institute of Technology in Stockholm, Sweden.
David Schneider has served asRolf Schrömgens was CEO of trivago N.V. until the end of 2019. Prior to joining trivago GmbH, Mr. Schrömgens was founder and VP at ciao.com, a director of Zalando SE since 2008. He also serves as a director or limited partner of several Zalando subsidiaries and private investment vehicles.consumer review website, from 1999 to 2001. Mr. SchneiderSchrömgens holds a Mastersdiploma in Business Administrationmanagement from WHU-Otto-BeisheimLeipzig Graduate School of Management in Vallendar, Germany.(HHL).
New leadership structure
On February 28, 2018,Agreements regarding the supervisory board and the management board
Members of our supervisory board approved a new streamlined leadership structure for trivago. The new structure reduces the numberand members of managing directors in our management board from sixhave been appointed pursuant to three,the terms of Amended and is designedRestated Shareholders’ Agreement. See “Item 6: Directors, senior management and employees - C. Board practices” and “Item 7: Major shareholders and related party transactions - B. Related party transactions”.
Changes to increase flexibilityour supervisory board
•On June 30, 2020, Ariane Gorin was appointed to our supervisory board with a term expiring at our annual general meeting to be held in 2023 and to simplify its corporate governance structure. AsRolf Schrömgens was appointed with a consequence,term expiring on December 31, 2020. Ms. Gorin and Mr. Schrömgens were initially designated as temporary members of the supervisory board will nominate Rolfin 2019.
•On October 22, 2020, the Supervisory Board extended Mr. Schrömgens, Johannes Thomas and Axel Hefer as managing directors for appointment atmgens' term on the Supervisory Board effective upon the expiration of his prior term on December 31, 2020 until our general meeting of shareholders to be held in June 2018. The other current managing directors in2021. Upon the leadership team will step back from their roles as managing directors at that time.
Along with the remaining managing directors, Andrej Lehnert and Anna Drüing (covering human resource topics) will continue to serve as partexpiration of the trivago’s leadership team, while Peter Vinnemeier and Malte Siewert will continue to advise the company in consulting roles.
While currently the managing directors serve for ahis term of one year each, the supervisory board resolved to nominate Axel Hefer for appointment at our general meeting in June 2018 for a term of five years.
In September 2017, we also announced changes to our supervisory board. After receiving the resignation of Dara Khosrowshahi as member and chairman of the Company’s Supervisory Board,the supervisory board elected Mark Okerstrom, President and Chief Executive Officer of Expedia, Inc., as chairman of the supervisory board. In addition, Robert Dzielak, Executive Vice President, General Counsel and Secretary of Expedia, Inc.,on December 31, 2020, Schrömgens was designated as temporary member of the Supervisory Board, and as a result, will continue to have all powers and responsibilities of a Supervisory Board member, as if he had been reappointed by the general meeting of shareholders.
•On February 25, 2021, Ariane Gorin resigned from our supervisory board and compensation committee. On the same date, the supervisory board designated Eric Hart as temporary member of our supervisory board, pending his appointment by trivago’sat our general meeting of shareholders in June 2018.2021, and appointed him to our compensation committee. Upon his designation as temporary member of the supervisory board, Mr. Hart has all powers and responsibilities of a supervisory board member, as if he had been appointed at the general meeting of shareholders.
Compensation of members of our management board and supervisory board
The amount of compensation, including benefits in kind, accrued or paid to our management board members with respect to their service on the management board in the year ended December 31, 20172020 is described in the tables below.
Our management board receivedearned the following cash compensation with respect to their service inas members of the management board during the fiscal year 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
(€ in thousands) | Carter(1) | | Hefer | | Thomas(2) | | Tillmann(1) |
Periodically-paid remuneration (base salary) | €120 | | €240 | | €120 | | €120 |
Bonuses | €228 | | €228 | | — | | €240 |
| | | | | | | |
Total cash compensation | €348 | | €468 | | €120 | | €360 |
|
| | | | | | | | | | | |
(in thousands) | Hefer | | Lehnert | | Schrömgens | | Siewert | | Thomas | | Vinnemeier |
Periodically-paid remuneration | €240 | | €240 | | €240 | | €240 | | €240 | | €240 |
Bonuses | 72 | | 72 | | — | | — | | 72 | | — |
Profit Participation | — | | — | | — | | — | | — | | — |
Total cash compensation | €312 | | €312 | | €240 | | €240 | | €312 | | €240 |
(1) James Carter and Matthias Tillmann were appointed to our management board at our general meeting of shareholders, which was held on June 30, 2020. The periodically-paid remuneration amounts presented reflect cash compensation for the period as a member of our management board.In(2) Johannes Thomas ceased to be a member of our management board when he did not stand for reelection at the general meeting of shareholders, which was held on June 30, 2020.
Our supervisory board conducted an individualized analysis of each member of senior management with reference to alignment with our goals, the business impact of senior management on those goals and the team building capabilities of senior management, and in each case, determined that our management board met the objectives set forth as a condition for the awarding of the respective bonus paid to them. In 2017, each of2020, the Founders waived his cashcompensation committee approved, subject to supervisory board approval, an all-cash performance bonus to Messrs. Carter, Hefer, and the Supervisory Board awarded the non-Founders a one-time retention bonus,Tillmann, which amounts are included in the bonus amounts includedline in the table above. As of December 31, 2017,2020, we havehad nothing set aside or accrued to provide pension, retirement or similar benefits to our management board members.
In the year 2017, none2020, while still a member of ourthe management board, membersMr. Thomas exercised any options in trivago N.V.at a strike price of €0.06 to receive 80,000 ADSs. In 2020 after his appointment to the management board, Mr. Tillmann exercised options at a strike price of €0.06 to receive 17,500 ADSs that were subsequently sold pursuant to a trading plan established pursuant to Rule 10b5-1 of the Exchange Act. In 2020 after his appointment to the management board, Mr. Carter acquired 57,649 ADSs from the vesting of his restricted stock units that were subsequently sold pursuant to a trading plan established pursuant to Rule 10b5-1 of the Exchange Act.
Our management board held the following options (both vested and unvested) as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beneficiary | | Grant date | | Vesting date | | Number of options outstanding(1) | | Strike price | | Expiration date(2) |
Carter | | Jul. 18, 2019 | | Three Year Vest(8) | | 78,799 | | N/A(7) | | N/A(7) |
| | Mar. 11, 2020(4) | | Three Year Vest(4) | | 124,385 | | N/A(7) | | N/A(7) |
| | Mar. 11, 2020(5) | | Jan. 2, 2023 | | 532,385 | | N/A(7) | | N/A(7) |
| | Mar. 11, 2020 | | Three Year Vest(9) | | 441,880 | | N/A(7) | | N/A(7) |
Hefer | | Sept. 23, 2016 | | May 1, 2017, 2018, 2019 | | 45,830 | | €0.12 | | None |
| | Sept. 23, 2016 | | May 1, 2017, 2018, 2019 | | 153,192 | | €11.75 | | None |
| | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 600,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 1,276,000 | | $7.17 | | Dec. 20, 2024 |
| | Dec. 20, 2017 | | Jul. 2, 2020, Jan. 2, 2023 | | 1,500,000 | | $7.17 | | Dec. 20, 2024 |
| | Jun. 28, 2019 | | Three Year Vest(3) | | 810,927 | | €0.06 | | Jun. 28, 2026 |
| | Mar. 11, 2020(4) | | Three Year Vest(4) | | 775,347 | | €0.06 | | Mar. 11 2027 |
| | Mar. 11, 2020(5) | | Jan. 2, 2023 | | 1,500,358 | | €0.06 | | Mar. 11 2027 |
| | Mar. 11, 2020 | | Three Year Vest(9) | | 1,170,280 | | €0.06 | | Mar. 11 2027 |
Thomas | | Mar. 18, 2014 | | Jun. 7, 2015, 2017 | | 170,213 | | €2.11 | | None |
| | May 15, 2015 | | Mar. 8, 2016, 2017, 2018 | | 110,639 | | €2.11 | | None |
| | May 15, 2015 | | Jul. 31, 2017 | | 17,626 | | €0.06 | | None |
| | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 400,000 | | $12.14 | | Apr. 3, 2021 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Apr. 3, 2021 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 476,000 | | $7.17 | | Apr. 3, 2021 |
| | Jun. 28 2019 | | Three Year Vest(3) | | 139,378 | | €0.06 | | Apr. 3, 2021 |
| | Jul. 23, 2020(6) | | Jan. 2, 2021 | | 246,765 | | €0.06 | | Apr. 3, 2021 |
Tillmann | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 40,000 | | $12.14 | | Mar. 6 2024 |
| | Mar. 21, 2018 | | Jan. 2, 2019, 2020, 2021 | | 100,000 | | $7.01 | | Mar. 21, 2025 |
| | Feb. 8, 2019 | | Three Year Vest(3) | | 12,500 | | €0.06 | | Feb. 8, 2026 |
| | Mar. 11, 2020(4) | | Three Year Vest(4) | | 115,189 | | €0.06 | | Mar. 11 2027 |
| | Mar. 11, 2020(5) | | Jan. 2, 2023 | | 532,385 | | €0.06 | | Mar. 11 2027 |
| | Mar. 11, 2020 | | Three Year Vest(9) | | 523,674 | | €0.06 | | Mar. 11 2027 |
|
| | | | | | | | | | |
Beneficiary | | Grant date | | Vesting date | | Number of options outstanding1 | | Strike price | | Expiration Date2 |
Hefer | | Sept. 23, 2016 | | May 1, 2017, 2018, 2019 | | 63,830 | | €0.12 | | None |
| | Sept. 23, 2016 | | May 1, 2017, 2018, 2019 | | 153,192 | | €11.75 | | None |
| | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 600,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 1,276,000 | | $7.17 | | Dec. 20, 2024 |
| | Dec. 20, 2017 | | Jul. 2, 2020, Jan. 2, 2023 | | 1,500,000 | | $7.17 | | Dec. 20, 2024 |
Lehnert | | October 1, 2011 | | Oct. 1, 2011, 2012, 2013, 2014
| | 188,305 | | €0.06 | | None |
| | January 1, 2013 | | Jan. 1, 2014, 2015, 2016 | | 51,356 | | €0.06 | | None |
| | March 18, 2014 | | June 7, 2015, 2017 | | 229,788 | | €2.11 | | None |
| | May 15, 2015 | | July 31, 2017 | | 102,711 | | €0.06 | | None |
| | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020
| | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 476,000 | | $7.17 | | Dec. 20, 2024 |
Schrömgens | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020
| | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Mar. 6, 2024 |
Siewert | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020
| | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 160,000 | | $7.17 | | Mar. 6, 2024 |
Thomas | | Sept. 1, 2011 | | Sept. 1, 2012, 2013, 2014 | | 25,678 | | €0.06 | | None |
| | July 16, 2013 | | June 30, 2013 | | 8,559 | | €0.06 | | None |
| | March 18, 2014 | | June 7, 2015, 2017 | | 170,213 | | €2.11 | | None |
| | May 15, 2015 | | March 8, 2016, 2017, 2018
| | 110,639 | | €2.11 | | None |
| | May 15, 2015 | | July 31, 2017 | | 102,711 | | €0.06 | | None |
| | July 16, 2015 | | July 16, 2015 | | 25,678 | | €0.06 | | None |
| | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020
| | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,000 | | $7.17 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 476,000 | | $7.17 | | Dec. 20, 2024 |
Vinnemeier | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020
| | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 168,000 | | $7.17 | | Mar. 6, 2024 |
| |
(1) | As described further in this report, share options granted before our IPO are calculated by converting options relating to units of trivago GmbH into options relating to shares of trivago N.V. by using the following conversion method (simplified): numbers of options were multiplied by the multiplier ratio 8,510.66824 used for purposes of our IPO. In case of trivago GmbH class B options, the result was divided by 1,000. Holders of trivago GmbH class A options with a former strike price of € 1.00 received certain a portion of trivago N.V. options in addition as compensation for the requirement of a higher strike price for trivago N.V. options due to corporate law requirements. In case the numbers relate to the time before the completion of our IPO, they are for illustrative |
(1) Share options granted before our IPO are calculated by converting options relating to units of trivago GmbH into options relating to shares of trivago N.V. by using the following conversion method (simplified): numbers of options were multiplied by the multiplier ratio 8,510.66824 used for purposes of our IPO. In case of trivago GmbH class B options, the result was divided by 1,000. Holders of trivago GmbH class A options with a former strike price of € 1.00 received certain a portion of trivago N.V. options in addition as compensation for the requirement of a higher strike price for trivago N.V. options due to corporate law requirements. In case the numbers relate to the time before the completion of our IPO, they are for illustrative purposes only and calculated using the method described above, as the actual option grants and exercises took place on the trivago GmbH level. Minor deviations can occur due to rounding.
| |
(2) | Unvested options lapse when the beneficiary leaves the Company. |
(2) Unvested options lapse when the beneficiary leaves the Company.
