[THIS PAGE LEFT INTENTIONALLY BLANK] UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 20-F
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number: 001-37959
trivago N.V.
(Exact name of Registrant as specified in its charter)
trivago Corporation
(Translation of Registrant’s name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
Kesselstrasse 5 - 7, 40221 Düsseldorf, Federal Republic of Germany
(Address of principal executive offices)
Rolf Schrömgens, +49 211 3876840000, Kesselstrasse 5 - 7, 40221 Düsseldorf, Federal Republic of Germany
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American Depositary Shares, each representing one
Class A share, nominal value €0.06 per share
Class A shares, nominal value €0.06 per share*
Name of each exchange on which registered
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC*
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
42,559,884 Class A shares
308,687,967 Class B shares
(as of December 31, 2018)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a "large accelerated filer," an "accelerated filer," a "non-accelerated filer" or an "emerging growth company."
Large accelerated filer o Accelerated filer x Non-accelerated filer o Emerging growth company o
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange
Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
o
U.S. GAAP x
International Financial Reporting Standards as issued by the
International Accounting Standards Board o
Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Table of contents
General...........................................................................................................................................................
Special note regarding forward-looking statements .......................................................................................
Item 1
Item 2
Item 3
Item 4
Item 4A
Item 5
Item 6
Item 7
Item 8
Item 9
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16A
Item 16B
Item 16C
Item 16D
Item 16E
Item 16F
Item 16G
Item 16H
Item 17
Item 18
Item 19
PART I
Identity of directors, senior management and advisers.......................................................
Offer statistics and expected timetable ...............................................................................
Key information ...................................................................................................................
Information on the company................................................................................................
Unresolved staff comments.................................................................................................
Operating and financial review and prospects ....................................................................
Directors, senior management and employees...................................................................
Major shareholders and related party transactions .............................................................
Financial information ...........................................................................................................
The Offer and listing ............................................................................................................
Additional information..........................................................................................................
Quantitative and qualitative disclosures about market risk .................................................
Description of securities other than equity securities ..........................................................
PART II
Defaults, dividend arrearages and delinquencies ...............................................................
Material modifications to the rights of securities holders.....................................................
Control and procedures.......................................................................................................
Audit committee financial expert .........................................................................................
Code of ethics .....................................................................................................................
Principal accountant fees and services...............................................................................
Exemptions from the listing requirements and standards for audit committees..................
Purchases of equity securities by the issuer and affiliated purchasers ...............................
Change in registrant's certifying accountant .......................................................................
Corporate governance ........................................................................................................
Mine safety disclosure.........................................................................................................
PART III
Financial statements ...........................................................................................................
Financial statements ...........................................................................................................
Exhibits................................................................................................................................
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General
As used herein, references to “we,” “us,” the “company,” or “trivago,” or similar terms in this Annual Report
on Form 20-F shall mean trivago N.V. and, as the context requires, its subsidiaries.
Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles,
or U.S. GAAP. Unless otherwise specified, all monetary amounts are in euros. All references in this annual
report to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars, and all references to “€”
and “euros,” mean euros, unless otherwise noted.
We have historically conducted our business through trivago GmbH, and therefore our historical financial
statements prior to our initial public offering, or IPO, present the results of operations and financial condition
of trivago GmbH and its controlled subsidiaries. In connection with our IPO, trivago N.V. became the holding
company of trivago GmbH, and the historical consolidated financial statements of trivago GmbH became
the historical consolidated financial statements of trivago N.V. On September 7, 2017, the merger of trivago
GmbH into and with trivago N.V. became effective. We refer to such merger as the cross-border merger.
Pursuant to the cross-border merger, Messrs. Schrömgens, Vinnemeier and Siewert (whom we collectively
refer to as our Founders) exchanged all of their units of trivago GmbH remaining after our pre-IPO corporate
reorganization for Class B shares of trivago N.V.
The historical financial statements of trivago GmbH and its controlled subsidiaries made reference to the
members’ equity as trivago GmbH Class A units and trivago GmbH Class B units. The equity of a GmbH is
not unitized into shares under German corporate law. However, pursuant to the company’s articles of
association, we unitized members’ equity into trivago GmbH Class A units and Class B units, with each
trivago GmbH Class B unit having 1/1,000 of the voting rights and economic rights of a trivago GmbH Class
A unit.
Special note regarding forward-looking statements
This annual report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on
information currently available to our management. All statements other than present and historical facts
and conditions contained in this annual report, including statements regarding our future results of operations
and financial positions, business strategy, plans and our objectives for future operations, are forward-looking
statements. When used in this annual report, the words “aim,” “anticipate,” “assume,” “believe,” “contemplate,”
“continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,”
“positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of
or indicate future events and future trends, or the negative of these terms or other comparable terminology
identify forward-looking statements. Forward-looking statements include, but are not limited to, statements
about:
•
•
•
•
•
•
our ability to grow our revenue in future periods, or at rates deemed sufficient by the market without
reducing our profits or incurring losses;
our dependence on a relatively small number of advertisers for our revenue and adverse impacts
that could result from their reduced spending or changes in their bidding strategy;
factors that contribute to our period-over-period volatility in our financial condition and result of
operations;
our dependence on general economic conditions and adverse impacts that could result from declines
in travel or discretionary spending;
the effectiveness of our Advertising Spend, including as a result of increased competition or
inadequate or ineffective innovation in or execution of our advertising;
the effectiveness of our measures to increase advertiser diversity on our marketplace;
1
•
•
•
•
•
•
•
•
•
increasing competition and consolidation in our industry;
our focus on hotel and other accommodations if users expect other services;
our ability to innovate and provide tools and services that are useful to our users and advertisers;
our dependence on relationships with third parties to provide us consumer reviews;
our reliance on search engines, which may change their business models or algorithms;
changes to and our compliance with applicable laws, rules and regulations;
the impact of any legal and regulatory proceedings to which we are or may become subject;
potential disruptions in the operation of our systems, security breaches and data protection; and
impacts from our operating globally.
You should refer to the section of this annual report titled “Item 3 D. Risk factors” for a discussion of important
factors that may cause our actual results to differ materially from those expressed or implied by our forward-
looking statements. As a result of these factors, we cannot assure you that the forward-looking statements
in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be
inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no
obligation to publicly update any forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
You should read this annual report and the documents that we reference in this annual report and have filed
as exhibits to this annual report completely and with the understanding that our actual future results may be
materially different from what we expect. We qualify all of our forward-looking statements by these cautionary
statements.
2
PART I
Item 1: Identity of directors, senior management and
advisers
Not applicable.
Item 2: Offer statistics and expected timetable
Not applicable.
Item 3: Key information
A. Selected financial data
We have derived the data we present in the tables below from our audited consolidated financial statements
for the years presented. You should read all of the data in the tables below together with the consolidated
financial statements and notes included in “Item 18 Financial statements” and the information we provide in
“Item 5 Operating and financial review and prospects.” For fiscal years ended December 31, 2014, 2015
and 2016, refer to our previously filed annual reports on Form 20-F. Our financial statements are prepared
in accordance with U.S. GAAP.
3
Statement of operations data
(in thousands, except per share data)
Year ended December 31,
2014
2015
2016
2017
2018
Consolidated statement of operations:
Revenue
Revenue from related party
Total revenue
Costs and expenses:
Cost of revenue, including related party,
excluding amortization(1)(3)
Selling and marketing(1)(3)(6)
Technology and content, including related
party (1)(2)(3)
General and administrative, including
related party (1)(2)(3)
Amortization of intangible assets(2)
Operating loss
Other income (expense):
Interest expense
Gain on deconsolidation of entity
Other, net
Total other income (expense), net
Income/(loss) before income taxes
Expense/(benefit) for income taxes
Income/(loss) before equity method investment
Income from equity method investment
€ 209,137 € 298,842 € 485,942 € 667,802 € 583,395
100,195
309,332
194,241
493,083
268,227
367,581
754,169
1,035,383
331,421
914,816
1,443
2,946
4,273
5,930
5,435
286,234
461,219
673,224
946,925
805,633
15,388
28,693
51,658
52,232
66,904
6,536
30,025
18,065
30,030
55,602
13,857
47,444
3,220
54,326
1,684
(30,294)
(47,870)
(44,445)
(20,368)
(19,166)
(11)
—
(1,435)
(1,446)
(31,740)
(8,644)
(23,096)
—
(147)
—
(2,667)
(2,814)
(50,684)
(11,318)
(39,366)
—
(137)
—
(139)
(276)
(44)
(1,839)
2,007
592
2,555
—
539
(1,300)
(44,721)
(17,813)
(20,466)
6,670
(4,764)
1,086
(51,391)
(13,049)
(21,552)
—
—
63
Net loss
(23,096)
(39,366)
(51,391)
(13,049)
(21,489)
Net loss attributable to noncontrolling interests
—
239
710
568
—
Net loss attributable to trivago N.V.
€ (23,096) € (39,127) € (50,681) € (12,481) € (21,489)
Earnings per share attributable to trivago N.V.
available to common stockholders(4)
Basic and diluted
€
0.00 €
(0.05) €
(0.06)
Shares used in computing earnings per share
(4)
Basic and diluted
237,811
274,666
350,852
Key performance indicator:
Adjusted EBITDA(5)
€
3,513 €
(1,062) €
28,217 €
6,679 €
14,590
4
(1) Includes share-based compensation as follows:
(in thousands)
Cost of revenue
Selling and marketing
Technology and content, net of capitalized
internal-use software and website development
costs
General and administrative
€
€
2014
Year ended December 31,
2015
2016(a)
2017
— €
238 €
737 €
115 €
1,052
3,360
10,913
3,514
2018
184
3,273
1,207
123
4,545
5,986
15,816
26,256
3,614
8,782
5,260
11,985
(a) Share-based compensation expense is primarily attributable to liability award accounting treatment for share-based awards granted
in prior periods, see Note 10—Share-based awards and other equity instruments in the notes to our consolidated financial statements.
(2) Includes amortization as follows:
(in thousands)
Amortization of Internal use software and
website development costs included in
technology and content
Amortization of Internal use software costs
included in general and administrative
Amortization of acquired technology included in
amortization of intangible assets
€
€
€
2014
Year ended December 31,
2015
2016
2017
2018
191 €
475 €
1,410 €
1,742 €
2,214
0
—
—
19,927
19,927
3,750
408
59
785
278
(3) Includes related party expense as follows:
(in thousands)
Cost of revenue
Selling and marketing
Technology and content
General and administrative
2014
Year ended December 31,
2015
2016
2017
€
— €
— €
— €
68 €
—
—
—
—
—
—
1,506
3,015
5,128
—
361
109
2018
59
42
700
9
(4) Represents earnings per share of Class A and Class B common stock and weighted-average shares of Class A and Class B common
stock outstanding for the period from December 16, 2016 to December 31, 2016, the period following the capitalization of the parent
company and IPO, and for the period from January 1, 2017 to December 31, 2018 (see Note 14—Earnings per share).
(5) We define adjusted EBITDA as net loss plus: (1) income/(loss) from equity method investment (2) expense (benefit) for income
taxes; (3) total other income (expense), net; (4) depreciation of property and equipment, including amortization of internal use software
and website development; (5) amortization of intangible assets; and (6) share-based compensation.
Adjusted EBITDA is a non-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 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 in comparing financial results across accounting periods.
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 GAAP, including net 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;
5
•
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized 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.
(6) Includes €1.0 million of selling and marketing expense for the year ended December 31, 2018 that was not included in our unaudited
results for the fourth quarter ended December 31, 2018.
We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
(in thousands) (unaudited)
Net loss
Income from equity method investment
Loss before equity method investment
Expense (benefit) for income taxes
Loss before income taxes
Add/(less):
Interest expense
Gain on deconsolidation of entity
Other, net(i)
Operating loss
Add:
Depreciation (property and equipment,
internal-use software and website
development)
Amortization of intangible assets
EBITDA
Add:
2014
Year ended December 31,
2015
2016
2017
2018
€ (23,096) € (39,366) € (51,391) € (13,049) € (21,489)
—
(23,096)
(8,644)
(31,740)
—
(39,366)
(11,318)
(50,684)
—
—
63
(51,391)
(13,049)
(21,552)
6,670
(4,764)
1,086
(44,721)
(17,813)
(20,466)
11
—
147
—
1,435
2,667
137
—
139
44
(2,007)
(592)
1,839
0
(539)
(30,294)
(47,870)
(44,445)
(20,368)
(19,166)
1,400
30,025
1,131
2,649
30,030
5,083
13,857
7,802
3,220
11,370
1,684
(15,191)
(25,505)
(9,346)
(6,112)
Share-based compensation
2,382
14,129
53,722
16,025
20,702
Adjusted EBITDA
€
3,513 €
(1,062) €
28,217 €
6,679 €
14,590
(i) Consists primarily of foreign exchange gain/loss in the years ended December 31, 2014, 2015, 2016, 2017 and 2018, the non-
recurring reversal of a €1.6 million indemnification asset in 2015 related to the 2013 acquisition by Expedia Group, Inc. (formerly
Expedia, Inc.), income from American Depositary Shares offset by custodial fees related to American Depositary Shares in 2017 and
2018, income from the canteen of our corporate headquarters in 2018, government subsidies for research and development activities
in 2017 and 2018, and and rent income for office subleases in 2018.
6
Balance sheet data
The following table sets forth selected consolidated statement of financial position data as of the dates
indicated:
As of December 31,
(in thousands)
2014
2015
2016
2017
2018
Cash and cash equivalents
€
6,142 €
17,556 € 227,298 € 190,201 € 161,871
Total assets
Total current liabilities
Net assets
750,798
760,255
1,007,246
1,078,454
1,095,543
15,975
72,009
61,103
78,387
60,921
664,568
624,356
854,071
853,975
853,583
Retained earnings (accumulated deficit)
(90,029)
(129,156)
(179,837)
(192,318)
(213,664)
Total stockholders' equity
€ 664,568
622,280
654,258
853,975
853,583
As of December 31, 2018, we had American Depositary Shares, or ADSs, representing 42,559,884 Class
A shares outstanding and 308,687,967 Class B shares outstanding. Prior to our corporate reorganization in
connection with our IPO, we operated as trivago GmbH, a limited liability company formed under the laws
of the Federal Republic of Germany. The equity of a GmbH is not unitized into shares under German corporate
law. However, pursuant to the company’s articles of association, we unitized members’ equity into trivago
GmbH Class A units and Class B units, with each trivago GmbH Class B unit having 1/1,000 of the voting
rights and economic rights of a trivago GmbH Class A unit. The subscribed capital of trivago GmbH as of
December 31, 2014 and 2015 was €0.04 million and €0.05 million, and the issued capital of trivago N.V. as
of December 31, 2016, 2017 and 2018 was €127.2 million, €193.7 million and €187.8 million, respectively.
Selected consolidated cash flow statement data
The following table sets forth selected consolidated cash flow statement data for the periods indicated:
Year Ended December 31,
2014
2015
2016
2017
2018
€
€
630 €
(831) €
31,346 €
(8,521) €
(4,584)
(4,623)
(6,510)
(8,995)
(18,286)
(24,145)
1,039
105
18,971
187,644
(32)
(54)
(7,216)
(1,259)
161
(24)
(in thousands)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
7
D. Risk factors
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.
Risks related to our industry and business
We may not be able to grow our revenue in future periods, or at rates deemed sufficient by the
market without reducing our profits or incurring losses.
We achieved positive net income in the second half of 2018 by making significant reductions in our Advertising
Spend to adapt to the changing dynamics on our marketplace. These reductions resulted in a decline in
revenue for the year 2018 compared to 2017. We expect to continue to report declines in revenue until
comparable prior periods also include the impact on revenue from reductions in our Advertising Spend. After
these reductions are also reflected in our prior-period financial results, we believe the degree to which we
are able to return to revenue growth without reducing our profits or incurring losses will be an important
factor in how our business will be valued by the market. We may not be able to increase our revenue in
future periods without reducing our profits or incurring losses, or our revenue may decline even when we
are unprofitable. This may occur for any number of reasons, and may reflect:
•
•
•
•
•
•
•
declines in the emphasis that our advertisers wish to place on our 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 light of the strategies of our
competitors as they may choose to increase their Advertising Spend;
the possibility that our advertisers prioritize profitability over of traffic growth when they set their return-
on-investment targets for their spend on our marketplace;
a slowdown or reduction in our ability to attract and retain users in an increasingly competitive
environment, or a loss of users for other reasons, such as a failure to deliver satisfactory search results,
transaction experiences or high-quality services;
the maturation of our business such that future growth rates could be muted unless we reduce our profits
or incur losses from increased Advertising Spend;
the emergence of alternative business models and new competitors; and
slowing growth of the overall online hotel search market, for example, as a result of market saturation
in more mature markets or deteriorating general or local economic conditions.
In any event, we do not expect our revenue growth rate in coming years to be as high as those we experienced
in years prior to 2017 and, accordingly, we expect the variability, cyclicality and seasonality in our business
to continue to be more pronounced or at least more apparent. This may result in greater fluctuations of our
revenue, cash flows, results of operations and other key performance measures from period to period or
among segments, and may affect the price of our ADSs and increase their trading volatility. In addition, our
revenue may not increase at the same rate as in years prior to 2018 or at all. If our revenue continues to
decline, our business, results of operations, financial condition and prospects may be adversely affected,
and the price of our ADSs may decline.
8
We derive a large portion of our revenue from a relatively small number of advertisers. A reduction
in spending or any change in their bidding strategy 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, we continue to generate the great majority of our revenue from our
largest online travel agency, or OTA, advertisers. For the years ended December 31, 2016, 2017 and 2018,
we generated 43%, 44% and 39% of our total revenue, respectively, from Booking Holdings (formerly, The
Priceline Group), including its affiliated brands Booking.com and Agoda. Brands affiliated with our majority
shareholder, Expedia Group, Inc., or, together with its subsidiaries, Expedia Group, accounted for 36% of
our total revenue for each of the years ended December 31, 2016, 2017 and 2018, 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, such as a weakening of their own financial or business conditions or external economic effects.