(3) This award vests as follows: 1/3rd vested on January 2, 2020, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting dates.
(4) The award vests 1/3rd on January 2, 2021, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting dates. The awards are not exercisable until the completion of the performance period. The award contains performance conditions which will determine the number of shares awardable at the end of the performance period pursuant to the respective vested stock options or restricted share units. The performance condition is based upon the two-year and three month compound annual growth rate (CAGR) of trivago's share price. Potential award levels range from 50-150% of the grant depending on the achievement of a share price CAGR ranging from 10-20% over a two-year and three month period (sliding scale). The start and end stock price is based on the 30-day trailing volume-weighted average share price. The initial performance measurement period at grant was January 2, 2020 to December 31, 2022. On October 22, 2020, the performance measurement start date was subsequently modified to October 2, 2020, which resulted in a lower anchor stock price and a shorter performance period to be used in determining the CAGR at the end of the performance period.
(5) The award cliff vests on January 2, 2023 and is dependent on achieving a six or twelve month volume-weighted average share price ≥ USD $2.74 for the last 6 or 12 months of 2022. If this performance condition is not satisfied, the award will lapse immediately and cease to be exercisable in respect of all of the award. The performance condition at grant was a volume-weighted average share price of USD $5.00. On October 22, 2020, the performance condition was subsequently modified to a volume-weighted average share price of USD $2.74.
(6) Johannes Thomas received a consultancy award with 100% vesting on January 2. 2021.
(7) Restricted stock units are granted at zero grant price and have no expiration date.
(8) This award vests as follows: 1/3rd vested on July 18, 2020, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting dates.
(9) This award vests as follows: 1/3rd vests on January 2, 2021, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting dates.
The amount of compensation, including benefits in kind, accrued or paid to our supervisory board members with respect to the year ended December 31, 20172020 is described in the tables below. Our supervisory board1 received the following cash compensation with respect to service in the fiscal year 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Kern(1) | | Mazzella | | Mankodi | | Östberg | |
Periodically-paid remuneration (base salary) | | 14 | | 45 | | 45 | | 45 | |
| | | | | | | | | |
| | | | | | | | | |
Total cash compensation | | 14 | | 45 | | 45 | | 45 | |
(1) Peter Kern was appointed as CEO of Expedia, Inc. and therefore no longer receives compensation for his services on our supervisory board beginning April 22, 2020 onwards.
Mr. Kern (beginning on the date he became CEO of Expedia on April 22, 2020), Mr. Dzielak, Ms. Gorin, Mr. Hart and Mr. Schrömgens were not provided with any compensation for their service on our supervisory board for the year ended December 31, 2020.
|
| | | | | | | | | | | | | |
($ in thousands)(1) | De Schepper | | Dzielak | | Kern | | Mazzella | | Okerstrom | | Östberg | | Schneider |
Periodically-paid remuneration | — | | — | | 45 | | 45 | | — | | 45 | | 45 |
Bonuses | — | | — | | — | | — | | — | | — | | — |
Profit Participation | — | | — | | — | | — | | — | | — | | — |
Total cash compensation | — | | — | | 45 | | 45 | | — | | 45 | | 45 |
| |
(1) | Dara Kosrowshahi resigned as Chairman of our supervisory board effective on September 15, 2017. We did not provide him with any compensation for his service on our supervisory board for the year ended December 31, 2017. |
Our supervisory board held the following options and/or restricted stock units (RSUs) (both vested and unvested) as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beneficiary | | Grant date | | Vesting date | | Number of options/RSUs outstanding | | Strike price | | Expiration date |
Dzielak | | — | | — | | — | | — | | — |
Gorin | | — | | — | | — | | — | | — |
Hart | | — | | — | | — | | — | | — |
Kern | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 74,135 | | $12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 125,520 | | $7.17 | | Dec. 20, 2024 |
| | Feb. 8, 2019 | | 3 Year Vest(2) | | 13,773 | | N/A(1) | | N/A(1) |
| | Mar. 11, 2020 | | 3 Year Vest(4) | | 27,322 | | N/A(1) | | N/A(1) |
Mankodi | | Aug. 17, 2018 | | Jul. 2, 2019, 2020, 2021 | | 90,408 | | $4.42 | | Aug. 17, 2025 |
| | Feb. 8, 2019 | | 3 Year Vest(2) | | 15,495 | | N/A(1) | | N/A(1) |
| | Mar. 11, 2020 | | 3 Year Vest(4) | | 100,446 | | N/A(1) | | N/A(1) |
Mazzella | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 65,898 | | $12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 111,576 | | $7.17 | | Dec. 20, 2024 |
| | Jun. 28, 2019 | | 3 Year Vest(2) | | 54,062 | | €0.06 | | Jun. 28, 2026 |
| | Nov. 5, 2019 | | 3 Year Vest(3) | | 831 | | €0.06 | | Nov. 5, 2026 |
| | Mar. 11, 2020 | | 3 Year Vest(4) | | 95,982 | | €0.06 | | Mar. 11, 2027 |
Östberg | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 70,840 | | $12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 119,944 | | $7.17 | | Dec. 20, 2024 |
| | Jun. 28, 2019 | | 3 Year Vest(2) | | 58,117 | | €0.06 | | Jun. 28, 2026 |
| | Mar. 11, 2020 | | 3 Year Vest (4) | | 95,982 | | €0.06 | | Mar. 11, 2027 |
Schrömgens | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 400,000 | | $12.14 | | Mar. 6, 2024 |
| | Mar. 6, 2017 | | Jan. 2, 2019, 2020, 2021 | | 224,00 | | $7.17 | | Mar. 6, 2024 |
|
| | | | | | | | | | |
Beneficiary | | Grant date | | Vesting date | | Number of options outstanding | | Strike price (in $) | | Expiration Date |
De Schepper | | — | | — | | — | | — | | — |
Dzielak | | — | | — | | — | | — | | — |
Kern | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 74,135 | | 12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 125,520 | | 7.17 | | Dec. 20, 2024 |
Mazzella | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 65,898 | | 12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 111,576 | | 7.17 | | Dec. 20, 2024 |
Okerstrom | | — | | — | | — | | — | | — |
Östberg | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 70,840 | | 12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 119,944 | | 7.17 | | Dec. 20, 2024 |
Schneider | | Mar. 6, 2017 | | Jan. 3, 2018, 2019, 2020 | | 70,840 | | 12.14 | | Mar. 6, 2024 |
| | Dec. 20, 2017 | | Jan. 2, 2019, 2020, 2021 | | 119,944 | | 7.17 | | Dec. 20, 2024 |
(1) Restricted stock units are granted at zero grant price and have no expiration date.(2) This award vests as follows: 1/3rd vested on January 2, 2020, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting date.
(3) This award vests as follows: 1/3rd vested on November 5, 2020, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting date.
(4)This award vests as follows: 1/3rd vests on January 2, 2021, and an additional 1/12th will vest quarterly thereafter until the award is fully vested, subject to continued service on such vesting date.
As of December 31, 2017,2020, we havehad nothing set aside or accrued to provide pension, retirement or similar benefits to our supervisory board members. In the year 2017,2020, none of our supervisory board membermembers exercised any options in trivago N.V.
In 2020, 19,616 and 22,068 RSUs vested and were released to Mr. Kern and Mr. Mankodi, respectively.
2016 Omnibus incentive plan
In connection with our IPO, we established the trivago N.V. 2016 Omnibus Incentive Plan, which we refer to as the 2016 Plan, with the purpose of giving us a competitive advantage in attracting, retaining and motivating officers, employees, directors who aremanagement board members, of the managementsupervisory board members, and/or consultants by providing them incentives directly linked to shareholder value. The maximum number of Class A shares available for issuance under the 2016 Plan shall be 34,711,009 is 59,635,698 Class A shares.shares, which does not include any Class B share conversions. Class A shares issuable under the 2016 Plan will be represented by ADSs for such Class A shares. The 2016 Plan was amended on March 6, 2017 to permit the delegation of certain responsibilities to the management board. The Plan was amended on August 3, 2017 to permit supervisory board members to be eligible for awards under the 2016 Plan. The 2016 Plan was amended on June 28, 2019 to permit the granting to management and supervisory board members an option to purchase Class A shares at less than fair market value of the underlying Class A shares. The 2016 Plan was also amended on July 18, 2019 to permit additional mechanics to settle transactions. On June 30, 2020, at our general meeting, our shareholders authorized an increase of the maximum number of Class A shares available for issuance under the 2016 Plan. On March 2, 2021, our supervisory board amended the 2016 Plan to reflect this increase.
Plan administration. The 2016 Plan is administered by a committee of at least two members of our supervisory board, which we refer to as the plan committee. The plan committee must approve all awards to directors. Our management board may approve awards to eligible recipients other than directors, subject to annual aggregate and individual limits as may be agreed withby the supervisory board. Subject to applicable law or the listing standards of the applicable exchange, the plan committee may delegate to other appropriate persons the authority to grant equity awards under the 2016 Plan to our eligible award recipients.
Eligibility. Management board members, supervisory board members, officers, employees and consultants of the company or any of our subsidiaries or affiliates, and any prospective directors, officers, employees and consultants of the company who have accepted offers of employment or consultancy from the company or our subsidiaries or affiliates (excluding supervisory board members) are eligible for awards under the 2016 Plan.
Awards. Awards include options, performance-based stock options share appreciation rights, restricted sharestock units, performance-based stock units and other share-based and cash-based awards. Awards may be settled in stock or cash. The option exercise price for options granted to members of the management board and the supervisory board under the 2016 Plan for management board members shall not be less than the fair market value of a Class A share as defined in the 2016 Plan on the relevant grant date, unless otherwise approved by shareholders at a general meeting. The option exercise price for options under the 2016 Plan for other eligible individuals can be less than the fair market value of a Class A share as defined in the 2016 Plan on the relevant grant date. To the extent that listing standards of the applicable exchange require the company’s shareholders to approve any repricing of options, options may not be repriced without shareholder approval.
Vesting period. Options and share appreciation rights shall vest and become exercisable at such time and pursuant to such conditions as determined by the plan committee and as may be specified in an individual grant agreement. The plan committee may at any time accelerate the exercisability of any option or share appreciation right. Restricted shares may vest based on continued service, attainment of performance goals or both continued service and performance goals. The plan committee at any time may waive any of these vesting conditions.
Term. Options and share appreciation rights will have a term of not more than ten years. The 2016 Plan will also have a ten year term, although awards outstanding on the date the 2016 Plan terminates will not be affected by the termination of the 2016 Plan.
Compensation principles
Senior management
The primary objective of our senior management’s compensation program is to attract, motivate, reward and retain the managerial talent needed to achieve our business objectives. In addition,objectives and drive sustainable business performance. We have mandated an external compensation arrangementsspecialist to benchmark our management’s compensation, both in terms of their base cash compensation, cash bonus and equity incentive award, against that of the management of similarly situated companies in the United States and
Europe including companies with a similar financial profile and those in the same sector (e.g., technology and online travel). While we have targeted total compensation amounts for senior management comparable to those of similarly situated companies, in 2020, we have compensated our senior management to a greater extent with performance-based equity grants, based on performance targets (e.g., a particular stock price or stock price improvement). We have opted to focus on this type of compensation to incentivize our management’s value contribution to our business and to promote long-term value creation. For more information on the 2020 performance grants, see “Item 6: Directors, senior management and employees - B. Compensation - Compensation of members of our management board and supervisory board" above. Base salaries for our senior management have been designed to alignwere therefore a portionrelatively smaller component of theirtotal compensation with the achievementand were lower than base salaries of senior management at many our business objectivespeers, reflecting our belief that this mix of compensation incentivizes our management’s performance and growth strategy.promotes intrinsic motivation. Bonus payments for our senior management are determined with respect to a given year based on quantitativeprimarily qualitative goals. For the purpose of determining the bonus amounts and qualitativecompensation more generally, our supervisory board and compensation committee conduct an individualized analysis of each member of senior management and measure the performance of senior management with reference to alignment with our goals, set for our company, as well asthe business impact of senior management on an individual basis. Oncethose goal and the resultsteam building capabilities of the year are known,senior management. The base salary, any bonus payments and any equity award compensation are proposed by the CEO to our compensation committee. The proposal is then discussed (and amended, if needed) by the committee. The amount of compensation of the management board and those reporting to the CEO is then determined at the discretion of our board and, with respect to senior management reporting to the CEO, considering recommendations made by the CEO.supervisory board.
Employees
We believe in cultivating an inspiring environment where our employees can thrive and feel empowered to do their best. Our aim is to attract intrinsically motivated individuals, and nurture and retain the most capable and driven of them to support our culture of learning, authenticity and entrepreneurship.
Our remuneration policy is designed to attract and retain employees, and reward them for achieving our goals and objectives as a business, and in particular ourworking productively together based on the “core values" (see above “Item 44: Information on the company - B. Business overview— - Our employees and culture”).
We believe our employees’ compensation should develop together with their career development, achievements and the value they create at trivago. We haveuse an individualized approach to compensation that reflects each employee’s unique context and overallthe value contribution of each employee to our organization. We believe that employees who contribute significantly to our success should receive increased compensation and measures should be taken to retain them, for example through the award of stock options. The unique context of the position profile - in particular in relation to similar roles both at trivago and externally - as well as the scope of responsibilities taken on by that employee are other important factors for the development of employee compensation.
Salaried employees are rewarded on a total rewards basis, which includes fixed income and long-term incentive awards, such as stock options. We also offer all our employees other benefits, such as self-determined hours,Compensation is awarded on a supportive work environment and an attractive culture.fixed rather than variable basis in order to emphasize intrinsic (rather than extrinsic) motivation. We aim to ensure that each employee’s compensation is fair and is aligned to the scope and breadth of his or her activities as well as to the value that person creates. At trivago, we review our compensation decisions on a yearly basis. We believe that fairness is created by analyzing compensation at one point in time for all our employees. Rather than negotiating salary increases, we aim to run a fair, objective and merit-based process for compensation decisions.
Short-term remuneration policy
An important component of our remuneration policy is the use of the short-term incentive remuneration, which supports our results-focused culture and the engagement of our employees. We believe in making appropriate and meaningful distinctions in recognizing and rewarding our employees’ performance. We complement the base compensation of our employees by offering ad-hoc bonuses (rewarded by a responsibility lead for creating extraordinary value) and peer bonuses (a special and unexpected thanks for extraordinary efforts, awarded by other employees).
Management board and supervisory board
We have a two-tier board structure consisting of our management board (bestuur) and a separate supervisory board (raad van commissarissen). Each management board and supervisory board member owes a duty to us to properly perform the duties assigned to him or her and to act in our corporate interest. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees, customers and suppliers.
Management board
Our management board is responsible for the day-to-day management of our company, subject to certain limitations as set out in the articles of association and the internal rules of our management board (which we refer to as the Management Board Rules), and for our strategy, policy and operations subject to the Amended and Restated Shareholders’ Agreement and under the supervision of our supervisory board.
Our management board is required to keep our supervisory board informed, and to consult with our supervisory board, on important matters and to submit certain important decisions to our supervisory board for its approval as set out below. Except as agreed in our annual business plan, which is subject to the approval of our supervisory board, prior to entering into the following transactions or making the following decisionswith respect to the company or any subsidiary, our management board shall obtain the prior consent of the supervisory board:
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1. | sale, transfer, lease (as lessor or in respect of real property) or other disposition of assets (including equity interests in a subsidiary) other than such sales, transfers, leases or other dispositions with a value for accounting purposes (i) less than $1,000,000, or (ii) between $1,000,000 and $10,000,000 except to the extent prior notice is provided to Expedia and such sale, transfer, lease or other disposition would be permitted under Expedia’s credit facilities; or any merger of, or sale of all or substantially all of the assets of, any subsidiary (except to the extent prior notice is provided to Expedia and such merger or sale is permitted under Expedia’s credit facilities); |
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2. | liquidating or dissolving the company or any subsidiary; |
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3. | granting loans, payment guarantees (Bürgschaften), indemnities, or incurring other liabilities to third parties outside the ordinary course of business in excess of €10,000,000;
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4. | taking out loans, borrowings or other debt (or providing any guarantee of such obligations of any other person or entity) or granting any liens other than liens securing the foregoing, which permitted debt and liens at any time outstanding exceed €25,000,000; |
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5. | entering into joint-venture, partnership and/or similar agreements which cannot be terminated without penalty within (i) three years and which could result in the company or any subsidiary being liable for the obligations of a third party, (ii) five years, or (iii) agreements pursuant to Article 7.1(h) of the Amended and Restated Shareholders’ Agreement; |
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6. | entering into non-compete or exclusivity agreements or other agreements that restrict the freedom of the business and which agreements are terminable later than two years after having been entered into; |
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7. | entering into agreements (i) which cannot be terminated without penalty within (a) three years and involving annual expenditures in excess of €10,000,000 or (b) five years, except for supplementary lease agreements with (x) an annual rent of not more than €1,000,000, (y) substantially comparable terms to the relevant existing lease agreement, and (z) a term of ten years or less, or (ii) for annual expenditures in excess of €15,000,000, save that the threshold for expenditures for brand marketing shall be €50,000,000; |
1.sale, transfer, lease (as lessor or in respect of real property) or other disposition of assets (including equity interests in a subsidiary) other than such sales, transfers, leases or other dispositions with a value for accounting purposes (i) less than $1,000,000, or (ii) between $1,000,000 and $10,000,000 except to the extent prior notice is provided to Expedia Group and such sale, transfer, lease or other disposition would be permitted under Expedia Group’s credit facilities; or any merger of, or sale of all or substantially all of the assets of, any subsidiary (except to the extent prior notice is provided to Expedia Group and such merger or sale is permitted under Expedia Group’s credit facilities);
2.liquidating or dissolving the company or any subsidiary;
3.granting loans, payment guarantees (Bürgschaften), indemnities, or incurring other liabilities to third parties outside the ordinary course of business in excess of €10,000,000;
4.taking out loans, borrowings or other debt (or providing any guarantee of such obligations of any other person or entity) or granting any liens other than liens securing the foregoing, which permitted debt and liens at any time outstanding exceed €25,000,000;
5.entering into joint-venture, partnership and/or similar agreements which cannot be terminated without penalty within (i) three years and which could result in the company or any subsidiary being liable for the obligations of a third party, (ii) five years, or (iii) agreements pursuant to Article 7.1(h) of the Amended and Restated Shareholders’ Agreement;
6.entering into non-compete or exclusivity agreements or other agreements that restrict the freedom of the business and which agreements are terminable later than two years after having been entered into;
7.entering into agreements (i) which cannot be terminated without penalty within (a) three years and involving annual expenditures in excess of €10,000,000 or (b) five years, except for supplementary lease agreements with (x) an annual rent of not more than €1,000,000, (y) substantially comparable terms to the relevant existing lease agreement, and (z) a term of ten years or less, or (ii) for annual expenditures in excess of €15,000,000, save that the threshold for expenditures for brand marketing shall be €50,000,000;
8.entering into agreements under which we or any subsidiary binds or purports to bind any of our shareholders or our shareholders’ affiliates (other than our subsidiaries) or to cause such shareholders or affiliates to take or forbear from taking action;
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8. | entering into agreements under which we or any subsidiary binds or purports to bind any of our shareholders or our shareholders’ affiliates (other than our subsidiaries) or to cause such shareholders or affiliates to take or forbear from taking action; |
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9. | entering into, amending or terminating agreements between us (or any subsidiary) and any managing director of the company or any subsidiary, any companies affiliated with such managing director, or third parties represented by such managing director; |
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10. | entering into or amending any agreements or other arrangements with any third party that restrict in any fashion the ability of the company (or any subsidiary), which ability shall be subject to the terms of the Management Board Rules (a) to pay dividends or other distributions with respect to any shares in the capital of the company (or any subsidiary) or (b) to make or repay loans or advances to, or guarantee debt of, any of the company’s shareholders or such shareholders subsidiaries; |
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11. | entering into, amending or terminating domination agreements (Beherrschungsverträge), profit and loss pooling agreements (Gewinnabführungsverträge), business leasing contracts (Unternehmenspachtverträge) or tax units (Organschaften);9.entering into, amending or terminating agreements between us (or any subsidiary) and any managing director of the company or any subsidiary, any companies affiliated with such managing director, or third parties represented by such managing director; 10.entering into or amending any agreements or other arrangements with any third party that restrict in any fashion the ability of the company (or any subsidiary), which ability shall be subject to the terms of the Management Board Rules (a) to pay dividends or other distributions with respect to any shares in the capital of the company (or any subsidiary) or (b) to make or repay loans or advances to, or guarantee debt of, any of the company’s shareholders or such shareholders subsidiaries; 11.entering into, amending or terminating domination agreements (Beherrschungsverträge), profit and loss pooling agreements (Gewinnabführungsverträge), business leasing contracts (Unternehmenspachtverträge) or tax units (Organschaften); 12.entering into any transaction with any affiliate or shareholder of the company which is outside the ordinary course of business and not at arms’ length terms; 13.issuing shares in the capital of the company or any subsidiary (including phantom stock and profit participation rights) or granting options (including phantom options) or subscription rights for shares of the company or any subsidiary, except pursuant to the company’s 2016 Plan; 14.share repurchases by the company or any subsidiary (other than in connection with conversion of Class B shares into Class A shares); 15.amendments, modifications or waivers to, or the exercise of any rights under, any stock option, phantom option or similar program of the company or any subsidiary, except to the extent provided in the 2016 Plan; 16.making changes to regulatory or tax status or classification of the company or any subsidiary; 17.change of material accounting standards not required by applicable law or Dutch or U.S. GAAP policy; 18.entering into, amending or terminating employment contracts with the Founders, the CEO or the CFO of the company; 19.entering into any collective bargaining agreements (Tarifverträge); and 20.initiating or settling material litigation in excess of €1,000,000. |
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12. | entering into any transaction with any affiliate or shareholder of the company which is outside the ordinary course of business and not at arms’ length terms; |
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13. | issuing shares in the capital of the company or any subsidiary (including phantom stock and profit participation rights) or granting options (including phantom options) or subscription rights for shares of the company or any subsidiary, except pursuant to the company’s 2016 Plan (as defined below), any successor incentive plan, and any predecessor phantom option and profit sharing bonus agreements in existence as of the date hereof or amended pursuant to forms of amendment approved by the general meeting of shareholders of the company, in each case as amended, supplemented or otherwise modified from time to time, which we refer to as the Incentive Plan; |
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14. | share repurchases by the company or any subsidiary (other than in connection with conversion of Class B shares into Class A shares); |
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15. | amendments, modifications or waivers to, or the exercise of any rights under, any stock option, phantom option or similar program of the company or any subsidiary, except to the extent provided in the Incentive Plan; |
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16. | making changes to regulatory or tax status or classification of the company or any subsidiary; |
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17. | change of material accounting standards not required by applicable law or Dutch or U.S. GAAP policy; |
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18. | entering into, amending or terminating employment contracts with founding managing directors, the chief executive officer of the company or the chief financial officer of the company; |
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19. | entering into any collective bargaining agreements (Tarifverträge); and
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20. | initiating or settling material litigation in excess of €1,000,000. |
The management board shall, in due course at least 30 days before the end of each fiscal year of the company, prepare and submit to the supervisory board an annual business plan for the following fiscal year. The annual business plan shall become effective upon the approval of the supervisory board, and the annual business plan may be amended by the management board by a quarterly plan with the consent of the supervisory board. The annual business plan will address, in reasonable detail, any anticipated transactions of the type described in Item 1 above. The fiscal year of the company is the calendar year.