The loss of any of our major advertisers, including 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 and profit, as well as an increase in credit losses if such advertisers or affiliated brands fail
to pay us, and could have a material adverse effect on our business, results of operations, financial condition
and prospects.
Even if we 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,
depending on marketplace dynamics, to adjust their CPC bids and obtain the same or increased levels of
referrals, customers, bookings or revenue and profit at lower cost. This can occur if one or more advertisers
with sufficient market share to influence our aggregate CPC levels change their return-on-investment targets
for their spend on our marketplace. We believe that, in 2018, changes in our advertisers' return-on-investment
targets negatively affected our share of the overall booking revenue generated by them from referrals on
our platform and negatively impacted our Referral Revenue levels. Our advertisers may also change their
CPC bidding on our marketplace in response to changes we may make to our sorting and ranking algorithm,
which may, in turn, negatively impact our revenue levels and profitability. This appeared to be the case in
the fourth quarter of 2017 when some of our largest advertisers tested their landing pages in response to a
new version of the 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. This could also be the case in the future if we make further changes to
the relevance assessment or decide, as a result of discussions with our advertisers, to eliminate it entirely.
Our advertisers may also change their bidding strategies on our marketplace to maximize the effectiveness
of their spend on other marketing channels, particularly in auctions for search engine keywords on Google.
We regularly compete with our advertisers on these marketing channels and adjust our spending on those
channels based on trends we see in our results. If changes in large advertisers’ strategies on our marketplace
cause us to spend significantly less on these marketing channels, we would also generate fewer Qualified
Referrals and, as a result, our revenue and results of operations would be adversely affected. Such advertisers
may also experience improvements in their competitiveness on such other channels, providing them with
additional financial benefits from pursuing such a strategy.
9
If we are unable to increase the diversity of our advertiser base, we will continue to be subject to the risks
that advertiser concentration could 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, results of operations, financial
condition and prospects.
We are subject to a number of factors that contribute to significant period-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
period to period. This was reflected in the quarter-to-quarter changes in our profitability in 2018, the decline
in revenue that we experienced in 2018 and the rapid slowdown in revenue growth that we experienced in
the second half of 2017. We cannot reliably predict our advertisers' future advertising spend or CPC levels
or other strategic goals they hope to achieve through changes in bidding on our marketplace and, as a result,
it is difficult for us to forecast advertiser demand, especially since our advertisers can and often do change
their CPC bidding levels with little or no notice to us. Resulting changes in Referral Revenue, especially as
a result of changes in CPC bidding levels by our largest advertisers, 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 revenue on advertising, such a failure
to pull back Advertising Spend quickly enough can have a rapid and significant adverse effect on our
profitability and results of operations.
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. As a result, the financial guidance that we
provide is subject to significant uncertainty, especially when the factors above are considered together with
other trends, such as changing foreign exchange rates, user demand for travel services, regional and global
economic conditions and other external factors that may impact our users’ discretionary spending. These
fluctuations and any resulting inability to meet financial guidance may have a material adverse effect on our
business, results of operations, financial condition and prospects.
We are dependent on general economic conditions, and declines in travel or discretionary
spending generally 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. Demand for travel services tends 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, our financial
results may be adversely impacted by economic uncertainty arising from continued uncertainty relating to
the United Kingdom’s anticipated withdrawal from the European Union, or Brexit. 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 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
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.
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.
10
Our ability to maintain and increase brand awareness in order to improve our financial
performance and return to revenue growth is dependent on the effectiveness of our Advertising
Spend. Increased competition, or inadequate or ineffective innovation in and execution of our
advertising 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 are required to spend considerable amounts of money and other
resources to preserve and increase our brand 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 recent years, we have engaged in successful broad-reaching TV marketing campaigns. We expect to
continue to invest in TV marketing campaigns, including in geographies where our brand is less 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-effective or less efficient than they have been historically.
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 Return
on Advertising 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 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 accounts for a large percentage of our Advertising Spend, 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, which may
not be as successful. In order to maintain our brand awareness, we may also need to invest in new advertising
formats, such as online video, with which we have less experience. 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.
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
to successfully monetize that inventory, our financial performance could be materially adversely
affected.
We continue to take steps to increase advertiser diversity on our marketplace, including increasing the
representation of new advertisers in our marketplace and integrating the vacation rental and private apartment
inventory of HomeAway, Inc., or HomeAway, and other advertisers onto our search platform. We aim to
integrate additional inventory of alternative accommodation going forward. Increasing the representation of
additional advertisers on our platform requires large, skilled, multi-lingual sales teams that will continue to
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 alternative accommodations 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
11
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 amount
and types of hotel and other accommodation information we display, the value of our services to
users and a loss of users, which would adversely affect our business, results of operations,
financial condition and prospects.
We operate in an increasingly competitive travel industry. Many of our current and potential competitors,
including hotels themselves (both hotel chains and independent hotels), and metasearch engines, such as
Kayak, TripAdvisor 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, and other hotel websites, 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. Metasearch websites, particularly Google Hotel Ads, are also expanding globally, are becoming
increasingly competitive and are, in some cases, adopting strategies and developing technologies and
websites that are very similar to ours. 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.
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 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 points or priority access to services, which may not be available if users book through third-
party sites or services. Some of our competitors continue to conduct advertising campaigns expressly
designed to drive consumer traffic directly to their websites. Furthermore, certain alternative accommodation
and OTA 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.
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, which could have an adverse impact on our 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.
12
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 at least some of these services on the websites of nearly all of our major competitors.
If we are unable to provide users with information they deem useful, or 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, we may not realize the anticipated
benefits of this strategy, which could negatively impact our competitiveness, financial condition and results
of operations.
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 database of hotels from around the world, we do not have
relationships with some significant potential advertisers, including some major hotel chains, many
independent hotels, smaller chains and certain large providers of alternative accommodations. 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. The loss of existing relationships with advertisers, our inability to continue to add new ones,
including providers of alternative accommodations or the decision by one or more advertisers to deactivate
part or all of their of their inventories in one or more geographical regions, may reduce the comprehensiveness
of our search results, which could reduce user confidence in the search results we provide, making us less
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. We have invested,
and in the future may invest, in new business strategies and services. 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. If we are unable to continue offering innovative
services, 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.
One of our product features depends, in part, on our relationship with third parties to provide us
with consumer reviews.
Certain third parties provide us with consumer reviews that we provide to our users along with our proprietary
rating score. If these 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 our
users’ perception of the value of our product and our reputation.
13
The measures we are implementing that are designed to maximize the lifetime value of our users
may not generate the long-term financial benefits that we anticipate.
We continue to implement measures that are designed to focus less on the click-based revenue generated
by our users in each session and more on the booking value that our users generate for our advertisers over
multiple sessions (or over the "lifetime" of the user). These measures include, on the one hand, changes to
how we make decisions about allocating Advertising Spend to our performance marketing campaigns by
tracking how likely a user that comes to us from a channel is to book a hotel with an advertiser (which we
refer to our "attribution model"). On the other hand, these measures involve enhancements to our site that
encourage users to spend more time exploring and interacting with our site and its features before being
referred to one of our advertisers.
Although we aim for these measures to have a long-term positive effect on our profitability and revenue 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 product
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
and profitability, the extent of these effects is difficult to predict, and the initiatives could cause revenue 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 quarterly results.
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 and to make improvements
to our attribution model 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. Although we aim to increase how often our users log in to our site, our efforts in this
respect are only in their early stages.
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 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. 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, our or our advertisers’ methodologies for tracking this information may
change over time.
14
If the internal tools we use to judge the effectiveness of changes to our platform produce or are based on
information 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 prospects.
We rely on search engines, which may change their business models or search engine algorithms
in ways that could have a negative impact on our business, financial performance and prospects.
We use Bing, Google, Naver, Yahoo! and other Internet search engines to generate 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. 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.
To the extent that 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 amount of traffic to its own
hotel search platform (which it refers to as “Hotel Ads”) at the expense of traditional keyword auctions. We
purchase hotel-related keywords on Google to obtain a significant amount of traffic. The introduction of Hotel
Ads may have a negative impact on the attractiveness of our brand in these auctions. In addition, we have
introduced Hotel Ads as a marketing channel in some markets. Our placement in Hotel Ads’ results is
dependent on factors used by its algorithm to rank and display our offers, resulting in dynamics significantly
different from search engine marketing in the form that we are currently familiar with. This may present a
challenge since we may have significantly less flexibility to direct traffic to 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 may present
a further difficulty if Google continues to direct traffic in this manner.
In addition, a significant amount of traffic is directed to our websites through our participation in DEA
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.
15
A failure to comply with current laws, rules and regulations or changes to such laws, rules and
regulations and other legal uncertainties may adversely affect our business, financial
performance, results of operations or business 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, presentation of online offers, consumer protection, anti-corruption, anti-trust and
competition, economic and trade sanctions, tax, banking, data security and privacy. 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.
Regulators continue to increase 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 regulators in various countries have been investigating marketing and selling practices
in the sector generally as well as of individual companies. 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 questioned under 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 provide for an
implementation period of six months and resolved the CMA's investigation into our practices in the United
Kingdom without any admission or finding that our practices violated U.K. law. In addition, on December 12,
2018, the German Federal Cartel Office (Bundeskartellamt) published its draft report for consultation relating
to its sector inquiry focused on the consumer facing practices of online price comparison websites active in
the travel, insurance, financial services, telecommunications and energy sectors in Germany, covering topics
such as rankings, financing, corporate links, reviews, availability and relevant market coverage. The German
Federal Cartel Office has invited comments on its draft report and is now considering these comments with
the finalization of the report expected to occur soon. While the German Federal Cartel Office’s draft report
acknowledged the importance to consumers of comparison platforms, it also identified certain areas in which
the disclosure and display practices of market participants generally could be improved. Should changes in
our business practices or those prevalent in our sector brought about by this regulatory attention or by the
Australian litigation referenced below reduce the attractiveness, competitiveness or functionality of our
platform and the services we offer, or should our reputation or that of our sector suffer, or should we have
to pay substantial amounts in respect or as a result of any such regulatory action or proceeding, our business,
results of operations, financial condition and prospects could be adversely affected.
In addition, 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, in the European Union
there is an ongoing revision of EU consumer directives ("A New Deal for Consumers"), and the European
Union is considering a proposal for a regulation of the European Parliament and of the Council for business
users of online intermediary services (the P2B Regulation). 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-party content, user or other third-
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.
16
Also, following the U.K. Brexit vote, it may be the case that regulations and policies in the United Kingdom
may diverge from those of the European Union, following the United Kingdom’s withdrawal from the European
Union, possibly giving rise to greater regulatory complexity and additional compliance costs.
The promulgation of new laws, rules and regulations, or the new interpretation of existing laws, rules and
regulations, in each case that restrict or otherwise unfavorably impact the ability or manner 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.
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 Ukraine, Cuba, Iran, North Korea 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 U.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.
Litigation could distract management, increase our expenses or subject us to material monetary
damages and other remedies.
On August 23, 2018, the Australian Competition and Consumer Commission, or ACCC, instituted proceedings
in the Australian Federal Court against us, alleging breaches of Australian consumer law relating to our
advertisements in Australia concerning the hotel prices available on our Australian site and our Australian
strike-through pricing practice. An outcome adverse to us in this matter could have a material adverse effect
on our business, results of operations, financial condition and prospects.
We could also become involved from time to time in various other legal proceedings, including, but not limited
to, actions relating to breach of contract, consumer protection matters and intellectual property infringement
that might necessitate changes to our business or operations. Regardless of whether the 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. Outcomes adverse to us in any legal proceedings could have a material adverse effect on
our business, results of operations, financial condition and prospects. Any adverse publicity resulting from
actual or potential litigation may also materially and adversely affect our reputation and brand, which in turn
could adversely affect our business, results of operations, financial condition and prospects.
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 operate a global business, 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
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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.
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 or confidential information from users of our websites
and apps. Breaches or intrusions to our system, 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 and/or confidential user information.
We cannot guarantee that our existing security measures will prevent all security breaches, intrusions or
attacks. A party, whether internal or external, that is able to circumvent our security systems could improperly
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, which have made portions of
our website unavailable for periods of time. 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 or 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 the tools and techniques used in these types of attacks become more
advanced. The new European data protection laws (described in detail below), introduce 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 receive and store certain personally identifiable information, including credit card information. 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 the EU’s General Data Protection
Regulation 2016/679, 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.
There are recent regulatory concerns about certain measures that can be used to validate such data export,
as well as litigation challenging some of the mechanisms for adequate data transfer (i.e., the standard
contractual clauses and the EU-US Privacy Shield). We could be impacted by changes in law as a result of
the current challenges to these mechanisms by regulators and in the European courts which may lead to
governmental enforcement actions, litigation, fines and penalties or adverse publicity which could have an
adverse effect on our reputation, business, results of operations, financial condition and prospects.
Government regulation of privacy and data security is typically intended to protect the privacy of personally
identifiable information that is collected, processed and transmitted in or from the governing jurisdiction.
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Since we collect, process and transmit personally identifiable information 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 European Union as well as to those outside the European Union if they
collect and use personal data in connection with offering goods or services to individuals in the European
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 incur substantial further expense in ensuring and maintaining
compliance with the new obligations 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 business, results of operations, financial condition and
prospects. We may have to undertake substantial effort to comply with new data protection laws in the United
Kingdom and new requirements and restrictions for data transfers between the European Union and the
United Kingdom in the event that the United Kingdom leaves the European Union. 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. Unlike the current law, the new proposed e-
Privacy Regulation will apply directly in each EU member state, without the need for further enactment at
the member state level. When 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 may lead to broader restrictions on our advertising activities, including
efforts to understand users’ Internet usage. Such regulations may have a detrimental 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 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 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 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. Satisfying these requirements requires us to dedicate a significant amount of
time and resources, including for the development, implementation, evaluation and testing of our internal
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, our
management cannot guarantee that our internal controls and disclosure controls will prevent all possible
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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 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.
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, 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 we will rely on these 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 manual 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 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 business, results of operations,
financial condition and 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 2018, we substantially revamped our back-end infrastructure, which subsequently went
fully live in early 2019. 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 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 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 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.
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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, and we may experience 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. 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 computer hardware used to operate our website are
located at facilities in Germany, the United States, 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. 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 to 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, 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.
Our brand 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 rely 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, such as that commenced
by the ACCC in August 2018. 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.
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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 other pandemics and epidemics, have disrupted normal travel patterns and
levels in the past. 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 related accidents and terrorist attacks or threats. We do not
have insurance coverage against loss or business interruption resulting from war and 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, 2018, we derived 35% of our total Referral Revenue from our
operations in the Americas, 42% of our revenue from our operations in Developed Europe and 23% 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. We must tailor our services and business models to the
unique circumstances of each of the many countries and markets in which we operate. 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 we operate, 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:
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changing political conditions, including risk of rising protectionism, restrictions on immigration or
imposition of new trade barriers, including the added uncertainty resulting from the United Kingdom's
withdrawal from the European Union;
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
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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 conduct a significant portion of our business outside the Eurozone. As a result, we face exposure to
movements in currency exchange rates around the world. Changes 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. 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 euro 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 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 our 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 approach to
the career development of our employees. We encourage our employees to move into and out of internally
defined leadership roles, and we rotate experienced employees to other jobs and different leadership roles
within the company.
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, which 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.
The small 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
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recruitment and integration. This could have a material adverse effect on our business, results of operations,
financial condition and prospects or could 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 Mr. Schrömgens. If our 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), Mr. Schrömgens loses 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 Lodging Partner Services S.à r.l., or ELPS, 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, ELPS 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 highly 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, is intense globally. We may be unable to retain certain high-performing employees
when the price of our ADS is low, as a significant portion of the compensation they receive consists of equity
grants. If we do not succeed in attracting highly qualified employees or retaining and motivating existing
employees and key 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.
As a public company with ADSs traded on an exchange located in the United States, we incur legal,
accounting, audit 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 has 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. 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 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
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or governing bodies due to ambiguities related to their application and practice, regulatory authorities may
initiate legal proceedings against us and our business, results of operations, financial condition and prospects
could 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 of the
Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer
status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter
and, accordingly, the next determination will be made with respect to us on June 30, 2019.
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 residents 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 payments in connection with change in control, retirement, death or disability,
while the annual report on Form 20-F permits foreign private issuers to disclose considerably less
compensation-related information. We would also have to comply with U.S. federal proxy requirements, and
our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and
recovery provisions of Section 16 of the Exchange Act. We could also be required to modify certain of our
policies to comply with good governance practices associated with U.S. domestic issuers. In addition, we
could 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, results of operations, financial condition and prospects.
Integration of acquired assets and businesses could result in operating difficulties and other
harmful consequences.
We have acquired businesses in the past, including tripl GmbH, or tripl and GHG Ventures LLC, or TripHappy.
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 and subsequent integrations
include:
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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 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
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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-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 timelines 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, 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 diversify our advertiser base to include additional advertisers, including alternative accommodation
providers, beyond our core OTA base, we may increase our exposure to our 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, 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 the event of such
default, we could incur significant losses, 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, 2018, Expedia Group owned Class B shares representing 59.5% of our issued share
capital and 66.8% 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.
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The Founders have contractual rights to exert control over certain aspects of our business.
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, 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), the Founders will have certain rights to
veto decisions about certain corporate matters. These contractual rights limit the ability of ELPS 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), 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 control
of the company. In addition, from the date that Mr. Schrömgens ceases to serve as our chief executive officer
for a period of three years, so long as a Founder is serving as our 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 ELPS and thereafter, the
supervisory board.
Expedia Group’s interests may conflict with our interests, the interests of the Founders and the
interests of our shareholders, and conflicts of interest among Expedia Group, the Founders and
us could be resolved in a manner unfavorable to us and our shareholders.