If, at the beginning of a fiscal year, no new annual business plan is in effect because the supervisory board did not approve the annual business plan submitted by the management board or the management board did not submit an annual business plan as and when required hereunder,under the management board rules, the annual business plan for the previous business year shall stay in effect until such time when the supervisory board approves a new annual
business plan for the running fiscal year, provided that the target figures for revenue and adjusted EBITDA shall increase by 15% to the previous annual business plan and expense items shall be adjusted accordingly.
Pursuant to the Amended and Restated Shareholders’ Agreement, our management board is comprised of six members, and must consist of at least three members.to six members, including the CEO and the CFO. Our management board members have been appointed pursuant to our deed of incorporation. The composition of our management board will beis subject to the rights of the Founders and Expedia Group (through ELPS) under the Amended and Restated Shareholders’ Agreement.
Under our articles of association, the supervisory board may elect one management board member to be the chief executive officer and another management board member to be the chief financial officer subject to the terms of the Amended and Restated Shareholders’ Agreement. The supervisory board may revoke the title chief executive officer or chief financial officer subject to the terms of the Amended and Restated Shareholders’ Agreement, provided that such management board member shallwill subsequently continue his term of office as a management board member without having the title of chief executive officer or chief financial officer, respectively.
Our management board members were appointed by our general meeting of shareholders upon the binding nomination by the supervisory board. Under Dutch law, a management board member may, subject to compliance with certain Dutch statutory procedures, be removed with or without cause by a resolution passed by a majority of at least a two thirds of the votes cast by those present in person or by proxy at a meeting and who are entitled to vote, provided such majority represents more than half of the issued share capital, unless the proposal was made by the supervisory board in which case a simple majority of the votes cast is sufficient.
Supervisory board
Our supervisory board is responsible for supervising the conduct of and providing advice to our management board and for supervising our business generally, subject to our articles of association, the Amended and Restated Shareholders’ Agreement and the internal rules of our supervisory board (which we refer to as Supervisory Board Rules). Our supervisory board also has the authority to, at its own initiative, provide our management board with advice and may request any information from our management board that it deems appropriate. In performing its duties, our supervisory board is required to take into account the interests of our business as a whole.
Our supervisory board is comprised of seven members, including onetwo temporary board membermembers (pending his appointment byappointments at the general meeting). Pursuant to the Amended and Restated Shareholders’ Agreement, four supervisory board members were selected by Expedia Group (through ELPS) and three supervisory board members were selected by the Founders. Each supervisory board member (other than the temporary members) was appointed for a term of three years.
Our current supervisory board members (other than Mr. Schrömgens who was reappointed as a temporary member upon the expiration of his prior term on December 31, 2020 and Mr. Hart who was appointed as a temporary member in 2021) were appointed by theat our general meetingmeetings of shareholders upon the binding nomination by our supervisory board. Pursuant to the Amended and Restated Shareholders’ Agreement, ExpediaELPS and the Founders have agreed that any new supervisory board member will be proposed for nomination by either ExpediaELPS or the Founders as applicable, depending on which supervisory board member resigns, is not reappointed to, or is removed from the supervisory board. ExpediaELPS and the Founders have agreed to consult one another on their respective proposals. A supervisory board member may, subject to compliance with certain Dutch statutory procedures, be removed with or without cause by a shareholder resolution passed by a majority of at least a two thirds of the votes cast by those present in person or by proxy at a meeting and who are entitled to vote, provided such majority represents more than half of the issued share capital, unless the proposal was made by the supervisory board in which case a simple majority of the votes cast is sufficient. Pursuant to the Amended and Restated Shareholders’ Agreement, ExpediaELPS and the Founders have agreed that ExpediaELPS may designate the chairman of the supervisory board. The chairman will be entitled to cast a tie-breaking vote.
Management board member services agreements and performance equity grants
We have entered into services agreements with each of the members of our management board. These agreements contain customary provisions regarding noncompetition, nonsolicitation, confidentiality of information and assignment of inventions. We have also entered into agreements governing our management board's performance equity grants, which were subsequently amended to adjust the performance criteria included therein. The amended terms of the agreements are described above under "Compensation of members of our management board and supervisory board" above. The form of performance stock option award agreements, performance stock unit award agreements and the related restated and amended summaries of awards are also filed as exhibits hereto. These agreements include a "double trigger" change of control provision. Upon any participant’s termination of employment, during the two-year period following a Change in Control (as defined in the agreement), for a Qualified Termination Reason (as defined below), the Relevant Proportion (as defined below) of the option outstanding as of such termination of employment which was outstanding as of the date of such Change in Control will be fully exercisable and vested, permitting the participant to subscribe for the Relevant Portion of 100% of the relevant target award against payment of the exercise price, and will remain exercisable until the later of (i) the last date on which the option would be exercisable in the absence of this provision and (ii) the earlier of (A) the first anniversary of such Change in Control and (B) expiration of the term of the option. Analogous provisions were implemented for the performance stock unit agreements.
A "Qualified Termination Reason" for the purpose of the performance equity grants means a material reduction in a participants rate of total compensation from the rate of total compensation in effect for such participant immediately prior to the Change in Control; or a relocation of the participant’s principal place of employment more than 50 kilometers outside of Düsseldorf; or a reduction in the participant's title, duties or reporting responsibilities or level of responsibilities (e.g., as a consequence of the delisting of the our shares on NASDAQ without the shares then being, or to be, listed on another "applicable" exchange) from those in effect immediately prior to the Change in Control; or our material breach of any material provision of applicable equity compensation agreements.
In order to invoke a Termination of Employment for a Qualified Termination Reason, the participant must provide us with written notice of the existence of one or more of the conditions described above within 90 days following the participant’s knowledge of the initial existence of such condition or conditions, and we will have 30 days following receipt of such written notice (the “Cure Period”) during which we may remedy the condition. In the event that we fail to remedy the condition constituting a Qualified Termination Reason during the Cure Period, the participant must terminate employment, if at all, within 90 days following the Cure Period in order for such Termination of Employment to constitute a Termination of Employment for a Qualified Termination Reason.
"Relevant Proportion" means for the purpose of the performance equity grants a proportion corresponding to such proportion, in completed months, of the relevant performance period in the award summary as fell before the participant’s termination of employment.
Supervisory board member services agreements
We have entered into services agreements with each of the members of our supervisory board for an indefinite period of time, provided that the agreements will terminate upon dismissal, resignation or expiry of term of office (subject to reappointment) of the supervisory board member concerned. These agreements provide for the compensation awarded to the independent supervisory board members.
Director independence
As a foreign private issuer under the SEC rules, we are not required to have independent directors on our supervisory board, except to the extent that our Audit Committee is required to consist exclusively of independent supervisory board members. However, ourOur supervisory board has determined that, under current Nasdaq listing standards regarding independence, and taking into account any applicable committee standards, Messrs. Kern,Mankodi, Mazzella Östberg and SchneiderÖstberg would be considered independent supervisory board members.
Under the independence criteria of the DCGC (which requires that our supervisory board be composed of independent members, except for no more than one member who is not independent), Messrs. Kern,Mankodi, Mazzella and Östberg and Schneider will beare considered independent supervisory board members. See “Item 16 G.16G: Corporate governance.”
Committees of the supervisory board
Our supervisory board has established an audit committee and a compensation committee.
Audit Committee
The audit committee currently consists of Messrs. Kern,Mankodi, Östberg and SchneiderMazzella and assists the supervisory board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Mr. KernMankodi serves as chairman of the committee. The audit committee consists exclusively of members of our supervisory board who are financially literate, and Mr. KernMankodi is considered an “audit committee financial expert” as defined by the SEC. Our supervisory board has made an affirmative determination that each of our audit committee members is independent under Nasdaq rules and Rule 10A-3 of the Exchange Act. The audit committee is governed by a charter that complies with Nasdaq rules.
Mr. Alan Pickerill has observer status on our Audit Committee, and he is the Chief Financial Officer of Expedia, Inc., our majority shareholder. He is relying on an exemption of the Nasdaq listing standards relating to Audit Committees of Rule 10A-3 promulgated under the Exchange Act. See "Item 16 D. Exemptions from the listing requirements and standards for audit committees."
The audit committee is responsible for:
•the appointment, compensation, retention and oversight of the work of, and the relationship with, the independent registered public accounting firm;
•the appointment, compensation, retention and oversight of any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit services;
•pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;
•evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to the full supervisory board on at least an annual basis;
•reviewing and discussing with the management board and the independent auditor our annual audited financial statements and quarterly financial statements prior to the filing of the respective annual and quarterly reports;
•reviewing our compliance with laws and regulations, including major legal and regulatory initiatives and also reviewing any major litigation or investigations against us that may have a material impact on our financial statements; and
•approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy.
The audit committee will meet as often as one or more members of the audit committee deem necessary, but in any event will meet at least four times per year. The audit committee will meet at least once per year with our independent accountant, without members of our management board being present.
Compensation committee
The compensation committee currently consists of Mrs. De Schepper and Messrs.Mr. Dzielak and Okerstrom,Mr. Hart, and assists the supervisory board in determining the compensation of the management board and the supervisory board, in accordance with the remuneration policy that has been determined by the general meeting of shareholders. Mr. OkerstromDzielak serves as chairman of the committee. Under SEC and Nasdaq rules, there are heightened independence standards for members of the compensation committee, including a prohibition against the receipt of any compensation from us other than standard supervisory board member compensation. Pursuant to exemptions from such independence standards as a result of being a controlled company, the members of our compensation committee may not be independent under such standards.
The compensation committee is responsible for:
•recommending each Managing Director’smanaging director’s compensation to the Supervisory Boardsupervisory board and recommending to the Supervisory Boardsupervisory board regarding compensation for Supervisory Boardsupervisory board members;
•identifying, reviewing and approving corporate goals and objectives relevant to management and supervisory board compensation;
•reviewing and approving or making recommendations regarding our incentive compensation and equity-based plans and arrangements;
•reviewing and discussing with management the compensation disclosures to be included in filings and submissions with the SEC;
•preparing an annual compensation committee report; and
•reporting regularly to the supervisory board regarding its activities.