Various conflicts of interest among 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 each of the years
ended December 31, 2016, 2017 and 2018, Expedia Group, and brands affiliated with Expedia Group,
consistently accounted for 36% of our revenues.
Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements
with Expedia Group’s businesses in the future or in connection with Expedia Group’s desire to enter into
new commercial arrangements with third parties.
Expedia Group has the right to separately pursue acquisitions of businesses that we 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:
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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 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
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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.
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 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. 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. Our 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” 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 business, results of operations, financial
condition and prospects.
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
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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 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, 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:
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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;
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;
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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
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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 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.
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
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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. 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 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 and growth of 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 (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.
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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, 2018, Expedia Group owned Class B shares representing 59.5% of our share capital
and 66.8% of the voting power in us, and the Founders owned Class B shares representing 28.4% of our
share capital and 31.9% of the voting power in us due to the disparate voting powers associated with our
dual-class share structure. See “Item 7 A. Major shareholders.” 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, Regulation (EU) 2015/848
of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings). Should courts
in another EU jurisdiction determine that the insolvency laws of that EU 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 a 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
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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.
U.S. investors may have difficulty enforcing civil liabilities against us or members of our
management board and supervisory board.
We are incorporated in the Netherlands. Most members of our management board and supervisory board
are non-residents of the United States. The majority of our assets and the assets of these persons are located
outside the United States. As a result, it may not be possible, or may be very difficult, to serve process on
such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us
based on civil liability provisions of the securities laws of the United States.
There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement
of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for
the payment of money rendered by any federal or state court in the United States based on civil liability,
whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the
Netherlands unless the underlying claim is relitigated before a Dutch court of competent jurisdiction. Under
current practice, however, 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 its jurisdiction vis-à-vis the
relevant Dutch Companies or Dutch Company, as the case may be, on the basis of internationally accepted
grounds of jurisdiction, (ii) has not been rendered in violation of elementary principles of fair trial, (iii) is not
contrary to the public policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a
Dutch court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court
rendered in a dispute between the same parties, concerning the same subject matter and based on the
same cause of action, provided that such prior judgment is capable of being recognized in the Netherlands.
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.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce 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.
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. Corporate 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
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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 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.
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, 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 incorporation under Dutch law, we are also deemed tax resident in the Netherlands under
Dutch national tax laws. However, 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 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 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), may result in us becoming a tax resident of a jurisdiction other than 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 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 business, results of operations, financial condition and prospects.
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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. By February 2019, 87
member jurisdictions, including Germany, have signed the “Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent Base Erosion and Profit Shifting” (MLI), which allows member jurisdictions to
amend existing bilateral double taxation treaties according to results from the OECD BEPS project. Out of
these 87 jurisdictions, 20 have also ratified the MLI. As of February 2019, Germany has, however, not ratified
the MLI and, as a result, the MLI has not entered into force in Germany. About 35 of Germany's double
taxation treaties with other member jurisdictions will be affected after Germany's ratification and the ratification
of the respective treaty state. Another measure based upon the OECD’s BEPS initiative is the adoption of
the so-called Anti-Tax Avoidance Directive I and II of the European Union. Under these directives, EU member
states are to adopt certain anti-abuse measures by January 2019 while certain other anti-abuse measures
are to be adopted in subsequent years. In addition, there have also been developments at the national level
in several countries as well as initiatives at the level of the OECD and the European Union that aim to target
the digital economy through taxes on revenue from digital services or through taxes on income attributed to
countries where the respective multinationals have a digital presence, which could result, depending on how
such initiatives are ultimately implemented in the source jurisdiction and on how Germany may change its
rules as a reaction, in double taxation on certain income.
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.
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 to be treated as a PFIC for U.S. federal income tax purposes for the current taxable year 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
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
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tax consequences could apply to a U.S. Holder (as defined in “Item 10 E. Taxation—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 containing 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 and 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, which could
mean that a dividend is effectively taxed twice. Our 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 Depositary 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 10 E. Taxation—German taxation—German taxation of ADS
holders”).
If we pay dividends, we may need to withhold tax on such dividends payable to holders of our
ADSs in both Germany and the Netherlands.
As an entity incorporated under Dutch law, but with its place of effective management in Germany (and not
in the Netherlands), our dividends are generally subject to German dividend withholding tax and not Dutch
withholding tax. However, Dutch dividend withholding tax is 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, 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 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, withholding of both German and Dutch dividend tax from such dividend may occur.
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Item 4: Information on the company
A. History and development of the company
trivago 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
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) under number 67222927. Our corporate seat is in Amsterdam, the Netherlands, and our
registered office is at Kesselstraße 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 10 East 40th Street, 10th floor,
New York, NY 10016.
Principal capital expenditures and divestitures
Although our growth has primarily been organic, we have made the following small strategic acquisition since
January 1, 2016:
▪
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. We acquired tripl 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.
This acquisition was conducted with no external financing.
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Public takeover offers
Since January 1, 2018, 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, management 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, Brazil, Canada, Chile, Columbia, Ecuador,
Mexico, Peru, the United States and Uruguay. Our Developed Europe segment is comprised of Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy, 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, India, New Zealand, Russia and Turkey.
Segment revenue is comprised entirely of Referral Revenue. 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
return on advertising spend, or ROAS, for each of our segments, which compares Referral Revenue to
Advertising Spend.
For additional information relating to the development of our company, see “Item 4 B. Business overview.”
B. Business overview
Overview
trivago is a global hotel and accommodation 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 our 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 search for accommodation and providing them with access to a deep supply of relevant
information and prices. In the year ended December 31, 2018, we had 668.3 million Qualified Referrals and,
as of that date, offered access to more than 3.0 million hotels and other types of accommodation, including
1.5 million units of alternative accommodation such as vacation rentals and private apartments, in over 190
countries. See “Item 5. 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," vacation
rental or private apartment. Our fast and intuitive search platform enables travelers to find their ideal hotel
or other accommodation by matching individual traveler preferences with detailed accommodation
characteristics, such as price, location, availability, amenities and ratings, across a vast global supply.
We believe that the number of travelers accessing our websites and apps makes us an important and scalable
marketing channel for our 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
or other accommodation 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 our 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
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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 55 localized websites and apps
available in 33 languages. Users can search our platform on desktop and mobile devices, and benefit from
a familiar user interface, resulting in a consistent user experience. In the year ended December 31, 2018,
our revenue share from mobile websites and apps continued to exceed 60%.
Our revenue has grown significantly since our incorporation in 2005. In the years ended December 31, 2016,
2017 and 2018, we generated revenue of €754.2 million, €1,035.4 million and €914.8 million respectively.
During the same periods, we had net losses of €(51.4) million, €(13.0) million and €(21.5) million, respectively.
In the years ended December 31, 2016, 2017 and 2018, our adjusted EBITDA was €28.2 million, €6.7 million
and €14.6 million, respectively. See "Item 5 A. Operating review—Results of operations—Revenue" for
Referral Revenue by segment, representing a breakdown according to principal geographic markets. See
“Item 3 A. Selected financial data” for an additional description of adjusted EBITDA and a reconciliation of
adjusted EBITDA to net 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 search platform forms the core of our user experience, and
can be accessed globally via 55 localized websites and apps available in 33 languages. As we provide a
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 hotels in the world. As of December 31,
2018, our database included more than 3.0 million hotels and other types of accommodation, gathered
through OTAs, hotel chains, independent hotels and providers of alternative accommodations.
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 displays 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.
Initial search bar parameters
Location
(City, Region, Country, Point of Interest)
Subsequent search filters
Hotel stars
(1 star to 5 stars)
Check-in date
Check-out date
Room type
(single, double, family, multiple)
Hotel name
Popularity/Our recommendations
trivago ratings
(Below average, Satisfactory, Good, Very Good, Excellent)
Price range
Distance from landmarks
Top amenities options
(Pets, Beach, Free WiFi, Breakfast, Pool)
Hotel name or address
Performing a search shows a user a hotel listing page. This page contains broad, aggregated information,
including:
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•
•
•
•
Hotel 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: 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 or other accommodation. The rating is a single, easy-to-use score
out of ten;
Reviews: We provide reviews from third parties in a clear and concise format; and
Price 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, amenities and payment options. To learn more about how we 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 2018
Below are some of the more significant developments in our search product during 2018:
• We launched a new iOS and Android App with an improved user interface to encourage our users
to increase their interaction with our content with the aim of improving our booking performance;
• We made improvements to our filtering through increasing opportunities for refining searches and
improving our users' experience by redesigning the filter segment of our search engine; and
• We also made efforts to make it easier for our users to sign up and log in with trivago, with the aim
of increasing how often our users log in to our site
In 2018, we substantially revamped our back-end infrastructure, which subsequently went fully live in early
2019. We also continued to implement measures aimed at optimizing our platforms and products, with the
intention of increasing user retention and booking conversion, while reducing the number of click-outs required
to ultimately generate a booking. These are relatively small, incremental changes to our products that we
believe, when considered together, will result in improvements to our product and platforms. These measures
include enhancements to our site that encourage users to spend more time exploring and interacting with
our site and its features before being referred to one of our advertisers. 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 have increased their CPC bids in response to
improved traffic quality in terms of booking conversion, which has had a positive impact on Revenue per
Qualified Referral (RPQR), particularly in the fourth quarter of 2018.
Alternative accommodation
As of December 31, 2018, we offered access on our search platform to more than 1.5 million units of alternative
accommodation, such as vacation rentals and private apartments. We are focused on broadening the value
proposition that we offer our users by empowering them to compare across multiple different accommodation
types. For more information, see below "—Our Strategy—Broadening our value proposition."
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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 or other accommodation. We organize our marketing teams and spend
allocations to focus on building effective messaging to a broad audience across multiple geographies and
languages. We believe that building and maintaining our brand and clearly articulating 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.
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 and
online video advertising.
The amount and nature of our Advertising 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 hotel content as a means of engaging with travelers, which is distributed online including
via social media and our online magazine. Mobile app marketing remains important given the high usage of
that device type.
Performance marketing
We market our services and directly acquire traffic to 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 Bing, Google, Naver and Yahoo!
(commonly referred to as Search Engine Marketing, or SEM), as well as through display advertising
campaigns on advertising networks, affiliate websites and social networking sites (commonly referred to as
Display, Email and Affiliate Advertising, or DEA).
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 media
spend.
After introducing a new model in 2017 for allocating our marketing spend, which we refer to as our attribution
model, we continue to develop the methodologies we use to inform decisions about how much we spend
on each marketing channel. We continue to focus on whether a user who comes to us from a given marketing
channel proceeds to book a hotel in order to estimate how much revenue originated from a given marketing
channel (or how revenue is “attributed” to that channel in our internal metrics). In 2018, we observed improved
traffic quality in terms of booking conversion that we believe resulted from the implementation of the attribution
model and accordingly saw a positive impact on advertisers' CPC bids and Revenue per Qualified Referral,
or RPQR. For more information on Qualified Referrals and RPQR, see "Item 5 A. Operating results—Key
factors affecting our financial condition and results of operations."
Advertiser relations
Our advertiser relations team seeks to provide tailored advice to each of our existing and prospective OTAs,
providers of alternative accommodation, hotel chains 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 help them optimize their outcomes from the trivago platform and provide
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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 platform offers. It
often requires onboarding by encouraging the optimization of such advertisers' information and profiles on
our site, upselling products to further enhance their profiles, and encouragement to start bidding directly on
our marketplace. This often multi-stage process requires our sales team to develop close relationships with
each hotel. As of December 31, 2018, over 500,000 hotels engaged through Hotel Manager (described
below) directly with our platform (as of December 31, 2017: 400,000), of which approximately 45,000
subscribed to Hotel Manager Pro (as of December 31, 2017: approximately 45,000).
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 following tools and services provide tailored solutions for OTAs, hotel chains
and independent hotels 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 its 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 their hotels 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 on 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 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 strategies and drive additional referrals.
Automated Bidding 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.
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•
Express Booking helps 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 payments 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 are provided 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 and
other accommodation rates on our marketplace and CPC bids for each user click on an advertised rate for
a hotel or other accommodation. 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.
In determining the prominence given to offers and their placement in our search results, including in
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 accommodation 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.
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. Generally, the higher the potential booking value generated by a Qualified Referral and the more
competitive the bidding, the more an advertiser is willing to bid for an advertisement on our marketplace.
This means 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. We exclude from our marketplace auction offers where the CPC has
been set to a de minimis level, as this typically denotes 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).
In 2018, we began to implement a rate accuracy score, which is based on a check of the accuracy of hotel
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and accommodation rates delivered to us compared to those displayed on our advertisers platforms, and
also operates as an upward or downward adjustment of advertisers' CPCs.
By managing their CPC bids, relevance assessments 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 as our Automated
Bidding tool, 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 market opportunity
As the process for discovering, evaluating, and booking accommodations increasingly moves online, travelers
and advertisers face distinct challenges.
Challenges for travelers
With the continuing digitalization of the accommodation industry, there is an ever-increasing quantum of
information available online about hotels and other types of accommodations 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, and providers of alternative accommodations. Internet search engines and
other review sites. Also, many websites, including those that aggregate disparate information, are often slow,
confusing to navigate, and may not display the most relevant accommodation information for travelers.
Furthermore, many local OTAs and smaller hotels only display information in their local language, which
creates an additional layer of complexity for travelers looking to find accommodations in a foreign destination.
These developments can make booking a hotel a frustrating experience for travelers.
Challenges for our advertisers
Hotel and other accommodation 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, independent hotels and alternative accommodation providers who
operate high fixed cost models focus on ensuring their inventory is filled. These market participants 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 for advertisers to scale
up their spend effectively in an efficient manner. 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 accommodation supply
We aggregate availability of multiple types of accommodations, such as hotels, vacation rentals and private
apartments, from a broad 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 search platform as their
entry point for research on where to stay, confident that they receive comprehensive coverage of their options
to book a hotel, vacation rental or private apartment.
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Increased price competition and reduced search costs
Enhanced price competition results in the display of rooms with a broad range of pricing options available
from our advertisers.
Tailored search function
Our search function is designed to enable individual users to find their "ideal hotel," vacation rental or private
apartment. 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 every day,
create matches among the sets of information.
Deep content and easy-to-use information on hotels and other types of accommodation
We obtain accommodation 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 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 accommodation information we provide and our personalized matching
algorithms, travelers referred by trivago often already have a comprehensive understanding of their
accommodation choice 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 hotels.
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 and other accommodation 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 aspects 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.
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Significant scale
We have achieved significant scale, with more than 3.0 million hotels and other types of accommodation
available on our platform as of December 31, 2018, including over 1.5 million units of alternative
accommodation units, such as vacation rentals and private apartments. We are supported by 55 localized
versions of our websites and apps available 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, 2018, we had 668.3
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 and accommodation 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 business
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 and our position as a first source of information for travelers drive customer demand,
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 focus 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.
Broadening value proposition
Over the last year, we have onboarded multiple additional alternative accommodation providers, and as of
December 31, 2018, now offer more than 1.5 million units of that type of accommodation on our search
platform. We are focused on broadening the value proposition that we offer our users by empowering them
to compare across multiple different accommodation types. We are also developing better tools for our users
to tackle this inherently more complex comparison, with the aim of increasing the value that we create for
them. As a result, we continued our gradual roll-out of additional readily bookable units of alternative
accommodation, such as vacation rentals and private apartments over the course of 2018, while developing
improvements to our user interface relating to that specific offering.
Product improvements
Our technology teams drive innovation to help users navigate through a vast number of hotel and other
accommodation offerings to find the hotel that is ideal for them. In 2018, we continued to invest in our
technology platform, substantially revamping our back-end infrastructure, which subsequently went fully live
in early 2019. We believe that this effort will create a foundation for growth and scalability of new technology
in the long term.
During the second half of 2018, we also released our new mobile app, both on Android and iOS, highlighting
our product philosophy of increasing time spent on trivago before making the booking decision on our
advertisers. Furthermore, we have recently taken further steps to integrate alternative accommodation supply
from HomeAway and other suppliers into our main search functionality.
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We continue to focus our product innovations on increasing value delivered to our users by customizing our
hotel search to our users’ interests beyond location and price comparisons.
Marketplace improvements and tools for advertisers
We continue to focus on giving advertisers the flexibility 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 maintaining a healthy marketplace that connects our broad and deep supply of hotels
and other accommodations 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 continue to implement various initiatives that are designed to focus more on the end-to-end booking
value of our users and less on the revenue generated in each session. We believe that these initiatives will
help us increase booking conversion rates, RPQR and, ultimately, our financial performance over the long
term. In particular, we continue to implement measures that are designed to focus less on the click-based
revenue generated by our users in each session and more on the booking value that our users generate for
our advertisers over multiple sessions (or over the "lifetime" of the user). These measures include, on the
one hand, changes to how we make decisions about allocating Advertising Spend to our marketing campaigns
by tracking how likely a user that comes to us from a channel is to book a hotel with an advertiser. On the
other hand, these measures involve enhancements to our site that encourage users to spend more time
exploring it and interacting with its features before they are referred to one of our advertisers. These
enhancements are relatively small, incremental changes to our product that we believe, when considered
together, will increase user retention and booking conversion while reducing the number of click-outs required
to ultimately make a booking.
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 process
for our users to move from the discovery to the to the booking decision (commonly referred to as the "booking
funnel").
Brand building
We continue to focus on building our trivago brand. We still see potential for increasing brand awareness,
especially in our Rest of World segment.
We intend to be each traveler’s first source of information for hotels and other accommodations 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:
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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 hotels;
Providers of alternative accommodation, such as vacation rental or private apartments; and
Industry participants, including metasearch and content providers.
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We generate the large majority of our 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, HomeAway and ebookers, in the aggregate, accounted for 36% of our total revenue for each
of the years ended December 31, 2016, 2017 and 2018, respectively. Booking Holdings and its affiliated
brands, Booking.com and, through 2015, Agoda, accounted for 43%, 44% and 39% of our total revenue for
the years ended December 31, 2016, 2017 and 2018, respectively.