The overview of employees at the end of each respective period is summarized in the following table.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2018 | | 2019 | | 2020 |
Cost of revenue | 41 | | | 53 | | | 62 | |
Selling and marketing | 439 | | | 313 | | | 164 | |
Technology and content | 620 | | | 623 | | | 445 | |
General and administrative | 254 | | | 258 | | | 163 | |
Total | 1,354 | | | 1,247 | | | 834 | |
thereof employed in Germany | 1,243 | | | 1,139 | | | 828 | |
|
| | | | | | | | |
| Year ended December 31, |
| 2015 |
| | 2016 |
| | 2017 |
|
Cost of Revenue | 39 |
| | 26 |
| | 60 |
|
Selling and Marketing | 433 |
| | 521 |
| | 606 |
|
Technology and Content | 381 |
| | 499 |
| | 652 |
|
General and Administrative | 121 |
| | 187 |
| | 291 |
|
Total | 974 |
| | 1,233 |
| | 1,609 |
|
thereof employed in Germany | 892 |
| | 1,131 |
| | 1,448 |
|
None of our employees are covered under a collective bargaining agreement. We consider our employee relations to be good.
See “Item 7 A.“Item 7: Major shareholders and related party transactions—transactions - A. Major shareholders.Shareholders,”
and see "Item 6: Directors, senior management and employees - B. Compensation"
Item 7: Major shareholders and related party transactions
The following table sets forth information relating to the beneficial ownership of our shares as of March 2, 2018,1, 2021, by:
•each person, or group of affiliated persons, known by us to beneficially own 5% or more of our outstanding Class A shares and 5% or more of our outstanding Class B shares;
•each member of our management board and our supervisory board; and
•each member of our management board and our supervisory board as a group.
For further information regarding material transactions between us and principal shareholders, see “B.Related party transactions” below.
The number of shares (or share capital) beneficially owned by each entity, person, management board member and supervisory board member is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power or from which the individual has the right to receive the economic benefit as well as any shares that the individual has the right to acquire within 60 days of March 2, 20181, 2021 through the exercise of any option, warrant or other right. Such shares are deemed outstanding for the purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all managing directors and supervisory board members as a group. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power and the right to receive the economic benefit with respect to shares held by that person.
The following table is presented as of March 2, 2018.1, 2021. See “Item 4 C.4: Information on the Company—company - C. Organizational structure” structure” for additional information regarding the corporate reorganization. Unless otherwise indicated below, the address for each beneficial owner listed is c/o trivago N.V., Bennigsen-Platz 1, 40474Kesselstraße 5 - 7, 40221 Düsseldorf, Federal Republic of Germany.
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| Ordinary shares beneficially owned(1) | | % Voting power(2) |
| Class A | | Class B | |
Name of beneficial owner | Shares | | % | | Shares | | % | |
5% or greater shareholders | | | | | | | | | |
Expedia Group, Inc.(3) | — | | | — | | | 209,008,088 | | | 70.1 | % | | 68.8 | % |
Peter Vinnemeier(4) | 2,625,000 | | | 4.7 | % | | 24,485,793 | | | 8.2 | % | | 8.1 | % |
PAR Investment Partners, L.P.(5) | 17,053,178 | | | 30.5 | % | | — | | | — | | | * * |
ETF Managers Group LLC | 2,852,219 | | | 5.1 | % | | — | | | — | | | * * |
Management board members (6) | | | | | | | | | |
Axel Hefer | 3,990,238 | | | 7.1 | % | | — | | | — | | | * * |
Matthias Tillmann | 318,049 | | | * | | — | | | — | | | * * |
James Carter | 47,712 | | | * | | — | | | — | | | * * |
Supervisory board members | | | | | | | | | |
Robert J. Dzielak | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Eric M. Hart | — | | | — | | | — | | | — | | | — | |
Peter M. Kern | 236,324 | | | * | | — | | | — | | | * * |
Hiren Mankodi | 130,976 | | | * | | — | | | — | | | * * |
Frédéric Mazzella | 246,681 | | | * | | — | | | — | | | * * |
Niklas Östberg | 262,356 | | | * | | — | | | — | | | * * |
Rolf Schrömgens | 624,000 | | | 1.1 | % | | 57,597,012 | | | 19.3 | % | | 19.0 | % |
All management board and supervisory board members as a group (10 persons) | 5,856,336 | | | 10.5 | % | | 57,597,012 | | | 19.3 | % | | 19.2 | % |
*Indicates beneficial ownership of less than 1% of the total outstanding Class A shares.
**Indicates voting power of less than 1%.
(1) Percentages based on 55,967,976 Class A shares outstanding and 298,187,967 Class B shares outstanding as of December 31, 2020. Where the respective individual has the right to acquire within 60 days of March 1, 2021 through the exercise of any option, warrant or other right, such shares are deemed outstanding for the purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all managing directors and supervisory board members as a group. For more information on the stock options held by our management and supervisory boards, see "Item 6: Directors, senior management and employees - B. Compensation."
(2) Percentage of total voting power represents voting power with respect to all of our Class A and Class B shares, as a single class. The holders of our Class B shares are entitled to ten votes per share, and holders of our Class A shares are entitled to one vote per share. For more information about the voting rights of our Class A and Class B shares, see Exhibit 2.6 hereto. Each Class B share is convertible into one Class A share at any time by the holder thereof, while Class A shares are not convertible into Class B shares under any circumstances.
(3) As reported on Schedule 13G filed by Expedia Lodging Partner Services S.à.r.l. (ELPS), Expedia Group holds its interest in the company through ELPS, an indirect wholly owned subsidiary of Expedia Group. Each Class B share is convertible into one Class A share at any time by the holder thereof, while Class A shares are not convertible into Class B shares under any circumstances. Assuming conversion of all Class B shares into Class A shares, ELPS would own 59.0% of our Class A shares. This percentage does not reflect the ten for one voting power of our Class B shares. Because each Class B share is entitled to ten votes per share and each Class A share is entitled to one vote per share, ELPS may be deemed to beneficially own equity securities representing approximately 68.8% of the voting power of the company. The address of Expedia Group is 1111 Expedia Group Way W., Seattle, WA 98119.
(4) As reported on Schedule 13D/A filed by Peter Vinnemeier, on June 2, 2020, Mr. Vinnemeier entered into a Rule 10b5-1 sales plan with a broker to sell 3,500,000 ADSs. The table above assumes Mr. Vinnemeier has sold all ADSs that are the subject of the trading plan, which is, however, scheduled to remain in effect until March 31, 2021. Mr. Vinnemeier has reported on Schedule 13D/A, sales of 2,205,153 ADSs under the plan. In addition on February 18, 2021, Mr. Vinnemeier converted a portion of his Class B shares into Class A shares, resulting in an increase in the total number of outstanding Class A shares by 2,625,000 shares. For more information see "Significant changes in ownership by major shareholders" below.
(5) As reported on Schedule 13D/A filed by PAR Investment Partners, L.P., a Delaware limited partnership (“PAR Investment Partners”), PAR Group II, L.P., a Delaware limited partnership (“PAR Group”), and PAR Capital Management, Inc., a Delaware
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| Ordinary shares beneficially owned(1) | | % Voting power(2) |
| Class A | | Class B | |
Name of beneficial owner | Shares | | % | | Shares | | % | |
5% or greater shareholders | | | | | | | | | |
Expedia, Inc.(3) | — |
| | — |
| | 209,008,088 |
| | 65.4 | % | | 64.7 | % |
T. Rowe Price Associates, Inc.(4) | 6,304,278 |
| | 20.4 | % | | — |
| | — |
| | * * |
|
683 Capital Management, LLC(5) | 3,234,664 |
| | 10.5 | % | | — |
| | — |
| | * * |
|
Cadian Capital Management LP(6) | 2,990,427 |
| | 9.7 | % | | — |
| | — |
| | * * |
|
Altrinsic Global Advisors, LLC(7) | 2,544,211 |
| | 8.2 | % | | — |
| | — |
| | * * |
|
Morgan Stanley(8) | 1,904,563 |
| | 6.2 | % | | | | | | |
Deutsche Bank AG(9) | 1,893,840 |
| | 6.1 | % | | — |
| | — |
| | * * |
|
Robert S. Pitts, Jr.(10) | 1,683,137 |
| | 5.4 | % | | | | | | * * |
|
Management board members | | | | | | | | | |
Rolf Schrömgens | 133,334 |
| | * |
| | 57,847,012 |
| | 18.1 | % | | 17.9 | % |
Peter Vinnemeier | 133,334 |
| | * |
| | 44,110,793 |
| | 13.8 | % | | 13.7 | % |
Malte Siewert | 133,334 |
| | * |
| | 8,834,074 |
| | 2.8 | % | | 2.7 | % |
Axel Hefer | 344,680 |
| | 1.1 | % | | — |
| | — |
| | * * |
|
Andrej Lehnert | 705,494 |
| | 2.2 | % | | — |
| | — |
| | * * |
|
Johannes Thomas | 576,812 |
| | 1.8 | % | | — |
| | — |
| | * * |
|
Supervisory board members | | | | | | | | | |
Mieke S. De Schepper | — |
| | — |
| | — |
| | — |
| | — |
|
Robert J. Dzielak | — |
| | — |
| | — |
| | — |
| | — |
|
Peter M. Kern | 24,712 |
| | * |
| | — |
| | — |
| | * * |
|
Frédéric Mazzella | 21,966 |
| | * |
| | — |
| | — |
| | — |
|
Mark D. Okerstrom | — |
| | — |
| | — |
| | — |
| | — |
|
Niklas Östberg | 23,614 |
| | * |
| | — |
| | — |
| | * * |
|
David Schneider | 23,614 |
| | * |
| | — |
| | — |
| | * * |
|
All management board and supervisory board members as a group (13 persons) | 2,120.894 |
| | 6.4 | % | | 110,791,880 |
| | 34.7 | % | | 34.4 | % |
| |
* | Indicates beneficial ownership of less than 1% of the total outstanding Class A shares. |
| |
** | Indicates voting power of less than 1%. |
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(1) | Percentages based on 30,916,474Class A shares outstanding and 319,799,968 Class B shares outstanding as of December 31, 2017. Where the respective individual has the right to acquire within 60 days of February 27, 2018 through the exercise of any option, warrant or other right, such shares are deemed outstanding for the purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all managing directors and supervisory board members as a group. For more information on the stock options held by our management and supervisory boards, see "Item 6 B. Compensation of members of our management board and supervisory board".
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(2) | Percentage of total voting power represents voting power with respect to all of our Class A and Class B shares, as a single class. The holders of our Class B shares are entitled to ten votes per share, and holders of our Class A shares are entitled to one vote per share. For more information about the voting rights of our Class A and Class B shares, see “Description of share capital and articles of association—Special voting structure and conversion” in our prospectus dated December 16, 2016. Each Class B share is convertible into one Class A share at any time by the holder thereof, while Class A shares are not convertible into Class B shares under any circumstances.
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(3) | As reported on Schedule 13G filed by Expedia Lodging Partner Services S.à r.l. (“ELPS”), Expedia holds its interest in the company through ELPS, an indirect wholly owned subsidiary of Expedia Each Class B share is convertible into one Class A share at any time by the holder thereof, while Class A shares are not convertible into Class B shares under any circumstances. Assuming conversion of all Class B shares beneficially owned by ELPS into Class A shares, ELPS would own 59.6% of our Class A shares. This percentage does not reflect the ten for one voting power of our Class B shares. Because each Class B share is entitled to ten votes per share and each Class A share is entitled to one vote per share, ELPS may be deemed to beneficially own equity securities representing approximately 64.7% of the voting power of the company. The address for Expedia is 333 108th Avenue NE, Bellevue, WA 98004. |
corporation (“PAR Capital Management” and, together with PAR Investment Partners and PAR Group, the "PAR Capital Entities"), PAR Investment Partners used approximately $72.7 million (including brokerage commissions) of the working capital of PAR Investment Partners in the aggregate to purchase Class A Shares reported in its Schedule 13D. A portion of the ADSs PAR Investment Partners purchased were pursuant to a stock purchase agreements described below under "Significant changes in ownership by major shareholders." The principal business address of the PAR Capital Entities is 200 Clarendon Street, 48th Floor, Boston, MA 02116.
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(4) | As reported on Schedule 13G/A filed by T. Rowe Price Associates, Inc. (an investment adviser registered under the Investment Advisers Act of 1940, as amended), and T. Rowe Price New Horizons Fund, Inc., all of which are Maryland corporations. As of December 31, 2017, T. Rowe Price Associates, Inc. and T. Rowe Price New Horizon Fund, Inc., beneficially owned 6,304,278 Ordinary Shares through ownership of ADSs. The principal business address for Price Associates and T. Rowe Price New Horizon Fund, Inc., is 100 E. Pratt Street, Baltimore, Maryland 21202. |
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(5) | As reported on Schedule 13G/A filed by 683 Capital Management, LLC, 683 Capital Partners, LP and Ari Zweiman. 683 Capital Management, LLC is the investment manager of 683 Capital Partners, LP, and Mr. Zweiman is the Managing Member of 683 Capital Management, LLC. The principal business address for 683 Capital Management, LLC, 683 Capital Partners, LP and Mr. Zweiman is 3 Columbus Circle, Suite 2205, New York, NY 10019. |
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(6) | As reported on Schedule 13G filed by Cadian Capital Management, LP (the "Advisor"), Cadian Capital Management GP, LLC, and Eric Bannasch. All ADRs are directly held by advisory clients (the “Advisory Clients”) of the Advisor. Pursuant to investment management agreements, as amended, between the Advisory Clients and the Adviser, the Adviser exercises exclusive voting and investment power over securities directly held by the Advisory Clients. Cadian Capital Management GP, LLC is the general partner of the Adviser. Eric Bannasch is the sole managing member of Cadian Capital Management GP, LLC. The principal business address for the Advisor, Cadian Capital Management GP, LLC, and Eric Bannasch is 535 Madison Avenue, 36th Floor, New York, NY 10022. |
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(7) | As reported on Schedule 13G filed by Altrinsic Global Advisors, LLC and John Hock. The principal business address of Altrinsic Global Advisors, LLC and John Hock is 8 Sound Shore Drive, Greenwich, CT 06830. |
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(8) | As reported on Schedule 13G filed by Morgan Stanley. The filing reflected the securities beneficially owned, or that may have been deemed to be beneficially owned, by certain operating units (collectively, the "MS Reporting Units") of Morgan Stanley and its subsidiaries and affiliates (collectively, "MS"). The filing did not reflect securities, if any, beneficially owned by any operating units of MS whose ownership of securities is disaggregated from that of the MS Reporting Units in accordance with the applicable SEC release. |
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(9) | As reported on Schedule 13G filed by Deutsche Bank AG relating to the ADSs held by its subsidiary Deutsche Asset Management Investment GmbH. The principal business address of Deutsche Bank AG is Taunusanlage 12, 60325 Frankfurt am Main, Germany. |
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(10) | As reported on Schedule 13G/A filed by Robert S. Pitts, Jr. ("Mr. Pitts"), Steadfast Capital Management LP, a Delaware limited partnership (the "Investment Manager"), Steadfast Advisors LP, a Delaware limited partnership (the "Managing General Partner"), Steadfast Capital, L.P., a Delaware limited partnership ("Steadfast Capital"), American Steadfast, L.P., a Delaware limited partnership ("American Steadfast") and Steadfast International Master Fund Ltd., a Cayman Islands exempted company (the "Offshore Fund"). Mr. Pitts is the controlling Principal of the Investment Manager and the Managing General Partner. The Managing General Partner has the power to vote and dispose of the securities held by Steadfast Capital. The Investment Manager has the power to vote and dispose of the securities held by American Steadfast and the Offshore Fund. The business address of each of Mr. Pitts, the Investment Manager, the Managing General Partner, Steadfast Capital and American Steadfast is 450 Park Avenue, 20th Floor, New York, New York 10022. The business address of the Offshore Fund is c/o Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street, P.O. Box 1350, George Town, Grand Cayman KY1-1108. |
(6) The share totals for Messrs. Carter, Hefer and Tillmann do not include shares awardable pursuant to vested performance equity awards. Those awards are contingent upon the satisfaction of performance conditions that will determine the number of shares awardable at a future date. For more information, see “Item 6: Directors, officers and employees – B. Compensation – Compensation of members of our management board and supervisory board.”
Significant changes in ownership by major shareholders
On December 16, 2016, we completed our IPO, in which we and the Founders sold, in the aggregate, 30,026,635 Class A shares primarily to new investors. As of December 31, 2017,2020, assuming that all of our Class A shares represented by ADSs are held by residents of the United States, approximately 100% of our outstanding ADSs were held in the United States by one holder of record. At such date, there were 30,916,47455,967,976 ADSs outstanding, each representing one of our Class A shares, and in the aggregate representing 8.8%representing 16% of our outstanding ordinary shares. At such date, there was one holder of record registered with Deutsche Bank Trust Company Americas, depositary of the ADSs. The actual number of holders is greater thanthan these numbers of holders and includes beneficial owners whose ADSs are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.
On February 18, 2021, Peter Vinnemeier converted a portion of his Class B shares, nominal value of €0.60 per share, into Class A shares, resulting in an increase in the total number of outstanding Class A shares by 2,625,000 shares. On the same date, Malte Siewert also converted a portion of his Class B shares into Class A shares, resulting in an increase in the total number of outstanding Class A shares by 1,000,000 shares.
On June 2, 2020, Peter Vinnemeier entered into a Rule 10b5-1 sales plan (the “Trading Plan”) with a broker to sell ADSs. In connection with but prior to the sale of the ADSs pursuant to the Trading Plan, Mr. Vinnemeier converted a portion of his Class B Shares, nominal value of €0.60 per share, into Class A Shares, resulting in an increase in the total number of outstanding Class A Shares by 3,500,000 shares. The maximum number of ADSs that may be sold under the Trading Plan amounts to 3,500,000 ADSs, and may be sold beginning on July 1, 2020, with such ADSs to be sold in separate tranches at different specified market prices. The Trading Plan is scheduled to remain in effect until March 31, 2021. The Trading Plan was adopted in accordance with our insider trading policy and is intended to comply with the provisions of Rule 10b5-1 under the Exchange Act.
On September 14, 2018, PAR Investment Partners entered into a stock purchase agreement, pursuant to which it agreed to purchase 7,000,000 ADSs from Peter Vinnemeier and Malte Siewert. The ADSs were purchased at a price of $4.47 per ADS in a private transaction that was exempt from registration under the Securities Act. On June 13, 2019, PAR Investment Partners entered into an additional stock purchase agreement, pursuant to which it agreed to purchase an additional 6,000,000 ADSs from Peter Vinnemeier. The ADSs were purchased at a price of $3.74 per ADS in a private transaction that was exempt from registration under the Securities Act. In connection with this private placement, Mr. Vinnemeier concurrently terminated a Rule 10b5-1 sales plan that was entered into with a broker to sell 6,000,000 ADSs and was the subject of an amendment to a beneficial ownership report on Schedule 13D that was filed on May 10, 2019 and was subsequently amended. In each transaction, no shares were sold by trivago, and trivago received no proceeds. The respective selling shareholders in each case received all of the proceeds from each respective sale. The securities sold in the transactions were not registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The ADSs sold to PAR Investment Partners were restricted securities and were subject to a six-month lock-up period.
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B. | B. Related party transactions |
The following is a description of related party transactions we have entered into since January 1, 2015 withbetween us and any of the members of our management board or supervisory board and the holders of more than 5% of our shares.shares in the period since January 1, 2020.
Relationship with Expedia Group
In 2013, Expedia Group completed the purchase of a 63% equity interest in the company, purchasing all outstanding equity not held by the Founders or employees for €477 million. During the second quarter of 2016, Expedia Group exercised its call right on certain shares held by non-Founder employees of the company, which were originally awarded in the form of stock options pursuant to the trivago employee stock option plan and subsequently exercised by such employees, and elected to do so at a premium to fair value resulting in a 63.5% ownership by Expedia.Expedia Group.
Amended and Restated Shareholders’ Agreement of trivago N.V.
In connection with our IPO, travel B.V. (which subsequently converted into trivago N.V.), trivago GmbH, the Founders, Expedia Lodging Partner Services S.à r.l..r.l. (ELPS) and certain other Expedia Group parties entered into an amended and restated shareholders’ agreement, which we refer to as the Amended and Restated Shareholders’ Agreement. On August 22, 2017, the parties thereto amended the Amended and Restated Shareholders’ Agreement to make a technical correction to the definition of "Secondary Shares" in the agreement. On February 7, 2019, the parties thereto amended the Amended and Restated Shareholders’ Agreement to reflect the change in number of members of the management board and the number of members of the Compensation Committee.
Agreements regarding the supervisory board
The Amended and Restated Shareholders’ Agreement provides that our supervisory board be comprised of seven members who will each serve for a three year term. Subject to applicable law, including applicable Nasdaq standards: (a) for so long as the Founders and their affiliates hold, collectively, at least 15% of the total number outstanding of Class A and Class B shares, which are deemed to include any securities convertible into or exchangeable for, or any option, warrant, or other right to purchase or otherwise acquire, any Class A or Class B share (calculated as if all such securities had been converted, exercised or exchanged), the Founders will be entitled to designate for binding nomination three members to our supervisory board, all of whom must be independent; and (b) Expedia will beELPS is entitled to designate for binding nomination all other members of our supervisory board, one of whom will be the chairperson of the board with a tie breaking vote and, if the nominee is qualified, one of whom will be the chairman of our audit committee. Expedia will beELPS is entitled to increase or decrease the size of the supervisory board, provided that the number of members who the Founders are entitled to appoint is not less than three-sevenths (rounded to the nearest whole number) of the members of the supervisory board.
The Amended and Restated Shareholders’ Agreement also sets forth agreements regarding the committees of the supervisory board and the rules of procedure. See ““Item 6 C.6: Directors, senior management and employees—employees - C. Board practices.practices.”
Our supervisory board members were appointed by our shareholders acting at a general meeting of shareholders upon a binding nomination by the supervisory board as described in “Item 6 C.6: Directors, senior management and employees—employees - C. Board practices.practices.” Therefore, ExpediaELPS and each Founder will beis required to vote the shares held by them at the general meeting of shareholders in accordance with the voting arrangements set forth in the Amended and Restated Shareholders’ Agreement.
Agreements regarding the management board
Our management board is comprised of six members who have been appointed pursuant to our deed of incorporation. Pursuant to the Amended and Restated Shareholders’ Agreement, so long as certain conditions
are met, the Founders who are then serving as management board members will be entitled to designate for binding nomination all six directors to our management board for so long as (i) the Founders and their affiliates, collectively, own at least 15% of the total number outstanding of Class A shares and Class B shares, which are deemed to include any securities convertible into or exchangeable for, or any option, warrant, or other right to purchase or otherwise acquire, any Class A or Class B share (calculated as if all such securities had been converted, exercised or exchanged) and (ii) a Founder is serving as chief executive officer of the company. Subject to certain conditions, so long as (i) the Founders and their affiliates, collectively, own at least 15% of the total number outstanding of Class A shares and Class B shares, which are deemed to include any securities convertible into or exchangeable for, or any option, warrant, or other right to purchase or otherwise acquire, any Class A or Class B share (calculated as if all such securities had been converted, exercised or exchanged) and (ii) any Founder and its affiliates hold at least 50% of the Class A shares and Class B shares, which are deemed to include any securities convertible into or exchangeable for, or any option, warrant, or other right to purchase or otherwise acquire, any Class A or Class B share (calculated as if all such securities had been converted, exercised or exchanged), such Founder owned upon completion of our IPO, such Founder will generally have a right to be designated by the Founders for binding nomination by the supervisory board to the management board. For purposes of determining a Founder’s rights described in clause (ii) of the prior sentence, certain sales in the first two years following the offering by such Founder of Class A shares, or securities convertible, exercisable or exchangeable for Class A shares, shall be treated as having been sold by such Founder in our IPO. The Founders shall only designate a former management board member for a new term if the circumstances initially warranting the removal, non-reappointment or resignation have changed, and the supervisory board in its sole discretion may choose not to designate such former management board member for binding nomination to the management board.