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 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 and other
accommodation. Given our position at the top of the online search funnel, many companies we compete
with are also our customers.
Our principal competitors for users include:
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•
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Online metasearch and review websites, such as Kayak, Qunar, TripAdvisor and Google Hotel Ads;
Search engines, such as 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.
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 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.
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Our employees and culture
We believe that our entrepreneurial corporate culture, flexible working hours and flat organizational structure
are key ingredients to our success. These have 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 operate
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 continuously seek to understand and
learn, take risks and innovate. We regard failure as an opportunity to learn and inform improved approaches
going forward.
Internally, we distill our values into six core qualities:
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Trust: We want to build an environment in which mutual trust can develop to give us the comfort and
safety to discuss matters openly and to act freely.
Authenticity: We aim to be authentic by staying true to ourselves and welcoming discussion and
controversy as we believe that there is no progress without friction.
Entrepreneurial Passion: We aim to be passionate drivers of change, motivated to question the
status quo - for both the organization and ourselves. We believe intrinsic motivation empowers us
to take on ownership, to take appropriate risks and to be confident to make decisions.
Power of Proof: We believe empirical data enables us to make sensible decisions. We want to
explore and understand the driving forces behind why our projects succeed or fail.
Unwavering Focus: We aim to set our priorities based on the added value we believe is generated
for trivago. We believe that multiple small, incremental improvements towards this goal add up to
long-term success.
Fanatic Learning: We aim to improve our competitive position by reacting quickly to findings based
on our collective experiences, successes and failures. We strongly believe that power comes from
sharing knowledge, not from keeping it to ourselves. We are open to continuously changing our
beliefs and processes based on changing evidence. We see change as an opportunity to improve.
In 2017, we introduced our 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.
We have identified three core leadership roles:
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responsibility leads, who are responsible for the development of an operational area at trivago;
talent leads, who are responsible for individuals' professional 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. As our employees move into
different roles within trivago, we intend for them to have one constant talent lead, who generally works on
a different team.
We believe that moving employees into different leadership roles will help him or her use the expertise they
have gained at trivago to challenge our thinking in different areas 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
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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.
Seasonality
We experience seasonal fluctuations in the demand for our services as a result of seasonal patterns in travel.
For example, 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 return on advertising 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.
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. 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.
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 and www.trivago.co.uk. Our registered trademarks include: trivago, "Hotel? trivago," Room5,
Youzhan and our trivago logo. These trademarks are registered in various jurisdictions.
Government regulation
trivago provides data and information to its users and advertisers 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 (including at member 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 addressing liability for third-party activities. Moreover, the applicability
to the Internet of existing laws addressing 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. A new EU data protection regime (EU’s
General Data Protection Regulation 2016/679, or GDPR) has been in effect since May 25, 2018 and provides
for a number of changes to the EU data protection regime. The GDPR applies to any company established
in the European Union, as well as to those outside the European Union if they collect and use personal data
in connection with the offering of goods or services to individuals in the European 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 incur
substantial expense in complying with the new obligations to be imposed by the GDPR and we may be
required to make significant changes in our business operations and product and services development, all
of which may adversely affect our revenues and our business overall.
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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. There are recent regulatory concerns about certain
measures that can be used to validate such data export, as well as litigation challenging some of the
mechanisms for adequate data transfer (i.e., 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 in the European
courts 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, in the European Union
there is an ongoing revision of EU consumer directives (A New Deal for Consumers) and the European
Union is considering a proposal for a regulation of the European Parliament and of the Council for business
users of online intermediary services (the P2B Regulation).
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
replace the so-called ePrivacy Directive (2002/58/EC), the so-called Cookie Directive (2009/136/EC) 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 websites and may
require relevant financial effort to implement the new laws.
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 five different locations in Germany, the United States, Hong Kong and China, while
also leveraging cloud-hosted services, which we believe offers us secure and scalable storage and processing
power at manageable incremental expense. While much of the data we receive and capture is not sensitive,
our data centers are compliant with the highest security standards. It is our policy to store separately the
limited amount of sensitive data that we do capture. Where required, our data centers are payment card
industry (PCI) compliant. We have designed our websites, apps and infrastructure to be able to support high-
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. Organizational structure
trivago N.V. historically acted as a holding company of trivago GmbH, the historical operating company of
the trivago group. The cross-border 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.
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, 2018:
(1) The free float total includes 7,000,000 restricted shares purchased by PAR Investment Partners, L.P. from Mr. Vinnemeier and
Mr. Siewert in a private transaction. For more information, see "Item 7 A. Major shareholders—Significant changes in ownership by
major shareholders." The total also includes 3,862,000 Class B shares that were converted into Class A shares by Mr. Vinnemeier
and Mr. Siewert, which are the subject of ongoing Rule 10b5-1 sales plans. As reported on Schedule 13D/A filed by Mr. Vinnemeier,
on November 15, 2018, Mr. Vinnemeier entered into a Rule 10b5-1 sales plan with a broker to sell 2,000,000 ADSs, each
representing a Class A share.
(2) 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 registration on Form F-3 dated April 5, 2018. 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.
trivago N.V. is the direct or indirect holding company of our subsidiaries. As of December 31, 2018, 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 we believe are material based on other, less quantifiable, factors.
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D. Property, plant and equipment
In June 2018, we moved into our new headquarters located in Düsseldorf's media harbor. The building
comprises 26,107 square meters of office space and 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.
We have additional 16,444 square meters of leased office space in Germany and 4,419 square meters of
leased office space in Spain, the Netherlands and China.
Item 4A: Unresolved staff comments
Not applicable.
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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. 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 “Item 3 D. Risk factors”
and “Special note regarding forward-looking statements” sections and elsewhere in this annual report.
A. Operating results
Overview
Our total revenue for the years ended December 31, 2016, 2017 and 2018 was €754.2 million, €1,035.4
million and €914.8 million, respectively, representing an increase of 37% from 2016 to 2017 and a decrease
of 12% from 2017 to 2018. Our Referral Revenue for the years ended December 31, 2016, 2017 and 2018
was €745.8 million, €1,020.3 million and €899.8 million, respectively. Referral Revenue decreased by 12%
year-over-year from 2017 to 2018. Our Americas and Developed Europe segments exhibited the highest
decrease in Referral Revenue, with a year-over-year decrease of 19% and 11%, respectively, from 2017 to
2018, while Referral Revenue in our Rest of World segment grew by 1% year-over-year.
Our net losses for the years ended December 31, 2016, 2017 and 2018 were €51.4 million, €13.0 million
and €21.5 million, respectively, decreasing by 75% from 2016 to 2017 and increasing by 65% from 2017 to
2018.
Adjusted EBITDA for the years ended December 31, 2016, 2017 and 2018 was €28.2 million, €6.7 million
and €14.6 million respectively. This resulted in an Adjusted EBITDA margin (calculated as Adjusted EBITDA
divided by Total Revenue) of 3.7%, 0.6% and 1.6%, 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. We also earn subscription fees for certain services we provide to
advertisers, such as Hotel Manager Pro, 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 Return on 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 hotel 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
54
the type of visitor our advertisers are interested in and which we believe supports bidding levels in our
marketplace.
We had 535.3 million, 727.1 million and 668.3 million Qualified Referrals for the years ended December 31,
2016, 2017 and 2018, respectively, representing annual growth rates of 35.8% and (8.1)% in 2017 and 2018,
respectively.
We believe the primary factors that drive changes in our Qualified Referral levels are the number of visits
to our websites and apps, the booking intent of our visitors, the number of available accommodations on
our 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 network 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:
(in millions) (unaudited)
Americas
Developed Europe
Rest of World
Total
Note: Some figures may not add due to rounding.
Revenue per Qualified Referral (RPQR)
Year ended December 31,
% Change
2016
149.1
255.4
130.8
535.3
2017
203.4
295.5
228.3
727.1
2018
182.3
246.7
239.3
668.3
2017 vs
2016
36.4%
15.7%
74.5%
35.8%
2018 vs
2017
(10.4)%
(16.5)%
4.8 %
(8.1)%
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, the
bidding behavior of our advertisers is influenced by the rate at which our Qualified Referrals result in bookings
on 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. We refer to the degree
to which we are able to capture our share in the overall estimated booking revenues generated by our
55
advertisers from our referrals as "commercialization." The quality of the traffic we generate for our advertisers
increases when aggregate booking conversion and/or 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. While we believe that the quality of the traffic we referred to our
advertisers improved in the second half of 2018, the information we used as the basis for this analysis is
subject to a number of uncertainties, including those related to the accuracy of the information we receive
from certain of our advertisers and the methodologies we and our advertisers use to track and analyze
whether a user ultimately completes a booking. 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 Referral and the more competitive the bidding, the more an advertiser is willing to bid for a hotel
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 believe our attribution
model and product optimization measures have contributed to continuous improvement in our referred traffic
quality, which have had a positive effect on our RPQR notably in the fourth quarter of 2018. However, the
dynamics in the market beyond our marketplace are not static, and we believe that our advertisers
continuously 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 competitors.
RPQR is a key financial metric that describes 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, 2016, 2017 and 2018, RPQR was €1.39, €1.40 and €1.35, respectively.
The following table sets forth the RPQR for our reportable segments for the periods indicated (based on
Referral Revenue):
RPQR in € (unaudited)
Americas
Developed Europe
Rest of World
Total
Year ended December 31,
% Change
2016
1.92
1.37
0.85
1.39
2017
1.93
1.44
0.89
1.40
2018
1.73
1.54
0.86
1.35
2017 vs
2016
2018 vs
2017
0.5%
5.1%
4.7%
0.7%
(10.4)%
6.9%
(3.4)%
(3.6)%
The following tables set forth the percentage change year-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.
% increase in RPR (unaudited)
2017 vs 2016
2018 vs 2017
Year ended December 31,
Americas
Developed Europe
Rest of World
Total
8.6%
19.1%
10.3%
10.2%
2.6%
19.6%
6.3%
5.6%
56
% increase (decrease) in number of referrals
(unaudited)
Americas
Developed Europe
Rest of World
Total
% increase (decrease) in Qualified Referrals
(unaudited)
Americas
Developed Europe
Rest of World
Total
Year ended December 31,
2017 vs 2016
2018 vs 2017
25.9%
2.8%
64.5%
24.4%
(21.2)%
(24.7)%
(5.2)%
(17.3)%
Year ended December 31,
2017 vs 2016
2018 vs 2017
36.4%
15.7%
74.6%
35.8%
(10.4)%
(16.5)%
4.8 %
(8.1)%
% increase (decrease) in click-out rate referrals
(unaudited)
2017 vs 2016
2018 vs 2017
Year ended December 31,
Americas
Developed Europe
Rest of World
Total
(7.7)%
(11.1)%
(5.8)%
(8.4)%
(12.1)%
(9.8)%
(9.6)%
(10.0)%
Return on advertising 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, and it is our primary operating metric. Our ROAS was
120%, 115% and 123% for the years ended December 31, 2016, 2017 and 2018, respectively. Our ROAS
in the Americas, Developed Europe and the Rest of World was 118%, 136% and 90% for the year ended
December 31, 2016, respectively, as compared to 116%, 131% and 92% for the year ended December 31,
2017, respectively, and 121%, 143% and 100% for the year ended December 31, 2018, respectively. 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 Spend accounts for the significant majority of our total expenses, we believe
this will have a direct impact on our operating margins and Adjusted EBITDA.
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.
57
Our ROAS by reportable segment for the years ended December 31, 2016, 2017 and 2018 was as follows:
(unaudited)
Americas
Developed Europe
Rest of World
Total
Year ended December 31,
2016
118%
136%
90%
120%
2017
116%
131%
92%
115%
2018
121%
143%
100%
123%
In 2018, our ROAS improved to 123% as there was a substantial improvement in our ROAS in the second
half of 2018, reflecting the positive effect from optimization and recalibration of Advertising Spend since the
second quarter of 2018. The improvement was partly offset by lower ROAS in the first half of 2018 when we
lowered profitability targets on our Advertising Spend to support revenue levels.
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 the relevance assessment.
Recent trends in our business
The following recent trends have contributed to the results of our consolidated operations, and we anticipate
that they will continue to impact our future results.
Changing dynamics on our marketplace
After a period of increased marketplace volatility and testing activities by our largest advertisers in late 2017,
the volatility on our marketplace was relatively muted in 2018. At the same time, we believe that, in 2018,
our largest advertisers increased their return on investment targets for their spend on our marketplace
compared to the same period in 2017. This in turn had a negative effect on our share of the overall booking
revenues generated from referrals on our platform (commercialization), and was evidenced in our RPQR,
which declined on a consolidated basis in 2018, even as the optimizations we have been making to our
platform and product and our attribution model appeared to continue to improve the traffic quality we generated
for our advertisers. The decline in commercialization was particularly pronounced in the first half of 2018
compared to a strong first half of 2017, which had benefited from positive revenue effects from the introduction
of the relevance assessment.
Focus on profitability
Starting late in the second quarter of 2018, we made improved profitability our focus. To do this, we began
to optimize and recalibrate our Advertising Spend to adapt to the changing dynamics on our marketplace.
We began to make these changes at the end of the second quarter of 2018 across all of our segments, and
they were reflected in reduced brand marketing expenditure and increased return on investment targets for
our performance marketing campaigns. While these measures improved our profitability, they also led to a
58
reduction in traffic to our platform attributable to all marketing channels and accordingly resulted in a reduction
in the number of Qualified Referrals, which was particularly evident in the second half of 2018.
Measures designed to maximize the lifetime value of the user
We continued to implement measures designed to focus less on the click-based revenue generated by our
users in each session and more on the booking value that our user generate for our advertisers over multiple
sessions (or over the "lifetime" of the user). These measures include, on the one hand, changes to how we
make decisions about allocating Advertising Spend to our performance marketing campaigns by tracking
how likely a user that comes to us from a channel is to book a hotel with an advertiser (or how we "attribute"
spending to marketing channels). On the other hand, these measures involve enhancements to our site that
encourage users to spend more time exploring and interacting with our site and its features before being
referred to one of our advertisers. We believe these relatively small, incremental changes to our product
have resulted, when considered together, in improvements to our product and platforms that continue to
positively impact our advertisers' CPC bids on our marketplace.
As we optimized our Advertising Spend (as described above) and continued to implement measures aimed
at optimizing our platforms and product, we were able to improve the quality of the traffic that we referred
to our advertisers notably in the second half of 2018 in Developed Europe and slightly in Rest of World (or
"RoW"), which was evident in the development of RPQR in these segments in the fourth quarter of 2018.
Reflecting this, we saw positive signs, particularly in the fourth quarter of 2018, that our largest advertisers
reacted positively to the improved quality of traffic that we referred to them by increasing their average CPC
bids on our platform.
Referral Revenue split among our segments
Our Referral Revenue from the Americas, Developed Europe and the Rest of World were 37.8%, 41.0% and
19.7% of our total revenue, respectively, for the year ended December 31, 2017 and were 34.5%, 41.4%
and 22.4% of our total revenue, respectively, for the year ended December 31, 2018. We believe the different
trends in Referral Revenue growth 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. Our revenue levels are relatively more resilient in our newest markets, and as a result, our
Referral Revenue in RoW increased slightly in 2018 compared to the same period in 2017.
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, 2018,
our revenue share from mobile websites and apps continued to exceed 60%.
Visitors to our search platform via mobile phone and tablet 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 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
59
the current bids advertisers place on our CPC-based bidding system reflect the overall efficacy of the
combined desktop and mobile prices they receive.
In the third quarter of 2018, we launched a new iOS and Android app, which have an improved user interface
intended to encourage our users to increase their interaction with our content with the aim of improving our
booking performance.
Advertiser structure
We generate most of our 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, HomeAway and ebookers, in the aggregate, accounted for 36% of our total
revenue for each of the years ended December 31, 2016, 2017 and 2018, respectively. Booking Holdings
and its affiliated brands, Booking.com and Agoda, accounted for 43%, 44% and 39% of our total revenue
for the years ended December 31, 2016, 2017 and 2018, respectively. 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
Group can permit them to obtain the same or increased levels of referrals, customers, bookings or revenue
and profit at lower cost. We believe that our business success in the long term will be enhanced by
diversification among our advertisers, in particular by means of expanding our relationships with independent
hotels, hotel chains and providers of alternative accommodation 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.
We continued to take steps to increase advertiser diversity on our marketplace, including integrating vacation
rental inventory onto our 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 and other accommodation 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.
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. In 2017, we observed this to some extent
as some of our largest advertisers withdrew 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 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, 2018, we had direct
relationships with over 500,000 hotels, representing over 15% of the total number of hotels advertised on
trivago.
60
Results of Operations
Comparison of the years ended December 31, 2016, 2017 and 2018:
(in thousands)
2016
2017
2018
2017 vs
2016
2018 vs
2017
Year ended December 31,
% Change
Consolidated statement of operations:
Revenue
Revenue from related party
Total revenue
Costs and expenses:
Costs of revenue, excluding amortization
Selling and marketing (1)
Technology and content
General and administrative
Amortization of intangible assets
Operating loss
Other income (expense):
Interest expense
Gain on deconsolidation of entity
Other, net
Total other income (expense), net
€ 485,942 € 667,802 € 583,395
268,227
367,581
754,169
1,035,383
331,421
914,816
37.4 %
37.0 %
37.3 %
(12.6)%
(9.8)%
(11.6)%
4,273
5,930
5,435
673,224
946,925
805,633
51,658
55,602
13,857
52,232
47,444
3,220
66,904
54,326
1,684
(44,445)
(20,368)
(19,166)
38.8 %
40.7 %
1.1 %
(14.7)%
(76.8)%
54.2 %
(8.3)%
(14.9)%
28.1 %
14.5 %
(47.7)%
5.9 %
(137)
—
(139)
(276)
(44)
2,007
592
2,555
(1,839)
—
67.9 % (4,079.5)%
n.m.
(100.0)%
539
525.9 %
(9.0)%
(1,300)
1,025.7 %
(150.9)%
Income/(loss) before income taxes
(44,721)
(17,813)
(20,466)
60.2 %
Expense (benefit) for income taxes
6,670
(4,764)
1,086
(171.4)%
Loss before equity method investment
(51,391)
(13,049)
(21,552)
74.6 %
(14.9)%
122.8 %
(65.2)%
Net income/(loss) from equity method
investment
Net loss
—
—
63
n.m.
n.m.
(51,391)
(13,049)
(21,489)
74.6 %
(64.7)%
Net loss attributable to noncontrolling interests
710
568
—
(20.0)%
(100.0)%
Net loss attributable to trivago N.V.
€ (50,681) € (12,481) € (21,489)
75.4 %
(72.2)%
n.m. not meaningful
(1) Includes €1.0 million of selling and marketing expense for the year ended December 31, 2018 that was not included in our unaudited
results for the fourth quarter ended December 31, 2018.
61
Consolidated statement of operations as a percent of total revenue:
Revenue
Revenue from related party
Total revenue
Costs and expenses:
Cost of revenue, excluding amortization
Selling and marketing (1)
Technology and content
General and administrative
Amortization of intangible assets
Operating loss
Other income (expense):
Interest expense
Gain on deconsolidation of entity
Other, net
Total other income (expense), net
Loss before income taxes
Expense (benefit) for income taxes
Loss before equity method investment
Net income/(loss) from equity method investment
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to trivago N.V.
Year ended December 31,
2016
2017
2018
64.4 %
35.6 %
64.5 %
35.5 %
63.8 %
36.2 %
100.0 %
100.0 %
100.0 %
0.6 %
89.3 %
6.8 %
7.4 %
1.8 %
(5.9)%
— %
— %
— %
— %
(5.9)%
0.9 %
(6.8)%
— %
(6.8)%
0.1 %
(6.7)%
0.6 %
91.5 %
5.0 %
4.6 %
0.3 %
(2.0)%
— %
0.2 %
0.1 %
0.2 %
(1.7)%
(0.5)%
(1.3)%
— %
(1.3)%
0.1 %
(1.2)%
0.6 %
88.1 %
7.3 %
5.9 %
0.2 %
(2.1)%
(0.2)%
— %
0.1 %
(0.1)%
(2.2)%
0.1 %
(2.4)%
— %
(2.3)%
— %
(2.3)%
(1) Includes €1.0 million of selling and marketing expense for the year ended December 31, 2018 that was not included in our unaudited
results for the fourth quarter ended December 31, 2018.
Revenue
Our Total Revenue in the year ended December 31, 2018 consisted of Referral Revenue of €899.8 million
and other revenue of €15.0 million. Our total revenue in the year ended December 31, 2017 consisted of
Referral Revenue of €1,020.3 million and other revenue of €15.0 million. Our total revenue from the year
ended December 31, 2016 consisted of Referral Revenue of €745.8 million and other revenue of €8.3 million.
2018 compared to 2017
Total revenue for the year ended December 31, 2018 was €914.8 million, representing a decrease of €120.6
million, or 11.6%, compared to the year ended December 31, 2017. Revenue from related party for the year
ended December 31, 2018 decreased by €36.2 million, or 9.8%, compared to the year ended December 31,
2017, while revenue from third parties decreased by 12.6% for the same period. The revenue from both third
parties and related party were negatively impacted by a decline in Qualified Referrals, lower levels of
commercialization and unfavorable movements in foreign exchange rates.
Referral Revenue in the year ended December 31, 2018 decreased by €120.5 million, or 11.8%, compared
to the same period in 2017. The number of Qualified Referrals decreased by 8.1% in the year ended
December 31, 2018 compared to the same period in 2017. During the same period, RPQR decreased by
3.6%. The decline in Referral Revenue was driven by a decline in Qualified Referrals notably in the second
half of 2018, lower levels of commercialization and unfavorable movements in foreign exchange rates.
62
The decrease in Qualified Referrals in the year ended December 31, 2018 was primarily due to a reduction
in our Advertising Spend that began in the second quarter of 2018 across all segments, which was partly
offset by the positive growth in Qualified Referrals in the first quarter of 2018. All segments reflected the
impact on click-out rates from the attribution model and product optimization described above.
RPQR slightly decreased in the year ended December 31, 2018 as the RPQR decreased in Americas and
RoW while it was partly offset by the RPQR increase in Developed Europe. We continued to experience
negative impacts from lower levels of commercialization and unfavorable movements in foreign exchange
while we observed a slight improvement in traffic quality in Developed Europe and RoW in the second half
of 2018.
2017 compared to 2016
Total revenue for the year ended December 31, 2017 was €1,035.4 million, representing an increase of
€281.2 million, or 37.3%, compared to the year ended December 31, 2016. Revenue from related parties
for the year ended December 31, 2017 increased by €99.4 million, or 37.0%, compared to 2016, while
revenue from third parties increased by 37.4% for the same period. The increase in 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 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.
Referral Revenue in the year ended December 31, 2017 increased by €274.5 million, or 36.8%, compared
to 2016. This growth was primarily due to an increase by 35.8% in the number of Qualified Referrals 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. In the second half of 2017, we
experienced a significant slowdown 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 marketplace 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 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.
63
The breakdown of Referral Revenue by reportable segment is as follows:
(in millions)
Americas
Developed Europe
Rest of World
Total
2018 compared to 2017
Year ended December 31,
% Change
2016
2017
€
286.4 €
391.7 €
348.9
110.5
425.0
203.6
€
745.8 € 1,020.3 €
2018
316.0
378.9
204.9
899.8
2017 vs
2016
2018 vs
2017
36.8%
21.8%
84.3%
36.8%
(19.3)%
(10.8)%
0.6 %
(11.8)%
Referral Revenue in the Americas in the year ended December 31, 2018 decreased by €75.7 million, or
19.3%, compared to the year ended December 31, 2017. Referral Revenue in Americas was negatively
impacted by the decline in Qualified Referrals, reflecting the reductions in our Advertising Spend, an
unfavorable revenue shift towards lower RPQR locales, particularly away from North America in the second
half of 2018, lower levels of commercialization and unfavorable foreign exchange effects, reflecting the
relative weakening of the U.S. dollar to the euro notably in the first half of 2018 and the relative weakening
of certain Latin American currencies to the euro throughout the year. During the year ended December 31,
2018, RPQR in Americas decreased by €0.20, or 10.4%, compared to the same period in 2017. The slight
increase in RPR for the period of 2.6% was completely offset by a decline in the click-out rate of 12.1%,
compared to the same period in 2017. The decline in the click-out rate reflected the impacts of our platform
optimization measures and the new attribution model, which led to fewer referrals per Qualified Referral.
RPQR development in Americas was negatively impacted by lower levels of commercialization particularly
in the first nine months of 2018, a shift towards lower RPQR locales in the second half of 2018 and the
negative foreign exchange effects described above, partly offset by slightly improved traffic quality.
Referral Revenue for Developed Europe in the year ended December 31, 2018 decreased by €46.1 million,
or 10.8%, compared to the year ended December 31, 2017. Referral Revenue in Developed Europe was
negatively impacted by a decline in Qualified Referrals and lower levels of commercialization, which were
partly compensated by slightly improved traffic quality. During the same period, RPQR in Europe increased
by €0.10, or 6.9%, as RPR increased by 19.6% for the period, which was partly offset by a reduction in the
click-out rate for the period by 9.8%, reflecting the impacts of our platform optimization measures and the
new attribution model, which led to fewer referrals per Qualified Referral. The increase in RPQR was driven
by positive effects of improved traffic quality, partly offset by the negative impact from lower levels of
commercialization in the first nine months of 2018.
Referral Revenue for the Rest of World in the year ended December 31, 2018 slightly increased by €1.3
million, or 0.6%, compared to the year ended December 31, 2017. Referral Revenue in RoW increased
slightly compared to the same period in 2017 as the positive effects from increased Qualified Referrals in
the first half of 2018 and slightly improved traffic quality were largely offset by lower levels of commercialization
and unfavorable foreign exchange rate effects, reflecting the relative weakening of the U.S. dollar and certain
currencies in the Asia Pacific region to the euro. During the same period, RPQR in Rest of World slightly
decreased by €0.03, or 3.4%, even though RPR even increased by 6.3% for the period due to a reduction
in the click-out rate for the period of 9.6%. 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.
The slight decline in RPQR was driven by lower levels of commercialization and negative foreign exchange
effects described above, while partly offset by slightly improved traffic quality.
2017 compared to 2016
Referral Revenue in the Americas in the year ended December 31, 2017 increased by €105.3 million,
or 36.8%, compared to the year ended December 31, 2016. This growth was primarily due to an increase
by 36.4% in the number of Qualified Referrals in the year ended December 31, 2017 compared to the year
64
ended December 31, 2016. The increase in Referral Revenue was primarily driven by the positive impact
of the relevance assessment in the first half of 2017 and our advertisers' response to the introduction of the
relevance assessment as well as lower levels of commercialization and increased advertiser testing activities
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 increased 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 for Developed Europe in the year ended December 31, 2017 increased by €76.1 million,
or 21.8%, compared to the year ended December 31, 2016. This growth was primarily due to an increase
of 15.7% in the number of Qualified Referrals in the year ended December 31, 2017 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 the Rest of World in the year ended December 31, 2017 increased by €93.1 million,
or 84.3%, compared to the year ended December 31, 2016. This growth was primarily due to the 74.6%
increase in the number of Qualified Referrals in the year ended December 31, 2017 compared to the year
ended December 31, 2016. The increase 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’ response to the introduction of 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 currencies in the Asia
Pacific region. During the same period, RPQR in Rest of World increased by €0.04, or 4.7% even though
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.
Cost of Revenue and Expenses
Cost of revenue, including related party
Our cost of revenue consists primarily of our 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 €4.3 million, €5.9 million and €5.4 million for the years ended December 31, 2016,
2017 and 2018, respectively.
2018 compared to 2017
Cost of revenue for the year ended December 31, 2018 decreased by €0.5 million, or 8%, compared to the
year ended December 31, 2017 and was primarily driven by lower data center and server depreciation
expenses of €0.4 million. Our personnel-related costs decreased by €0.1 million due to a decrease in
headcount from 60 employees as of December 31, 2017 to 41 employees as of December 31, 2018 and
were offset by a €0.1 million increase in share-based compensation.
65
2017 compared to 2016
Cost of revenue for the year ended December 31, 2017 increased by €1.6 million, or 37.2%, compared to
the year ended December 31, 2016 mainly due to an increase 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.
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, including 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, display and affiliate marketing, email marketing, online video,
app marketing and content marketing.
Other selling and marketing expenses include research costs, production costs for our TV spots and other
marketing material, as well as personnel-related expenses and share-based compensation for our marketing,
sales, hotel relations and country development teams.
(in millions)
Advertising expense
% of total revenue
Other selling and marketing
% of total revenue
Share-based compensation
% of total revenue
Year ended December 31,
% Change
2016
2017
2018
2017 vs
2016
2018 vs
2017
€
623.5
€
884.7
€
732.5
41.9 %
(17.2)%
82.7%
38.8
5.1%
10.9
1.4%
85.4%
58.7
5.7%
3.5
0.3%
80.1%
69.9
7.6%
3.3
0.4%
51.3 %
19.1 %
(67.9)%
(5.7)%
Total selling and marketing expense (1)
€
673.2
€
946.9
€
805.6
40.7 %
(14.9)%
% of total revenue
89.3%
91.5%
88.1%
(1) Includes €1.0 million of selling and marketing expense for the year ended December 31, 2018 that was not included in our unaudited
results for the fourth quarter ended December 31, 2018.
2018 compared to 2017
Selling and marketing expenses for the year ended December 31, 2018 decreased by €141.3 million, or
14.9%, compared to the year ended December 31, 2017, primarily due to the reductions in Advertising Spend
we made starting in the second quarter of 2018. We implemented reductions in Advertising Spend across
all segments, and they were reflected in reduced brand marketing expenditure and increased return on
investment targets for our performance marketing campaigns. These measures resulted in a decline of
€152.2 million or 17.2% in Advertising Spend for the year ended December 31, 2018 compared to the year
ended December 31, 2017. In Americas and RoW, Advertising Spend development benefited from favorable
movements in foreign exchange rates notably in the first half of 2018, reflecting the relative weakening of
the U.S. dollar and of certain currencies in the Asian Pacific region to the euro as a smaller part of the
Advertising Spend in these regions was invoiced in local currencies.
Other selling and marketing expenses for the year ended December 31, 2018 increased by €11.2 million,
or 19.1%, compared to the year ended December 31, 2017, primarily driven by increases in production costs
for TV advertisements and the development of new creative concepts. Personnel-related costs for the year
66
ended December 31, 2018 increased by €1.3 million, or 4.1%, mainly driven by an increase in social security
expense resulting from an audit assessment by the German Social Security authorities in 2018 of €0.9 million,
predominantly relating to prior periods. As our headcount was higher in the first two quarters of 2018 compared
to the same period in 2017, compensation expense and related social security increased by €0.7 million
compared to 2017, which was slightly offset by lower employee benefits by €0.9 million in the year ended
December 31, 2018. We made severance payments of €0.6 million in the year ended December 31, 2018
as our headcount declined from 606 employees as of December 31, 2017 to 439 employees as of
December 31, 2018, reflecting the change in our marketing strategy. Professional fees and other expenses
for the year ended December 31, 2018 remained at the same level as in the year ended December 31, 2017,
as the increase in our office and depreciation expense of €1.3 million was partly offset by the effect of the
deconsolidation of myhotelshop. The increase in office and depreciation expense mainly resulted from the
move to our new corporate headquarters in June 2018, which commenced depreciation of the building we
carry on our balance sheet. Additionally, the related land rent expense was allocated across all operating
expense categories since move-in. See Note 2—Significant accounting policies.
Share-based compensation decreased by €0.2 million, or 5.7%, in the year ended December 31, 2018
compared to the year ended December 31, 2017, mainly driven by award forfeitures partially offset by new
grants during the year.
2017 compared to 2016
Selling and marketing expenses for the year ended December 31, 2017 increased by €273.7 million,
or 40.7%, compared to the year ended December 31, 2016, primarily driven by overall increased Advertising
Spend across all regions. Advertising spend was at elevated levels 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 response to the introduction of the relevance
assessment at the end of the second quarter of 2017, we reduced our Advertising Spend in the second half
of 2017 to account for the reduction in our commercialization; however we were initially unable to pull back
planned TV Advertising Spend quickly enough to respond to the speed of the RPQR slowdown in the second
half of 2017, reflecting our inability to reduce planned TV Advertising Spend due to commitments in some
markets.
Other selling and marketing expenses for the year ended December 31, 2017 increased by €19.9 million,
or 51.3%, compared to the year ended December 31, 2016 primarily driven by increases in production costs
for TV advertisements, notably in Rest of World and Developed Europe, higher personnel-related 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, 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.
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 liability classified awards granted in prior periods.
Technology and content
Technology and content expense consists primarily of expenses for technology development, product
development and hotel 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.
67
(in millions)
Personnel
Year Ended December 31,
% Change
2016
2017
2018
2017 vs
2016
2018 vs
2017
€
24.0
€
34.0
€
39.1
41.7 %
15.0%
Share-based compensation, net of capitalized
internal use software and website development
costs
Depreciation of technology assets
Professional fees and other
15.8
3.9
8.0
Total technology and content
€
51.7
€
3.6
4.0
10.6
52.2
€
5.3
6.1
16.4
66.9
(77.2)%
2.6 %
32.5 %
1.0 %
47.2%
52.5%
54.7%
28.2%
% of total revenue
6.9%
5.0%
7.3%
2018 compared to 2017
Technology and content expense for the year ended December 31, 2018 increased by €14.7 million, or
28.2%, compared to the year ended December 31, 2017, mainly due to increased professional fees and
other expenses, depreciation, and personnel-related costs. Professional fees and other expenses increased
by €5.8 million, or 54.7%, mostly due to a €3.1 million increase in our costs for third-party IT service providers,
as we continued to invest in our platform to improve our users' experience. Depreciation and office expense
for the year ended December 31, 2018 increased by €2.1 million and €1.8 million, respectively, or 52.5%
and 53.0%, respectively, compared to the year ended December 31, 2017, mainly due to the move to our
new corporate headquarters in June 2018, which commenced depreciation of the building we carry on our
balance sheet. Also, the related land rent expense was allocated across all operating expense categories
since move-in. See Note 2—Significant accounting policies. Additionally, Technology and content headcount
was proportionally larger in 2018 than in 2017, leading to higher depreciation and office expense cost
allocation. The increase in technology and content expense for the year ended December 31, 2018 was
also driven by increases in personnel-related costs by €5.1 million, or 15.0%. Even though our headcount
reduced from 652 employees as of December 31, 2017 to 620 employees as of December 31, 2018, our
compensation expense and related social security amounts increased by €5.9 million for the year ended
December 31, 2018, compared to the year ended December 31, 2017, as our headcount was higher in the
first half of 2018 compared to the same period in 2017. Our personnel-related costs increased as well due
to an audit assessment by the German Social Security authorities of €0.9 million in 2018, predominantly
relating to prior periods. These increases were slightly offset by a higher capitalization of our developers'
salaries, as well as lower employee benefits in the year ended December 31, 2018, compared to the year
ended December 31, 2017. Our share-based compensation increased by €1.7 million for the year ended
December 31, 2018 driven by new grants that were partly offset by forfeitures during the year.
2017 compared to 2016
Technology and content expense for the year ended December 31, 2017 increased by €0.5 million, or 1.0%,
compared to the year ended December 31, 2016. The increase was primarily driven by increases in
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-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 of 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
increased by €2.6 million, or 32.5%, as we continued to invest in projects related to visual content, hotel
description and profiling to improve the quality of our product, which 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.