Pursuant to the AmendedAmended and Restated Shareholders’ Agreement, certain transition arrangements have been agreed for succession of the chief executive officer. From the date thatour Chief Executive Officer. Mr. Schrömgens ceases to serve as chief executive officer, for a period of three years, which we refer to as the Transition Period, so long as a Founder is serving as chief executive officer and there is no set of circumstances that would constitute a reasonable cause, such Founder has the right to nominate a successor, subject to the approval of Expedia, and thereafter, the supervisory board. During the Transition Period, at the request of either the Founders or Expedia, (1) the supervisory board will be expanded by two seats, one of which will be filled by the Founders and one of which will be filled by Expedia, and (2) a three-person committee of the supervisory board will be formed which shall be entitled to nominate a chief executive officer, subject to the approval of Expedia, and thereafter, the supervisory board, in the event that a chief executive officer has not been nominated before the Founder serving as chief executive officer has ceased to serve as such.our Chief Executive Officer on December 31, 2019, on which date a "Transition Period" of three years commenced. During the first eighteen months of the Transition Period, if the CEO is notand unless a Founder Expedia will haveis serving as our Chief Executive Officer (which is presently not the case), ELPS has the right to designateselect for binding nomination two management board members and the chief executive officer will haveour Chief Executive Officer has the right to designateselect all other management board members for binding nomination, subject to approval by the supervisory board. Also, during the Transition Period, the Amended and Restated Shareholders' Agreement stipulates certain arrangements for the appointment of our (successor) Chief Executive Officer, including by expanding our supervisory board by two seats (one of which to be filled on the basis of a selection by the Founders and the other on the basis of a selection by ELPS) and the formation of a three-person nomination committee of the supervisory board which shall be entitled to nominate a successor Chief Executive Officer, subject to the approval of ELPS, and thereafter, the supervisory board.
Registration and other rights
Pursuant to the Amended and Restated Shareholders’Shareholders’ Agreement, ExpediaELPS and the Founders have certain demand registration rights, short-form registration rights and piggyback registration rights in respect of any Class A shares and Class B shares, and related indemnification rights from the company, subject to customary restrictions and exceptions. All fees, costs and expenses of registrations, other than underwriting discounts and commissions, are expected to be borne by us.
The Amended and Restated Shareholders’ Agreement also grants appropriate information rights to ExpediaELPS and the Founders.
ExpediaELPS and the Founders also agreed in the Amended and Restated Shareholders’ Agreement that certain resolutions of the general meeting of shareholders require the consent of one Founder.
Share transfer restrictions
The Amended and Restated Shareholders’ Agreement provides certain restrictions on the transferability of the Class A shares and Class B shares held by ExpediaELPS and the Founders, including prohibitions on transfers
by the Founders to our competitors. The Founders have tag-along rights on transfers of Class A or Class B shares to certain specified parties, and based on certain conditions. ExpediaELPS has the right to drag the Founders in connection with a sale of all of its Class A shares and Class B shares. Expedia and the Founders agreed to grant each other a right of first offer on any transfers of Class A shares or Class B shares to a third party.
Call and put rights
Pursuant to the Amended and Restated Shareholders’ Agreement, if a Founder is removed for reasonable cause, ExpediaELPS will have the right to purchase, and the Founder will be obligated to sell, all, but not less than all, of the Class A shares and Class B shares owned by such Founder, at a price based on a volume-weighted average of the trading price of our Class A shares.
If the general meeting of shareholders resolves to remove a Founder as a management board member without reasonable cause or if the supervisory board revokes the title of chief executive officer from a Founder then serving as chief executive officer without either (i) reasonable cause or (ii) the consent of another Founder, and the Founder terminates his services as management board member within 30 days thereof, then, the Founder will have the right to sell, and ExpediaELPS will be obligated to buy, all, but not less than all, of such Founder’s shares, at a price based on a volume-weighted average of the trading price of our Class A shares, unless a fact or circumstance exists which would be reasonably likely to result in the
occurrence of any of the events in clauses (a) through (g) in the definition of reasonable cause set forth below. In such a case, no right to sell will be triggered by the removal of such management board member.
Reasonable cause for purposes of the Amended and Restated Shareholders’ Agreement means, with respect to a management board member, the occurrence of any of the following: (a) the willful or gross neglect by the management board member of his or her fiduciary duties owed to the company or its subsidiaries; (b) the plea of guilty or nolo contendere to, or conviction for, the commission of a felony (or equivalent) offense by the management board member; provided, that for purposes of this clause (b) if a management board member is removed following being formally accused or charged with the commission of such an offense, and such management board member subsequently is convicted of (or pleads guilty or nolo contendere to) such offense, there will be deemed to have been reasonable cause at the time of the removal; (c) a material breach (or breaches which, when aggregated with any prior breach or breaches, are material) by the management board member of his or her fiduciary duties owed to the company or any of its subsidiaries, or of the company's organizational documents; (d) a material breach by the management board member of any nondisclosure, non-solicitation, or noncompetitionnon-competition obligation owed to the company or any of its subsidiaries; (e) a material failure (or failures which, when aggregated with any prior failure or failures, are material) to meet reasonable individual expectations in respect of his individual management duties in respect of the execution of his or her employment or duties as a management board member; (f) a material failure (or failures which, when aggregated with any prior failure or failures, are material) by the company to perform pursuant to the annual business plan, except to the extent that the failure results from unforeseen circumstances and is responded to reasonably and appropriately by such management board member, and (g) any other fact or circumstance or action or inaction by such management board member, in each case constituting good cause under German law as interpreted by German courts.
If the Founders have to sell ordinary shares to pay taxes realized in connection with the Post-IPOcross-border merger or to repay a loan obtained by the Founders to pay such taxes, the ownership levels at which they lose certain rights in the Amended and Restated Shareholders’ Agreement shall be equitably adjusted such that, in effect, all or a portion of the shares so sold are treated as having been retained by the Founders.
IPO Structuring Agreement
In connection with our IPO, travel B.V., the Founders, Expedia Lodging Partner Services S.à r.l., trivago GmbH, and certain other Expedia parties entered into an IPO structuring agreement, which we refer to as the IPO Structuring Agreement. Under the IPO Structuring Agreement, each of trivago N.V., trivago GmbH and each of the Founders requested tax rulings from the German tax authorities in connection with the Post-IPO merger. On August 22, 2017, the parties thereto entered into a side letter to the IPO Structuring Agreement to confirm the parties' understandings with respect to the consummation of the Post-IPO merger.
Contribution Agreement
On August 21/22, 2017, the Founders, Expedia Lodging Partner Services S.à r.l.,ELPS, trivago GmbH, trivago N.V. and certain other Expedia Group parties entered into a contribution agreement with respect to potential tax liability arising out of the Post-IPOcross-border merger, which we refer to as the contribution agreement. Following our IPO, we requested binding tax rulings from the German tax authorities regarding the tax neutrality to trivago GmbH, trivago N.V. and the Founders of the Post-IPOcross-border merger. Under the rulings, the German tax authorities have taken the opinion that trivago GmbH is liable for an immaterial tax amount. Under the IPO Structuring Agreement, our liability for this amount could be considered an "Adverse Ruling Determination", in which case the Post-IPO merger would only be consummated if we and Expedia Lodging Partner Services S.à r.l. entered into an agreement with Expedia Lodging Partner Services S.à r.l. that would make trivago GmbH whole for any additional tax liability incurred by it as a result of the Post-IPO merger. Under the contribution agreement, Expedia Lodging Partner Services S.à r.l.ELPS undertook, subject to the occurrence of a final, non-appealable and unchangeable tax assessment notice issued to us, to make an informal immaterial capital contribution (informele kapitaalstorting) on the Class B shares in cash in the amount of any (a) German Corporate Income Tax (Körperschaftsteuer), (b) German solidarity surcharge (Solidaritätszuschlag) thereon, and (c) German Trade Tax (Gewerbesteuer) that would not be made in exchange for any shares issued by us. In accordance with the terms and conditions of the contribution agreement, we and Expedia Lodging Partner Services S.à r.l.ELPS acknowledged that this contribution would be treated as share premium (agio) attached to the Class B shares and that the amount of this contribution would be attributed to our share premium reserve (agioreserve) attached to the Class B shares. The parties to the contribution agreement agreed that this contribution by Expedia Lodging Partner Services S.à r.l.ELPS shall be treated as a tax neutral shareholder contribution (verdeckte Einlage) at the trivago N.V. level for corporate tax purposes to the greatest extent possible. If and to the extent that German tax authorities challenge the neutral treatment of the contribution amount at the trivago N.V. level for corporate tax purposes, Expedia Lodging Partner Services S.à r.l.ELPS will contribute to us, in addition to the contribution amount referenced above, such additional amount as is necessary to ensure that the net amount actually received by us (after taking into
account the payment by us of corporate taxes imposed on the contribution amount and any additional amounts payable to us pursuant the requiring payment of such additional amounts) that equals the full amount that we would have received had no such corporate taxes been imposed on the contribution amount.
Credit facility Guarantee
On September 5, 2014, we entered into an uncommitted credit facility with Bank of America Merrill Lynch International Ltd., one of the underwriters of our IPO, with a maximum principal amount of €10.0 million. Advances under this facility bearbore interest at a rate of LIBOR plus 1.0% per annum. This facility may be terminated at any time by the lender.annum. Our obligations under this facility arewere guaranteed by Expedia.Expedia Group. On December 19, 2014, we entered into an amendment to this facility pursuant to which the maximum principal amount was increased to €50.0 million. We utilized €20.0 million of our €50.0 milliondid not utilize the credit facility to fund capital requirements in 2015. Duringduring the year ended December 31, 2016, we utilized an additional €20.0 million under our2020. The credit facility andwas subsequently repaid a total of €40.0 million of this obligation. As ofcancelled by the lender in early 2021; it was still in place for the year ending December 31, 2016 and 2017, €0.0 million was drawn from our €50.0 million credit facility.2020.
Lease Guarantee
On July 23, 2015, we entered into a Lease Agreement with Jupiter EINHUNDERTVIERUNDFÜNFZIG GmbH (now IMMOFINANZ Medienhafen GmbH) for office space in the Media Harbour area in Düsseldorf with a monthly rent of €566,560. The initial lease term is for ten years starting with handover of the location scheduled for May 2018, and we have the option to extend the lease term for another ten years. Initially, our obligations under this lease agreement were guaranteed by Expedia. With effect as of July 2017, the parent guarantee was replaced by a bank guarantee.
Loans from Expedia
In 2014, Expedia granted a loan of €1.0 million to the company in conjunction with our acquisition of Rheinfabrik in 2014. We repaid the loan during 2015.
In connection with the exercise of certain employee options, we paid employees’ personal tax liability related to the option exercise collateralized by the underlying shares and to be repaid by employees from 2016 liquidation proceeds. As the proceeds of €7.1 million were funded by Expedia, we recognized a related party payable for this amount as of December 31, 2015. The €7.1 million related party payable and the €7.1 million shareholder loan receivable, netted within the members’ liability balance, was extinguished due to cash withheld from proceeds paid to employees by Expedia as part of this call right exercised by Expedia. See Note 10—Share-based awards and other equity instruments in the notes to our consolidated financial statements.