68
General and administrative
General and administrative expense consists primarily of professional fees for external services including
legal, tax and accounting, as well as personnel-related costs including those of our executive leadership,
finance, legal and human resource functions. It also includes shared services costs calculated and allocated
by Expedia Group to us and other costs including other overhead costs, depreciation and share-based
compensation.
Year ended December 31,
% Change
(in millions)
Personnel
2016
2017
2018
€
9.8
€
15.3
€
Share-based compensation
Related party shared services allocation
Professional fees and other
Total general and administrative
€
26.3
4.2
15.3
55.6
€
8.8
0.1
23.2
47.4
€
2017 vs
2016
56.1 %
(66.5)%
2018 vs
2017
24.8 %
36.4 %
(97.6)%
(100.0)%
51.6 %
(14.7)%
— %
14.6 %
19.1
12.0
0.0
23.2
54.3
% of total revenue
7.4%
4.6%
5.9%
2018 compared to 2017
General and administrative expense for the year ended December 31, 2018 increased by €6.9 million, or
14.6%, compared to the year ended December 31, 2017, primarily due to an increase in personnel-related
costs of €3.8 million, or 24.8%, and an increase in share-based compensation of €3.2 million, or 36.4%,
which was mainly driven by new grants that were partly offset by forfeitures during the year. Personnel-
related costs increased mostly due to an increase in compensation expense and related social security
amounts of €3.1 million for the year ended December 31, 2018, compared to the year ended December 31,
2017, as our headcount was higher in the first three quarters of 2018 compared to the same periods in 2017.
Our headcount decreased from 291 employees as of December 31, 2017 to 254 employees as of December
31, 2018, reflecting our effort to streamline our internal support functions. Also, our personnel-related costs
increased due to an audit assessment by the German Social Security authorities of €0.3 million, predominantly
relating to prior periods. Professional fees and other expenses for the year ended December 31, 2018
remained stable compared to the year ended December 31, 2017, primarily due to a decrease in losses on
receivables by €1.6 million resulting mostly from an adjustment in 2018 to losses recorded in prior periods,
and a decrease in office expense of €0.6 million resulting mostly from the allocation of the land rent of our
new corporate headquarters across all operating expense categories since move-in, see Note 2—Significant
accounting policies, that were offset by the €1.0 million impairment of an internal-use software in the second
quarter of 2018 and an increase in our depreciation expense of €0.6 million. Our legal and financial consulting
expenses decreased by €0.9 million in the year ended December 31, 2018 compared to the same period in
2017, which was offset by an increase in our audit expense.
2017 compared to 2016
General and administrative expense for the year ended December 31, 2017 decreased by €8.2 million, or
14.7%, compared to the year ended December 31, 2016, 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. Professional fees and other for the year
ended December 31, 2017 increased by €7.9 million, or 51.6% compared to the year ended December 31,
2016, mainly driven by an increase of €7.0 million in legal and consulting fees, including audit and financial
consultancy fees. At the same time, legal, tax, and other service costs performed by Expedia Group on our
behalf that were pushed down to us declined by €4.1 million. Personnel-related costs for the year ended
December 31, 2017 increased by €5.5 million, or 56.1%, 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, 2017 as we continued to build
69
up internal expertise in these areas.
Amortization of intangible assets
Amortization of intangible assets was €1.7 million in the year ended December 31, 2018, and €3.2 million
and €13.9 million in the years ended December 31, 2017 and December 31, 2016, respectively. The
decreases of €1.5 million and €10.7 million for the years ended December 31, 2018 and December 31, 2017,
respectively, are due to certain intangible assets that were fully amortized during the first quarter of 2017
and 2016, respectively. The amortization costs relate predominantly to intangible assets recognized by
Expedia Group upon the acquisition of a majority stake in trivago GmbH in 2013. The financial statements
reflect Expedia Group’s basis of accounting due to this change in control in 2013.
Operating loss
Our operating loss was €19.2 million for the year ended December 31, 2018 compared to an operating loss
of €20.4 million for the year ended December 31, 2017. This improvement was mainly driven by the
optimization and recalibration of Advertising Spend since the second quarter of 2018 that led to a significant
reduction of Selling and marketing expenses. Reductions in Cost of revenue expenses and Amortization of
intangible assets further contributed to the reduction of the operating loss in the year ended December 31,
2018. These reductions were partly offset by higher Technology and content costs and an increase in General
and administrative expenses.
Our operating loss was €20.4 million for the year ended December 31, 2017 compared to an operating loss
of €44.4 million for the year ended December 31, 2016. We have seen our operating loss decrease when
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 slight increase in technology 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 which were classified as liability awards in the prior periods and lower
amortization of intangible assets.
Other, net
Other, net was €0.5 million for the year ended December 31, 2018, and €0.6 million and €(0.1) million in the
years ended December 31, 2017 and December 31, 2016, respectively. Other, net is primarily driven by
foreign exchange rate gains (losses) and income from ADSs offset by custodial fees related to ADS.
Foreign exchange rate losses were €0.6 million for the year ended December 31, 2018, reflecting the relative
weakening of the U.S. dollar to the euro notably in the first half of 2018 and the relative weakening of certain
Latin American currencies to the euro throughout the year ended December 31, 2018. Foreign exchange
gains were €0.1 million and €0.0 million for the years ended December 31, 2017 and December 31, 2016,
respectively.
The foreign exchange rate loss for the year ended December 31, 2018, was offset mainly by net income
from ADS fees of €0.4 million, additional income from our campus canteen of €0.3 million and government
subsidies for research and development activities of €0.3 million in the year ended December 31, 2018.
70
Expense (benefit) for income taxes
(in millions)
2016
2017
2018
2017 vs
2016
2018 vs
2017
Expense (benefit) for income taxes
€
6.7
€
(4.8)
€
1.1
(171.6)%
122.9%
Effective tax rate
(14.9)%
26.7%
(5.3)%
Year ended December 31,
% Change
Our effective tax rate was (5.3)% in 2018, 26.7% in 2017 and (14.9)% in 2016. This is mainly due to non-
deductible share-based compensation of (pre-tax) €20.7 million in 2018, €16.0 million in 2017 and €53.7
million in 2016. Furthermore, corporate costs were pushed down from Expedia Group of (pre-tax) €0.1 million
for 2017 and €4.2 million for 2016, which are non-deductible for tax purposes. No amounts were pushed
down from Expedia Group in 2018. In 2018, €0.2 million and in 2017 €3.2 million is related to the recognition
of previously unrecognized net operating losses. Other differences in 2018 relate to one-off items during the
year, including €0.8 million relating to foreign withholding tax deductions. In 2016, €1.9 million is related to
tax losses of the current year for which no deferred tax asset was recognized (valuation allowance).
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, 2018, 2017 and 2016, we
had no amounts outstanding under our credit facility. Expedia Group currently guarantees our credit facility.
If Expedia Group 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 for the years ended December 31,
2016, 2017 or 2018.
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
71
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 €0.7 million based on the net asset or liability balances of our
foreign denominated cash, accounts receivable, and accounts payable balances as of December 31, 2018.
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 years ended December 31, 2016, 2017 and 2018, we recorded net foreign exchange rate gains
(losses) of €0.0 million, €0.1 million and €(0.6) million, respectively.
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 36% of our total
revenue for each of the years ended December 31, 2016, 2017 and 2018, respectively, and 31%, 47% and
41% of total accounts receivable as of December 31, 2016, 2017 and 2018, respectively. Booking Holdings
and its affiliates represented 43%, 44% and 39% of our revenue for the years ended December 31, 2016,
2017 and 2018, respectively, and 48%, 28% and 35% of total accounts receivable as of December 31, 2016,
2017 and 2018, respectively.
Critical Accounting Policies and Estimates
Our Operating and Financial Review is based on our consolidated financial statements and accompanying
notes, which we have prepared in accordance with U.S. GAAP. The 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 and 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 include 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 of the periods
included in this annual report.
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 Note 2—Significant accounting policies, 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 critical to aid you in fully understanding and evaluating our
financial condition and results of operations.
72
Revenue recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or
services. We derive our revenues from the following streams:
Referral Revenue
Revenue relates to fees earned on the display of a customer‘s (advertiser‘s) link on the trivago website on
a cost-per-click (CPC) basis. Revenue from click-through fees is recorded after the traveler makes the click-
through to the related advertiser’s website. Control is deemed to have transferred at a point in time, being
when the link or advertisement has been displayed and the click-through to the customer's website has
occurred. The prices per click for an advertising campaign, which generally have a duration of one month
or less, are negotiated in advance, thus, the amount to be recognized as revenue for the respective click is
fixed and determinable when the performance obligation has been satisfied.
Most of our revenue is invoiced on a monthly basis after the performance obligation has been satisfied with
payment terms between 10 to 90 days. For some advertisers we require prepayments.
Subscription Revenue
Revenue from subscription services is recognized ratably over the contract term, which is 12 months or less
from the subscription commencement date. Customers may choose to be billed annually or monthly via
SEPA or credit card. The price per subscription is fixed and determinable when the contract commences.
We consider ourselves principal in all our revenue transactions.
We do not have any unsatisfied performance obligations for contracts with an original expected length of
one year or less and contracts for which we recognize revenue at the amount to which we have the right to
invoice for services performed. As permitted under ASC 606-10-55, we elected not to disclose the transaction
price allocated to performance obligations expected to be satisfied in future periods.
Deferred Revenue
Deferred revenue relates to advanced payments received for services provided in future periods, primarily
related to subscription services. Deferred revenue changed from €8.9 million as of December 31, 2017 to
€7.9 million as of December 31, 2018. During the year ended December 31, 2018, €8.0 million were
recognized as revenue that were included in the beginning deferred revenue balance as of December 31,
2017.
Leases
We lease office space in several countries under non-cancellable 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 the date we become legally obligated for the
rent payments or when we take possession of the office space, whichever is earlier. Additionally we have
entered into subleases for unoccupied leased office space. We recognize sublease payments on a straight-
line basis over the term of the sublease.
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.
The contractual lease agreement for our new campus in Düsseldorf triggered build-to-suit treatment under
U.S. GAAP during the construction period of both buildings. We moved into the first building in June 2018,
at which point it was determined that the sale-leaseback guidance was not met, resulting in our accounting
for the lease as a financing obligation. We have bifurcated our lease payments relating to the premises into
a portion that is allocated to the building (a reduction of the financing obligation) and a portion that is allocated
to the land on which the building was constructed. The portion of the lease obligations allocated to the land
73
is treated as an operating lease that commenced in July 2015. For the years ended December 31, 2016,
2017 and 2018, we have recorded €1.7 million, €1.7 million and €1.8 million respectively, of land rent expense
in connection with this lease. Until our move-in in June 2018, our non-cash land expense was entirely
classified as general and administrative expense. Since our move, we have been allocating these expenses
to all of our operating costs. Depreciation on the building commenced upon construction completion, resulting
in €1.6 million of depreciation expense for the year ended December 31, 2018, of which the majority is
recorded as technology and content expense. The second building relating to our campus remains under
construction at December 31, 2018 and is accounted for as a build-to-suit. Upon adoption of ASU 2016-02,
this second building is expected to be derecognized from our balance sheet.
Under the new lease accounting standard that the company will be adopting on January 1, 2019, we have
to estimate the Incremental Borrowing Rate (IBR) to use as the discount rate for initial measurement of the
operating lease liability and the related right-of-use asset. Estimating the IBR requires assessing a number
of inputs, including an estimated synthetic credit rating, collateral adjustments and interest rates. Whilst the
IBR is only subsequently modified if the lease term changes or if the lease is modified, the impact of adoption
of the lease standard, as disclosed in Note 2—Significant accounting policies, Adoption of new accounting
pronouncements, was subject to judgments made regarding the assumptions used.
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. We assess goodwill and indefinite-
lived assets, neither of which are amortized, for impairment annually in the fourth quarter of the year, 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, we prospectively adopted accounting guidance that simplified our 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, 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, long-term rate of growth and profitability of our business.
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 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
fair values of our reporting units in relation to the company’s total fair value.
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. 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
74
value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from
them. As with goodwill, periodically, we may choose to forgo the initial qualitative assessment and perform
a quantitative analysis in our annual evaluation of indefinite-lived intangible assets.
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.
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
We incur advertising expense consisting of offline costs, including television and radio advertising, as well
as online advertising expense to promote our brands. A significant portion 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 costs to be indirect
advertising fees. We expense the production costs associated with advertisements in the period in which
the advertisement first takes place. We expense the costs of communicating the advertisement (e.g.,
television airtime) 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, 2016,
2017 and 2018, our advertising expense was €623.5 million, €884.7 million and €732.5 million, respectively.
75
As of December 31, 2017 and 2018, we had €12.6 million and €6.3 million, respectively, of prepaid marketing
expenses included in prepaid expenses and other current assets.
Share-based compensation
Share-based compensation included in our consolidated financial statements relates to certain outstanding
trivago employee options replaced with new trivago employee option awards exercisable into trivago Class
A shares, in connection with the controlling-interest acquisition of trivago by the Expedia Group (formerly
Expedia, Inc.) in 2013. During 2017 and 2018, there were additional awards granted in connection with the
Omnibus Incentive Plan to employees of trivago.
The fair value of share options accounted for as equity settled transactions is measured at the grant date
using the Black-Scholes option pricing model. The valuation model incorporates 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 median 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 of the IPO. The simplified method was used as we do not have sufficient relatable historical
term data 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. Subsequent to the IPO, the share price assumption used in
the model is based our publicly traded share price on the date of grant. 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-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 assessed as probable, we record compensation expense
for these awards over the total performance and service period using the accelerated method. At each
reporting period, we reassess the probability of achieving the performance targets, which requires judgment,
and to the extent actual results or updated estimates differ from our current estimates, the cumulative effect
on current and prior periods of those changes will be 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 issued and the related
compensation expense recognized will be based on a comparison of the final performance metrics to the
specified targets. As at December 31, 2018, there were no awards remaining subject to a performance target
condition to be determined in a future period.
In 2018, Restricted Stock Units (RSUs), which are stock awards entitling the holder to shares of common
stock as the award vests, were granted. The RSUs are service-based awards which vest between one and
three years. We measure the value of RSUs at fair value based on the number of shares granted and the
quoted price of our common stock at the date of grant. We amortize the fair value, net of actual forfeitures,
as stock-based compensation expense over the vesting term on a straight-line basis.
Prior to the IPO, we classified certain employee option awards as liabilities when we deemed it not probable
that the employees holding the awards would bear the risks and rewards of stock ownership for a reasonable
period of time. We remeasured these instruments at fair value at the end of each reporting period using a
Black-Scholes option pricing model which relied upon an estimate of the fair value of trivago’s shares as of
the reporting date which was 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
was equal the settlement amount. Upon the IPO, all liability classified awards were reclassified to equity
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settled awards. For the years ended December 31, 2017 and 2018, we had no option awards classified as
liabilities.
We recognize the effect of forfeitures in the period that the award was forfeited.
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 interest
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 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. 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 years
ended December 31, 2017 and 2018.
On July 23, 2015, we entered into an agreement to design and build our new headquarters in Düsseldorf,
Germany. As part of that agreement, Expedia Group had guaranteed certain payments due by trivago. The
guarantee by Expedia Group ended upon receipt of a bank guarantee for €2 million by trivago, which we
obtained in July 2017.
For the year ended December 31, 2018, cash and cash equivalent decreased by €28.6 million to €164.3
million. The decrease was mainly driven by a negative cash flow from investing activities, which primarily
related to the new campus building, and a negative cash flow from operating activities mainly resulting from
changes in operating assets and liabilities as discussed in more detail below.
Our known material liquidity needs for periods beyond the next twelve months are described below in “Item
5 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, 2016, 2017 and 2018:
(in millions)
Year Ended December 31,
2016
2017
Cash flows provided by/(used in) operating activities
€
31.3 €
(8.5) €
Cash flows used in investing activities
Cash flows provided by/(used in) financing activities
(9.0)
187.6
(18.3)
(7.2)
2018
(4.6 )
(24.1)
0.2
Cash Flows Provided by/(Used in) Operating Activities
For the year ended December 31, 2018, net cash used in operating activities decreased by €3.9 million to
€(4.6) million. In the year ended December 31, 2018 net cash used in operating activities was mainly driven
by changes in operating assets and liabilities, offset by positive effects from net income excluding non-cash
expenses. Changes in operating assets and liabilities resulted in a decrease in cash and cash equivalents
of €18.3 million primarily due to increased accounts receivable and declining accounts payable. Accounts
receivable increased by €12.5 million, of which €0.6 million were related party receivables, as of December
31, 2018 compared to December 31, 2017, mainly due to delayed payments from advertisers. Accounts
payable decreased by €17.7 million as of December 31, 2018 compared to December 31, 2017, primarily
due to the decline in Advertising Spend, which decreased from €149.7 million in the fourth quarter of 2017
to €100.9 million in the fourth quarter of 2018.
For the year ended December 31, 2017, net cash used in operating activities increased by €39.8 million to
to €(8.5) 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
77
compensation, due to a one-time call option exercised by Expedia Group 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, net cash provided by operating activities increased by €32.2 million
to €31.3 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.
Cash Flows Used in Investing Activities
For the year ended December 31, 2018, cash used in investing activities increased by €5.8 million to €(24.1)
million, primarily due to increased capital expenditures including internal-use software and website
development.
For the year ended December 31, 2017, cash used in investing activities increased by €9.3 million to €(18.3)
million, primarily due to increased 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 and the acquisition of the base7 minority interest for €0.9 million.
Cash Flows Provided by/(Used in) Financing Activities
For the year ended December 31, 2018, cash used in financing activities decreased by €7.4 million to cash
provided by financing activities of €0.2 million resulting from net proceeds from issuance of common stock.
For the year ended December 31, 2017, cash used in financing activities increased by €194.9 million to €7.2
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 primarily 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.