Services Agreement
On May 1, 2013, we entered into an Asset Purchase Agreement, pursuant to which Expedia Group purchased certain computer hardware and software from us, and a Data Hosting Services Agreement, pursuant to which Expedia Group provides us with certain data hosting services relating to all of the servers we use that are located within the United States. Either party may terminate the Data Hosting Services Agreement upon 30 days’ prior written notice. We have not incurred material expenses under this agreement.
Services and Support Agreement
On September 1, 2016, we entered into a Services and Support Agreement, pursuant to which ExpediaELPS agreed to provide us with certain services in connection with localizing content on our websites, such as translation services. Either party may terminate the Services and Support Agreement upon 90 days’ prior notice. We have not incurred material expenses under this agreement.
Commercial relationships
We currently have commercial relationships with many Expedia Group affiliated brands, including Brand Expedia, Hotels.com, Orbitz, Travelocity, Hotwire, Wotif, HomeAwayVrbo and ebookers. These are arrangements terminable at will or upon three to seven days’ prior notice by either party and on customary commercial terms that enable Expedia’sExpedia Group’s brands to advertise on our platform, and we receive payment for users we refer to them. We are also party to a letter agreement pursuant to which Expedia Group refers traffic to us when a particular hotel or region is unavailable on the applicable Expedia Group website. In 2020, we and Expedia Partner Solutions ("EPS") entered into an additional agreement pursuant to which EPS powers our platform with a template (hotels.com for partners). For the years ended December 31, 2015, 20162018, 2019 and 2017,2020, Expedia Group and its brands in each of the years accounted for 39%36%, 36%34% and 36%27% of our total revenues, respectively.
See “Item 55: Operating and financial review and prospects” for additional information.
Shared services arrangements
Pursuantmyhotelshop
Subsequent to certain informal shared services arrangements, we have recorded expenses incurred by Expedia on behalfthe deconsolidation of us asmyhotelshop in December 2017, myhotelshop remains a non-cash chargerelated party to trivago. Related-party revenue from myhotelshop of €2.3 million, €2.8 million and treated as a contribution from parent in equity. This shared services fee, which is comprised of allocations from Expedia€1.1 million for legal, tax, treasury, audit and corporate development costs and also includes an allocation of employee compensation within these functions in certain instances. These allocations were determined on a basis that we and Expedia considered to be a reasonable, including number of factors such as headcount, estimated time spent, and operating expenses and is a reflection of the cost of services provided or the benefit received by us. It is not practicable to determine the amounts of these expenses that would have been incurred had we operated as an unaffiliated entity, and in the opinion of our management, the allocation method is reasonable. For the years ended December 31, 2015, 20162018, 2019 and 2017, the shared service fee was €2.8 million, €4.2 million and €0.5 million, respectively.
Future agreements with Expedia
Pursuant2020, respectively, primarily consists of referral revenue. In December 2020, we entered into an agreement to sell our articles of association, resolutions of the management board to enter into or complete future agreements with Expedia require approval by the general meeting of shareholders. Pursuantminority interest in myhotelshop to the Amended and Restated Shareholders’ Agreement, Expedia and the Founders have agreed that such resolutions
majority shareholder of the general meetingmyhotelshop for a cash consideration of shareholders require consent of at least€70 thousand, with one of the Founders.
Employee loans
Inclosing conditions being that myhotelshop would repay the third quarter of 2015, certain employees exercised stock options,outstanding shareholder loan to us. For more information see Note 3: Acquisitions and Expedia Lodging Partner Services S.à r.l. advanced to each option holder employee involved in the exercise amounts equivalent to such employee’s personal tax liability related divestitures to the option exercise by issuing loans. Such loans were collateralized by the underlying shares and were repaid by employees from 2016 liquidation event proceeds. In the second quarter of 2017, trivago GmbH advanced additional loans to two employees to cover their personal tax liability relating to their exercise of options. Such loans are collateralized by the underlying shares, and will be repaid from liquidation proceeds.
See Note 10—Share-based awards and other equity instruments in the notes to ouraudited consolidated financial statements.statements included elsewhere in this annual report.
Agreements with management board or supervisory board members
For a description of our agreements with our management board and supervisory board members, please see “Item 66: Directors, senior management and employees - C. Directors, Senior Management and Employees—Board Practices—practices - Management board member services agreements and performance equity grants ” and “Item 6“Item 6: Directors, senior management and employees - C. Directors, Senior Management and Employees—Board Practices—practices - Supervisory board member services agreements.agreements.”
Indemnification agreements
We have entered into indemnification agreements with members of our management board and our supervisory board. Our articles of association require us to indemnify our management board members and supervisory board members to the fullest extent permitted by law.
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C. | C. Interests of Experts and Counsel |
Not applicable.
Item 8: Financial information
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A. | A. Consolidated statements and other financial information |
See the financial statements beginning on page F-1.
Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.
A number of regulatory authorities in Europe, Australia, and elsewhere have initiated litigation and/or market studies, inquiries or investigations relating to online marketplaces and how information is presented to consumers using those marketplaces, including practices such as search results rankings and algorithms, discount claims, disclosure of charges and availability and similar messaging. For example, the U.K. Competition & Markets Authority, or CMA, announced the launch of a consumer law investigation into online hotel booking sites in the United Kingdom in October 2017. On July 26, 2018, the CMA informed us of its decision to open an investigation into certain of our display practices in the United Kingdom that the CMA considered may violate U.K. consumer law. On January 31, 2019, we submitted voluntary undertakings to the CMA to make changes to certain disclosure and other display practices in the United Kingdom. The undertakings resolved the CMA's investigation into our practices in the United Kingdom without any admission or finding of liability.
On August 23, 2018, the Australian Competition and Consumer Commission, or ACCC, has requested information and documents from usinstituted proceedings in the Australian Federal Court against us. The ACCC alleged a number of breaches of the Australian Consumer Law, or ACL, relating to ourcertain advertisements in Australia concerning the hotel prices available on our Australian site, and our Australian strike-through pricing practice whichand other aspects of the way offers for accommodation were displayed on our Australian website. The matter went to trial in September 2019 and, on January 20, 2020, the Australian Federal Court issued a judgment finding that we had engaged in conduct in breach of the ACL. On March 4, 2020, we filed a notice of appeal at the Australian Federal Court appealing part of that judgment. On November 4, 2020, the Australian Federal Court dismissed trivago’s appeal. A separate trial regarding penalties and other orders is scheduled for June 7, 2021. Management recorded an estimate of the display adjacent toprobable loss in connection with these proceedings.
In establishing a provision in respect of the price quoteACCC matter, management took into account the information currently available, including judicial precedents. However, there is considerable uncertainty regarding how the Australian Federal Court would calculate the penalties that will be ultimately assessed on us. In particular, the Australian Federal Court determined that we engaged in certain conduct after September 1, 2018 that will result in the top positionapplicability of the new penalty regime under the ACL, which significantly increased the maximum penalty applicable to parts of our conduct. Only a few cases have been decided so far assessing penalties for contraventions of the ACL under the new regime. The penalties imposed in our search results of a higher price that is crossed out. We submitted this information tothose cases were jointly agreed by the ACCC in February 2018,parties and plan to provide certain related documents in March 2018. The matter is in its early stages, and we are unable to estimate its potential effect on our financial position and results of operations.
trivago N.V. and certain of its management board members arewere not the subject of two purported class actions, fileda contested penalty hearing. In addition, the Australian Federal Court in each case did not allocate the United States District Court fortotal penalty imposed between the Southern District of New York following the announcement by the U.K. Competitionold and Markets Authority of its industry-wide investigation into online hotel booking sites, asserting claims under the Exchange Act and the Securities Act on behalf of persons who purchased or otherwise acquired trivago’s American Depositary Receipts pursuant and/or traceable to the registration statement and prospectus issued in connection with our IPO on or about December 16, 2016 and/or on the open market between December 16, 2016 and October 27, 2017. Onenew penalty regime. As a result, an estimate of the complaints also named underwritersreasonable possible loss or range of our IPO as defendants. On January 22, 2018,loss in excess of the court appointed the lead plaintiff and lead counsel in the actions, and they now have the opportunity to file an amended complaint. The matter is in its early stages, and we are unable to estimate its potential effect on our financial position and results of operations.amount reserved cannot be made.
While it is too early for us to form any view on the likely outcomes of these actions, their outcomes could have a material adverse effect on our business, financial condition or results of operations.
Dividends
We do not at present plan to pay cash dividends on our Class A shares. Under Dutch law, we may only pay dividends to the extent that our shareholders’ equity (eigen vermogen) exceeds the sum of the paid-up and called-up share capital plus the reserves required to be maintained under Dutch law or by our articles of association.association (although we note that, presently, we are not required by our articles of association to maintain reserves in addition to those which we must maintain under Dutch law). Subject only to such restrictions, any future determination to pay dividends will be at the discretion of our management board (in
(in some instances, subject to approval by a Founder),. In making a determination to pay dividends, the management board must act in the interests of our company and will depend upon a numberits business, taking into account relevant interests of our shareholders and other factors that our management board considers relevant, including our results of operations, financial condition, and future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our management board deems relevant.prospects.
B. Significant Changes
See Note 20—19: Subsequent Eventsevents to the audited consolidated financial statements included elsewhere in this annual report.
Item 9: Offer and listing
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A. | A. Offering and Listing Details |
The ADS have been listed on The NASDAQ Global Select Market under the symbol “TRVG” since December 16, 2016. Prior to that date, there was no public trading market for ADSs or our Class A shares. Our IPO was priced at $11.00 per ADS on December 15, 2016. The following table sets forth for the periods indicated the high and low sales prices per ordinary share as reported on The NASDAQ Global Select Market:
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| | Per ADS |
| | High | | Low |
Annual Highs and Lows: | | | | | | |
2016 (from December 16, 2016 through December 31, 2016) | | | $12.61 | | | $11.10 |
2017 | | | $24.27 | | | $6.45 |
Quarterly Highs and Lows: | | | | | | |
First Quarter 2017 | | | $14.20 | | | $10.88 |
Second Quarter 2017 | | | $23.80 | | | $12.61 |
Third Quarter 2017 | | | $24.27 | | | $10.43 |
Fourth Quarter 2017 | | | $11.59 | | | $6.45 |
Monthly Highs and Lows: | | | | | | |
September 2017 | | | $15.72 | | | $10.43 |
October 2017 | | | $11.59 | | | $7.25 |
November 2017 | | | $8.93 | | | $6.79 |
December 2017 | | | $7.58 | | | $6.45 |
January 2018 | | | $10.05 | | | $6.81 |
February 2018 | | | $8.54 | | | $7.49 |
March 2018 (through March 2, 2018) | | | $7.95 | | | $7.60 |
On March 2, 2018, the last reported sale price of the ADSs on The NASDAQ Global Select Market was $7.90 per share.
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B. | B. Plan of Distribution |
Not applicable.
The ADS have been listed on The NASDAQ Global Select Market under the symbol “TRVG” since December 16, 2016.
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D. | D. Selling Shareholders |
Not applicable.
Not applicable.
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F. | F. Expenses of the Issue |
Not applicable.
Item 10: Additional information
Not applicable.
Our shareholders adopted the Articles of Association filed as Exhibit 3.1 to our Registration Statement on Form F-1 filed with the SEC on November 14, 2016.
Except as otherwise disclosed in this annual report (including the Exhibits), we are not currently, nor have we been for the past two years, party to any material contract, other than contracts entered into in the ordinary course of business.