C. Research and development expenses, patents and licenses, etc.
See “Item 4 B. Business overview.”
D. Trend information
See “Item 5 A. Operating results.”
E. Off-balance sheet arrangements
Other than the items described below under “—Tabular disclosure of contractual obligations,” as of
December 31, 2018, we do not have any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
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F.
Tabular disclosure of contractual obligations
The following table summarizes our contractual obligations as of December 31, 2018:
(in millions)
Lease obligations(1)(2)
Purchase obligations(3)
Total
Payments due by period
Less
than 1
year
€10.4
19.8
€30.2
1 – 3
years
4 – 5
years
€18.3
0.0
€18.3
€16.2
0.0
€16.2
More
than 5
years
€32.0
0.0
€32.0
Total
€76.9
19.8
€96.7
(1) Lease obligations include estimated future minimum rental payments under operating leases with non-cancelable lease terms and
financing obligations under the failed sale-leaseback of our corporate headquarters. The lease obligations have not been reduced by
minimum sublease rental income of €1.9 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, 2018 is an asset retirement obligation of €0.6 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.
(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.
G. Safe Harbor
See “Special note regarding forward-looking statements.”
H. Non-GAAP financial measures
See “Item 3 A. Selected financial data” for a description of Adjusted EBITDA and a reconciliation of Adjusted
EBITDA to net loss.
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Item 6: Directors, senior management and employees
A. Directors and senior management
Members of our management board and supervisory board
The following tables present information about our 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., Kesselstrasse 5 - 7, 40221
Düsseldorf, Germany.
Management board
Name
Axel Hefer
Rolf Schrömgens
Johannes Thomas
Age
41
42
31
Position
Managing Director for Finance, Legal, International, Marketing and
Marketplace (chief financial officer)
Managing Director for Product, People and Culture (chief executive officer)
Managing Director for Advertiser Relations
The following paragraphs set forth biographical information regarding our management board members.
Axel Hefer was initially appointed as a managing director of the company in 2016 and served as a managing
director of trivago GmbH from 2016 until our cross-border merger. 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.
Rolf Schrömgens was initially appointed as a managing director of the company in 2016 and served as a
managing director of trivago GmbH from 2005 until our cross-border merger. Prior to joining trivago GmbH,
Mr. Schrömgens was founder and VP at ciao.com, a consumer review website, from 1999 to 2001.
Mr. Schrömgens 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
our cross-border merger. Before joining trivago GmbH, Mr. Thomas worked as a Marketing Executive at
isango! (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.
Changes to our management board in 2018
On June 8, 2018, our general meeting reappointed Axel Hefer, Rolf Schrömgens and Johannes Thomas to
our management board, each for a term of one year, except for Mr. Hefer who has been reappointed for a
term of five years. Our general meeting of shareholders did not reappoint Andrej Lehnert, Malte Siewert and
Peter Vinnemeier as members of our management board.
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Supervisory board
Name
Robert Dzielak
Peter M. Kern
Hiren Mankodi*
Frédéric Mazzella
Mark D. Okerstrom
Niklas Östberg
David Schneider
Age
48
51
45
42
46
38
36
Year of
appointment
Expiration
of current
term
2018
2016
*
2016
2016
2016
2016
2021
2019
*
2019
2019
2019
2019
*On July 23, 2018, Hiren Mankodi was designated as temporary member of our supervisory board, pending his appointment by our
general meeting of shareholders in June 2019. For more information, see "—Changes to our supervisory board in 2018" below.
The following is a brief summary of the business experience of our supervisory board members.
Robert J. Dzielak has served as Expedia 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 Senior Vice President and acting General Counsel since October 2011.
Since joining the Company 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 the Company 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. Mr. Dzielak is currently a member of the Supervisory Board of
trivago N.V.
Peter M. Kern has been a director of Expedia Group since completion of the IAC/Expedia Spin-Off and has
served as Vice Chairman of Expedia Group since June 2018. 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. Mr. Kern
has served on the Board of Directors of Tribune Media Company since October 2016, where he currently
also serves as Chief Executive Officer, as Chairman of the Board of Directors of Hemisphere Media Group,
Inc., a publicly-traded Spanish-language media company, since April 2013, and since 2016, as a member
of supervisory board of trivago, N.V., a majority-owned subsidiary of Expedia Group. Mr. Kern also serves
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 18 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 has been the Founder and Chairman of Comuto S.A. (BlaBlaCar) since 2006 and was
Chief Executive Officer from 2006 to 2016. In 2018, Mr. Mazzella was also elected Co-President of France
Digitale, the largest startup association in Europe representing 1,300 startups. Mr. Mazzella holds an M.B.A.
from INSEAD, a Master's degree in computer science from Stanford University and a Master's degree in
physics from École Normale Supérieure.
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Mark D. Okerstrom has served as Expedia Group’s President and Chief Executive Officer and as a director
of Expedia Group since August 2017. Previously, he served as Expedia Group’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 Group in October 2006, Mr. Okerstrom previously served as Vice President, Corporate
Development and as Senior Director, Corporate Development. Prior to joining Expedia Group, 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. Mr. Okerstrom is currently chairman of the supervisory board
of trivago N.V., a majority-owned subsidiary of Expedia Group.
Niklas Östberg is the co-founder of Delivery Hero SE and has served as its Chief Executive Officer since
May 2011. He also served as director of the board until its public 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 as a director of Zalando SE since 2008. He also serves as a director or limited
partner of several Zalando subsidiaries and private investment vehicles. Mr. Schneider holds a Master's
degree in Business Administration from WHU-Otto-Beisheim School of Management in Vallendar, Germany.
Agreements regarding the supervisory board and the management board
Members of our supervisory board and members of our management board have been appointed pursuant
to the terms of Amended and Restated Shareholders’ Agreement. See “Item 6 C. Board practices” and “Item
7 B. Related party transactions”.
Changes to our supervisory board in 2018
On July 23, 2018, the supervisory board accepted the resignations of Mieke De Schlepper as a member of
our supervisory board and of Peter Kern as chairman of our Audit Committee. Mr. Kern remained a member
of our supervisory board. On the same day, our supervisory board designated Hiren Mankodi as temporary
member of supervisory board and chairman of our Audit Committee. Mr. Mankodi’s designation is pending
his appointment by our general meeting of shareholders in June 2019. Upon his designation as temporary
member of the supervisory board, Mr. Mankodi had all powers and responsibilities of a supervisory board
member, as if he had been appointed by the general meeting of shareholders. On June 8, 2018, Robert
Dzielak was appointed as a member of the supervisory board after initially being designated as a temporary
member of the supervisory board in 2017.
B. Compensation
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 the year ended December 31, 2018 is described in the tables below. Our management board
received the following cash compensation with respect to service in the fiscal year 2018:
(in thousands)
Periodically-paid
remuneration
Bonuses
Profit Participation
Total cash
compensation
Hefer
€240
€162
—
€402
Lehnert(1)
Schrömgens
Siewert(1)
Thomas
Vinnemeier(1)
€105
—
—
€105
€240
—
—
€240
€105
—
—
€105
€240
€135
—
€375
€105
—
—
€105
(1) Messrs. Lehnert, Siewert and Vinnemeier were not reappointed as members of the management board at our general meeting of
shareholders that was held on June 8, 2018. Mr. Lehnert's salary is prorated for the portion of the year he served as a managing
director.
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In each case, our management board met the objectives set forth as a condition for the awarding of the
respective bonus paid to them. In 2018, Rolf Schrömgens waived his cash bonus, and the supervisory board
awarded Messrs. Hefer and Thomas an all-cash performance bonus, included in the bonus amounts in the
table above. As of December 31, 2018, we have nothing set aside or accrued to provide pension, retirement
or similar benefits to our management board members. In 2018, Johannes Thomas exercised options at a
strike price of €0.06 to receive 50,000 ADSs.
Our management board held the following options (both vested and unvested) as of December 31, 2018:
Beneficiary
Grant date
Vesting date
Number of
options
outstanding(1)
Strike price
Expiration
Date(2)
Hefer
Sept. 23, 2016
Sept. 23, 2016
Mar. 6, 2017
Mar. 6, 2017
Dec. 20, 2017
Dec. 20, 2017
Schrömgens
Mar. 6, 2017
Mar. 6, 2017
May 1, 2017,
2018, 2019
May 1, 2017,
2018, 2019
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
Jan. 2, 2019,
2020, 2021
Jul. 2, 2020,
Jan. 2, 2023
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
63,830
€0.12
153,192
€11.75
None
None
600,000
$12.14
Mar. 6, 2024
224,000
$7.17
Mar. 6, 2024
1,276,000
$7.17
Dec. 20, 2024
1,500,000
$7.17
Dec. 20, 2024
400,000
$12.14
Mar. 6, 2024
224,000
$7.17
Mar. 6, 2024
Thomas
March 18,
2014
June 7, 2015,
2017
170,213
€2.11
None
May 15, 2015
March 8,
2016, 2017,
2018
May 15, 2015
July 31, 2017
July 16, 2015
July 16, 2015
Mar. 6, 2017
Mar. 6, 2017
Dec. 20, 2017
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
Jan. 2, 2019,
2020, 2021
110,639
86,948
25,678
€2.11
€0.06
€0.06
None
None
None
400,000
$12.14
Mar. 6, 2024
224,000
$7.17
Mar. 6, 2024
476,000
$7.17
Dec. 20, 2024
(1) As described further in this report, share options granted before our IPO are calculated by converting options relating to units of
trivago GmbH into options relating to shares of trivago N.V. by using the following conversion method (simplified): numbers of options
were multiplied by the multiplier ratio 8,510.66824 used for purposes of our IPO. In case of trivago GmbH class B options, the result
was divided by 1,000. Holders of trivago GmbH class A options with a former strike price of € 1.00 received certain a portion of trivago
N.V. options in addition as compensation for the requirement of a higher strike price for trivago N.V. options due to corporate law
requirements. In case the numbers relate to the time before the completion of our IPO, they are for illustrative purposes only and
calculated using the method described above, as the actual option grants and exercises took place on the trivago GmbH level. Minor
deviations can occur due to rounding.
(2) Unvested options lapse when the beneficiary leaves the Company.
83
The amount of compensation, including benefits in kind, accrued or paid to our supervisory board members
with respect to the year ended December 31, 2018 is described in the tables below. Our supervisory board
received the following cash compensation with respect to service in the fiscal year 2018:
($ in thousands)
Periodically-paid remuneration
Bonuses
Profit Participation
Total cash compensation
Kern
Mazzella Mankodi(1)
Östberg
Schneider
45
—
—
45
45
—
—
45
20
—
—
20
45
—
—
45
45
—
—
45
(1) On July 23, 2018, our supervisory board designated Hiren Mankodi as temporary member of supervisory board and chairman of
our Audit Committee. His designation is pending his appointment by our general meeting of shareholders in June 2019.
Mr. Dzielak and Mr. Okerstrom were not provided with any compensation for their service on our supervisory
board for the year ended December 31, 2018.
Our supervisory board held the following options (both vested and unvested) as of December 31, 2018:
Beneficiary
Dzielak
Grant date
Vesting date
Number of
options
outstanding
Strike price
(in $)
Expiration
Date
—
—
—
—
—
Kern
Mar. 6, 2017
Dec. 20, 2017
Mankodi
Aug. 17, 2018
Mazzella
Mar. 6, 2017
Dec. 20, 2017
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
Jul. 2, 2019,
2020, 2021
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
Okerstrom
—
—
Östberg
Mar. 6, 2017
Dec. 20, 2017
Schneider
Mar. 6, 2017
Dec. 20, 2017
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
Jan. 3, 2018,
2019, 2020
Jan. 2, 2019,
2020, 2021
74,135
12.14
Mar. 6, 2024
125,520
90,408
65,898
111,576
—
7.17
4.42
Dec. 20, 2024
Aug. 17, 2025
12.14
Mar. 6, 2024
7.17
—
Dec. 20, 2024
—
70,840
12.14
Mar. 6, 2024
119,944
7.17
Dec. 20, 2024
70,840
12.14
Mar. 6, 2024
119,944
7.17
Dec. 20, 2024
As of December 31, 2018, we have nothing set aside or accrued to provide pension, retirement or similar
benefits to our supervisory board members. In the year 2018, none of our supervisory board member
exercised any options in trivago N.V.
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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 are members of the management board 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 Class A shares. 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.
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 with 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 are eligible for awards under the 2016 Plan.
Awards. Awards include options, share appreciation rights, restricted share 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 has 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, compensation
arrangements for our senior management have been designed to align a portion of their compensation with
the achievement of our business objectives and strategy. Bonus payments for our senior management are
determined with respect to a given year based on quantitative and qualitative goals set for our company, as
well as on an individual basis. Once the results of the year are known, bonus payments and any equity award
compensation are determined at the discretion of our board and, with respect to senior management reporting
to the CEO, considering recommendations made by the CEO.
85
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 working productively together based on the “core values" (see above
“Item 4 B. Business overview—Our employees and culture”)
We use an individualized approach to compensation that reflects the 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. Compensation is awarded on a 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). We believe it is essential that these incentives are not
expected by our employees as part of their compensation and that they are awarded only after the
performance of extraordinary work.
C. Board practices
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
86
decisions with respect to the company or any subsidiary, our management board shall obtain the prior consent
of the supervisory board:
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;
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
contracts
(Gewinnabführungsverträge),
agreements
loss
(Unternehmenspachtverträge) or tax units (Organschaften);
business
pooling
leasing
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 (as defined below),
87
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;
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 Incentive 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 founding managing directors, the
chief executive officer of the company or the chief financial officer of the company;
19. entering into any collective bargaining agreements (Tarifverträge); and
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 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.
Our management board is comprised of three members, and must consist of three to six members. Our
management board members have been appointed pursuant to our deed of incorporation. The composition
of our management board is 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 shall 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.
88
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 one temporary board member (pending
his appointment by 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 was appointed for a term
of three years.
Our supervisory board members were appointed by the general meeting of shareholders upon the binding
nomination by our supervisory board. Pursuant to the Amended and Restated Shareholders’ Agreement,
ELPS and the Founders have agreed that any new supervisory board member will be proposed for nomination
by either ELPS or the Founders as applicable, depending on which supervisory board member resigns, is
not reappointed to, or is removed from the supervisory board. ELPS 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, ELPS and the Founders
have agreed that ELPS may designate the chairman of the supervisory board. The chairman will be entitled
to cast a tie-breaking vote.
Management board member services agreements
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.
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, our supervisory board has determined that, under current
Nasdaq listing standards regarding independence, and taking into account any applicable committee
standards, Messrs. Mankodi, Mazzella, Östberg and Schneider 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. Mankodi,
Mazzella, Östberg and Schneider will be independent supervisory board members. See “Item 16 G. Corporate
governance.”
89
Committees of the supervisory board
Our supervisory board has established an audit committee and a compensation committee.
Audit Committee
The audit committee consists of Messrs. Mankodi, Östberg, and Schneider and assists the supervisory board
in overseeing our accounting and financial reporting processes and the audits of our financial statements.
Mr. Mankodi serves as chairman of the committee. The audit committee consists exclusively of members of
our supervisory board who are financially literate, and Mr. Mankodi 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
Group, Inc., our indirect 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 consists of Messrs. Dzielak and Okerstrom, 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. Okerstrom
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.
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The compensation committee is responsible for:
•
•
•
•
•
•
recommending each managing director’s compensation to the supervisory board and recommending
to the supervisory board regarding compensation for supervisory 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.
D. Employees
The overview of employees at the end of each respective period is summarized in the following table.
Cost of Revenue
Selling and Marketing
Technology and Content
General and Administrative
Total
thereof employed in Germany
Year ended December 31,
2016
2017
2018
26
521
499
187
1,233
1,131
60
606
652
291
1,609
1,448
41
439
620
254
1,354
1,243
None of our employees are covered under a collective bargaining agreement. We consider our employee
relations to be good.
E. Share ownership
See “Item 7 A. Major shareholders,” and see "Item 6 B. Compensation—2016 Omnibus Incentive Plan."
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Item 7: Major shareholders and related party
transactions
A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our shares as of March 1,
2019, 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 1, 2019 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 1, 2019. See “Item 4 C. Organizational 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., Kesselstrasse 5 - 7, 40221 Düsseldorf, Germany.
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Name of beneficial owner
Shares
%
Shares
%
Ordinary shares beneficially owned(1)
Class B
Class A
5% or greater shareholders
Expedia Group, Inc.(3)
Peter Vinnemeier(4)
PAR Investment Partners, L.P.(5)
683 Capital Management, LLC(6)
Altimeter Capital Management General
Partner LLC(7)
Management board members
Rolf Schrömgens
Axel Hefer
Johannes Thomas
Supervisory board members
Robert J. Dzielak
Peter M. Kern
Hiren Mankodi
Frédéric Mazzella
Mark D. Okerstrom
Niklas Östberg
David Schneider
—
322,667
13,105,000
5,600,000
—
*
30.8%
13.2%
4,157,556
9.8%
209,008,088
36,610,793
67.7%
11.9%
—
—
—
—
—
—
% Voting
power(2)
66.8%
11.7%
* *
* *
* *
341,334
1,044,685
893,479
—
91,264
—
81,124
—
87,209
87,209
*
2.5%
2.1%
—
*
—
*
—
*
*
57,597,012
18.7%
18.4%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
* *
* *
—
* *
* *
—
—
* *
* *
All management board and
supervisory board members as a
group (10 persons)
2,626,304
6%
57,597,012
18.7%
18.4%
*
**
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 42,559,884 Class A shares outstanding and 308,687,967 Class B shares outstanding as of December 31,
2018. Where the respective individual has the right to acquire within 60 days of March 1, 2019 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."
(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 registration on Form F-3 dated April 5, 2018. 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 beneficially owned by ELPS into Class A shares, ELPS would own 59.5% 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 66.8% of the voting power of the company. The address for Expedia Group is 333 108th Avenue NE,
Bellevue, WA 98004.
(4) As of December 31, 2018, Peter Vinnemeier beneficially owned 36,610,793 Class B Shares. As reported on Schedule 13D/A filed
by Mr. Vinnemeier, on November 15, 2018, Mr. Vinnemeier entered into a Rule 10b5-1 sales plan with a broker to sell 2,000,000 ADSs,
each representing a Class A share. The totals above assume that Mr. Vinnemeier sold all ADSs pursuant to the plan.
(5) As reported on Schedule 13D 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 corporation (“PAR
Capital Management” and, together with PAR Investment Partners and PAR Group, the "PAR Capital Entities"). PAR Investment Partners
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used approximately $65,758,086 (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 agreement 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.
(6) 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.
(7) As reported on Schedule 13G filed by Altimeter Capital Management General Parter LLC (the "General Partner"), Altimeter Capital
Management, LP (the "Investment Manager"), Altimeter General Parter, LLC (the "Fund General Partner"), Altimeter Partners Fund,
L.P. (the "Fund") and Brad Gerstner (together with the General Partner, the Investment Manager, the Fund General Partner and the
Fund, the "Altimeter Entities"), as of December 31, 2018, the Altimeter Entities beneficially owned 4,157,556 Class A Shares. The
beneficial ownership of each Altimeter Entities as follows: (i) the Fund beneficially owns 4,157,556 Class A Shares; and (ii) each of the
General Partner (as the general partner of the Investment Manager), the Investment Manager (as the investment manager of the Fund),
the Fund General Partner) as the general partner of the Fund) and Mr. Gerstner (as the sole managing principal of the General Partner,
the Investment Manager and the Fund General Partner) beneficially owns 4,157,556 Class A Shares of the Company.
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, 2018, 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 42,559,884
ADSs outstanding, each representing one of our Class A shares, and in the aggregate representing 12.1%
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 than 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 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. No shares were sold by trivago, and trivago received no proceeds from the transaction.
Messrs. Vinnemeier and Siewert received all of the proceeds from the sale. The securities sold in the
transaction 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 by Messrs.
Vinnemeier and Siewert to PAR Investment Partners are restricted securities, and PAR Investment Partners
agreed to a six-month lock-up period.
B. Related party transactions
The following is a description of related party transactions between us and any of the members of our
management board or supervisory board and the holders of more than 5% of our shares in the period since
January 1, 2018.
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 Group.
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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. (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) ELPS 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. ELPS 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. Board 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. Board practices.”
Therefore, ELPS and each Founder is 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 three 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 members 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
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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 Amended and Restated Shareholders’ Agreement, certain transition arrangements have
been agreed for succession of the chief executive officer. From the date that 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 ELPS, and thereafter, the supervisory board. During the Transition Period, at the request of either the
Founders or ELPS, (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 ELPS, 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
ELPS, 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. During the first eighteen
months of the Transition Period, if the CEO is not a Founder, ELPS will have the right to designate for binding
nomination two management board members and the chief executive officer will have the right to designate
all other management board members, subject to approval by the supervisory board.
Registration and other rights
Pursuant to the Amended and Restated Shareholders’ Agreement, ELPS 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 ELPS
and the Founders.
ELPS 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 ELPS 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. ELPS 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, ELPS 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 ELPS 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
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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 non-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 cross-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, ELPS, trivago GmbH, and certain other Expedia Group
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 cross-border 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 cross-border merger.
Contribution Agreement
On August 21/22, 2017, the Founders, 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 cross-
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 cross-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 contribution agreement, 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 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 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
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trivago N.V. level for corporate tax purposes, 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 bear interest at a rate of LIBOR 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 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 million credit facility
to fund capital requirements in 2015. During the year ended December 31, 2016, we utilized an additional
€20.0 million under our credit facility, and subsequently repaid a total of €40.0 million of this obligation. As
of December 31, 2017 and 2018, €0.0 million was drawn from our €50.0 million credit facility.
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 ELPS 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, Wotif, HomeAway 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 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. For the years
ended December 31, 2016, 2017 and 2018, Expedia Group and its brands in each of the years accounted
for 36% of our total revenues.
See “Item 5 Operating and financial review and prospects” for additional information.
Shared services arrangements
Pursuant to certain informal shared services arrangements, we have recorded expenses incurred by Expedia
Group on behalf of us as a non-cash charge and treated as a contribution from parent in equity. This shared
services fee, which is comprised of allocations from Expedia Group 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 Group 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
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December 31, 2016 and 2017, the shared service fee was €4.2 million and €0.1 million, respectively. No
expenses have been allocated to us from Expedia Group since the year ended December 31, 2017.
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 6 C. Board Practices—Management board member services agreements” and “Item 6 C. Board
Practices—Supervisory board member services 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.
C.
Interests of Experts and Counsel
Not applicable.
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Item 8: Financial information
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.
On August 23, 2018, the Australian Competition and Consumer Commission, or ACCC, instituted proceedings
in the Australian Federal Court against us. The ACCC alleged breaches of Australian consumer law relating
to our advertisements in Australia concerning the hotel prices available on our Australian site and our strike-
through pricing practice, which is the display adjacent to the price quote in the top position in our search
results of a higher price that is crossed out. On November 27, 2018, we filed a response to the ACCC's
statement of claim. On December 19, 2018, the court issued an order setting a trial date for September 9,
2019 and requiring us to produce certain documents. We are in the process of producing these documents.
Management has established a provision in respect of this matter.
We and certain of our management board members are the subject of two putative class actions that were
filed in the United States District Court for the Southern District of New York. These two actions have since
been consolidated into a single action, and an amended complaint was filed in that action on March 30,
2018. The amended complaint asserts claims under the Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended, 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 25, 2017. The complaint also names underwriters of our initial public offering as
defendants. On May 14, 2018, we filed a motion to dismiss this matter. On February 26, 2019, the court
granted the motion to dismiss as to all defendants, without granting plaintiffs leave to further amend the
complaint. The plaintiffs may appeal the decision by March 29, 2019.
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 considers 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 provide for an implementation period of six months and resolved the CMA's investigation into
our practices in the United Kingdom without any admission or finding of liability.
The outcomes of these matters 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. Subject to such restrictions, any future determination to pay dividends will be at the discretion
of our management board (in some instances, subject to approval by a Founder), and will depend upon a
number of factors, including our results of operations, financial condition, future prospects, contractual
restrictions, restrictions imposed by applicable law and other factors our management board deems relevant.
B. Significant Changes
See Note 20—Subsequent Events to the audited consolidated financial statements included elsewhere in
this annual report.
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Item 9: Offer and listing
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.
B. Plan of Distribution
Not applicable.
C. Markets
The ADS have been listed on The NASDAQ Global Select Market under the symbol “TRVG” since December
16, 2016.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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Item 10: Additional information
A. Share capital
Not applicable.
B. Memorandum and articles of association
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.
The information set forth in our registration statement on Form F-3 dated April 5, 2018, filed with the SEC,
under the headings “Description of share capital and articles of association—Amendment of articles of
association,” “Description of share capital and articles of association—Comparison of Dutch corporate law
and our articles of association and U.S. corporate law” is incorporated herein by reference.
C. Material contracts
Lease of our headquarters
On July 23, 2015, we entered into a Lease Agreement with Jupiter EINHUNDERTVIERUNDFÜNFZIG GmbH
(now IMMOFINANZ Medienhafen GmbH) for office space in the Media Harbor area in Düsseldorf with a
monthly rent of €585,587. The handover of the premises took place on May 30, 2018. The initial lease term
of ten years will end on May 31, 2028, and we have two options to extend the lease term for another five
years each.
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.
D. Exchange controls
There are no governmental laws, decrees or regulations in the Netherlands, the Company's jurisdiction of
organization, that restrict the Company's export or import of capital in any material respect, including, but
not limited to, foreign exchange controls.
There are no limitations imposed by Dutch law or the Company's charter documents on the right of non-
resident or foreign owners to hold or vote Class A shares.
E. Taxation
The following summary contains a description of material German, Dutch and U.S. federal income tax
consequences of the acquisition, ownership and disposition of ADSs, but it does not purport to be a
comprehensive description of all the tax considerations that may be relevant to a decision to purchase ADSs.
The summary is based on the tax laws of Germany and the regulations thereunder, on the tax laws of the
Netherlands and regulations thereunder and on the tax laws of the United States and regulations thereunder
as of the date hereof, which are subject to change.
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German taxation
The following section presents a number of key German taxation principles which are or can be relevant to
the acquisition, holding or transfer of ADSs both by an ADS holder (an individual, a partnership or corporation)
that has a tax domicile in Germany (that is, whose place of residence, habitual abode, registered office or
place of management is in Germany) not being subject to a specific or special German tax regime and by
an ADS holder without a tax domicile in Germany. The information is not exhaustive and does not constitute
a definitive explanation of all possible aspects of taxation that could be relevant for ADS holders. The
information is based on the tax law in force in Germany as of the date of this annual report (and its interpretation
by administrative directives and courts) as well as typical provisions of double taxation treaties that Germany
has concluded with other countries. Tax law can change, sometimes retrospectively. Moreover, it cannot be
ruled out that the German tax authorities or courts may consider an alternative assessment to be correct
that differs from the one described in this section.
This section cannot serve as a substitute for tailored tax advice to individual ADS holders. ADS holders are
therefore advised to consult their tax advisers regarding the tax implications of the acquisition, holding or
transfer of ADSs and regarding the procedures to be followed to achieve a possible reimbursement of German
withholding tax (Kapitalertragsteuer). Only such advisors are in a position to take the specific tax-relevant
circumstances of individual ADS holders into due account.
Taxation of the company (trivago N.V.)
General
tax
liability
for German corporate
The company, trivago N.V., has three German tax resident individuals serving as managing directors and
intends to operate its business from Germany. It is therefore our German tax counsel’s understanding that
the effective place of management of trivago N.V. should be in Germany, and that trivago N.V. is subject to
unlimited
tax
(Gewerbesteuer) notwithstanding the fact that it is incorporated in the Netherlands as described in “-Tax
treatment of corporate reorganization.” Nevertheless, the effective place of management test depends upon
facts and circumstances. The company intends to have its effective place of management in Germany and
has made arrangements that are aimed to keep its effective place of management in Germany. The
organizational rules provide that, subject to certain exemptions, (a) management decisions are to be taken
in principle in Germany and (b) supervisory board meetings shall be held in Germany. In accordance with
the organizational rules the supervisory board has issued to the management board “Best-Practice
Guidelines” giving recommendations on how to deal with certain aspects of the management of the company
to ensure a German place of management of the company.
(Körperschaftsteuer) and
income
trade
tax
The rate of the corporate income tax is a standard 15% for both distributed and retained earnings, plus a
solidarity surcharge (Solidaritätszuschlag) amounting to 5.5% on the corporate income tax liability (i.e.,
15.825% in total).
Unless there is a specific exception, dividends (Dividenden) or other profit shares that the company derived
from domestic or foreign corporations are effectively 95% exempt from corporate income tax, as 5% of such
receipts are treated as non-deductible business expenses, and are therefore subject to corporate income
tax (and solidarity surcharge). One of the exceptions applies to dividends that the company receives or
received from domestic or foreign corporations (since February 28, 2013), being subject to corporate income
tax (including solidarity surcharge thereon), if the company holds a direct participation of less than 10% in
the share capital of such corporation at the beginning of the calendar year (hereinafter in all cases, a “Portfolio
Participation” -Streubesitzbeteiligung). Participations of at least 10% acquired during a calendar year are
deemed to have been acquired at the beginning of the calendar year. Participations in the share capital of
other corporations which the company holds through a partnership (including those that are co-
entrepreneurships (Mitunternehmerschaften)) are attributable to the company only on a pro rata basis at the
ratio of the interest share of the company in the assets of relevant partnership.
The company’s gains from the disposal of shares in a domestic or foreign corporation are effectively 95%
exempt from corporate income tax (including solidarity surcharge thereon), regardless of the size of the
participation and the holding period. 5% of the gains are treated as non-deductible business expenses and
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are therefore subject to corporate income tax (plus solidarity surcharge thereon) at a rate of 15.825%.
Conversely, losses incurred from the disposal of such shares are not deductible for corporate income tax
purposes. Currently, there are no specific rules for the taxation of gains arising from the disposal of Portfolio
Participations.
The company is subject to German trade tax (Gewerbesteuer) with respect to its taxable trade profit
(Gewerbeertrag) generated at its permanent establishments maintained in Germany (inländische
Betriebstätte). Depending on the municipal trade tax multiplier applied by the relevant municipal authority
(Hebesatz), in most cases trade tax ranges from approximately 7% to 18.2% of the taxable trade profit.
When determining the income of the corporation that is subject to corporate income tax, trade tax must not
be deducted as a business expense. In principle, profits derived from the sale of shares in another domestic
and foreign corporation are treated in the same way for trade tax purposes as for corporate income tax
purposes. Contrary to this, profit shares derived from domestic and foreign corporations are only effectively
95% exempt from trade tax, if the company either held an interest of at least 15% in the share capital of the
company making the distribution at the beginning of the relevant assessment period (Erhebungszeitraum)
or - in the case of foreign corporations - if the company has held a stake of this size since the beginning of
such period and provided that certain further requirements are fulfilled (trade tax participation exemption
privilege - gewerbesteuerliches Schachtelprivileg). If the participation is held in a foreign corporation as per
Article 2 of Council Directive 2011/96/EU of November 30, 2011, or the Parent-Subsidiary Directive, with its
registered office in another member state of the European Union, the trade tax participation exemption
privilege becomes applicable from an interest of 10% in the share capital of the foreign corporation at the
beginning of the relevant assessment period (Erhebungszeitraum). Otherwise, the profit shares will be subject
to trade tax in full. Additional restrictions apply for profit shares originating from foreign corporations which
do not fall under Article 2 of the Parent-Subsidiary Directive.
The provisions of the so-called interest barrier (Zinsschranke) limit the degree to which interest expenses
are deductible from the tax base. As a rule, interest expenses exceeding interest income are deductible in
an amount of up to 30% of the EBITDA as determined for tax purposes in a given financial year, although
there are exceptions to this rule. Non-deductible interest expenses must be carried forward to subsequent
financial years. EBITDA that has not been fully utilized can, under certain circumstances, be carried forward
and may be considered, within the limitations as set out above, over the following five years. For trade tax
purposes, in principle 25% of the interest expenses deductible after applying the interest barrier are added
back when calculating the taxable trade profit. Therefore, for trade tax purposes, the amount of deductible
interest expenses is in principle only 75% of the interest expenses deductible for purposes of corporate
income tax.
Under certain conditions, negative income of the company that has not been offset against current year
positive income can be carried forward or back into other assessment periods. Loss carry-backs to the
immediately preceding assessment period are only permissible up to €1,000,000 for corporate income tax
but not at all for trade tax purposes. Negative income not offset against positive income for corporate income
and trade tax purposes can be carried forward to following taxation periods (tax loss carry-forward). If in
such following taxation period the taxable income or the taxable trade profit exceeds the €1,000,000 threshold
(up to which such income can be offset with the tax loss carry-forward in full), only 60% of the excess amount
can be offset by tax loss carry-forwards. The remaining 40% of the taxable income is subject to tax in any
case (minimum taxation - Mindestbesteuerung). Unused tax loss carry-forwards can, as a rule, be carried
forward indefinitely and deducted pursuant to the rules set out regarding future taxable income or trade
income. However, if more than 50% of the company’s share capital or voting rights respectively is/are
transferred to a purchaser or group of purchasers within five years, directly or indirectly, or if a similar situation
arises (harmful share acquisition - schädlicher Beteiligungserwerb), the company’s unutilized losses and
interest carry-forwards (possibly also EBITDA carry-forwards) will be forfeited in full and cannot be offset
against future profits, unless one of the specific exceptions under section 8c or 8d of the German Corporate
Income Tax Act applies.
Expenses incurred by trivago N.V. in connection with our IPO may be regarded as incurred for the benefit
of the Founders. In such case, the tax authorities may take the view to treat such expenses as not deductible
for tax purposes and assess withholding tax at a rate of 26.375% on the respective amounts.
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Tax treatment of corporate reorganization
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 cross-border merger. Based on the facts
presented in the requests for the tax rulings, the tax rulings confirmed the tax neutrality of the cross-border
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 cross-border merger, which became legally
effective as of September 7, 2017. However, for income tax purposes the cross-border merger has to be
treated with retroactive effect as of December 31, 2016. Pursuant to the cross-border merger, the Founders
exchanged all of their units of trivago GmbH remaining after the pre-IPO corporate reorganization for Class
B shares of trivago N.V.
German taxation of ADS holders
General
Based on the interpretation circular (Besteuerung von American Depository 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 the ADR Tax Circular, for German tax purposes, ADRs
referring to shares issued by a German stock corporation (Aktiengesellschaft) represent a beneficial
ownership interest in the underlying ordinary shares.
The ADSs should qualify as ADRs under the ADR Tax Circular, and dividends would accordingly be
attributable to the holders of the ADSs for German tax purposes as if they would hold Class A shares, and
not to the legal owner of the underlying Class A shares (which is the depositary holding the Class A shares
for the ADS holders). Therefore, the ADS holders should, for German tax purposes, be treated as directly
holding an interest in the company’s Class A shares. With respect to German tax risks with respect to the
ADSs please refer to “Item 3 D. Risk factors” above.
Income tax implications of the holding, sale and transfer of ADSs
In terms of the income taxation of ADS holders, a distinction must be made between taxation in connection
with the holding of ADSs (“German taxation of the distributions from ADSs”) and taxation in connection with
the sale of ADSs (“German taxation of capital gains from ADSs”).
German taxation of the distributions from ADSs
Withholding tax-General
The full amount of a dividend distributed by the company is subject to German withholding tax
(Kapitalertragsteuer) at a rate of 25% plus a solidarity surcharge of 5.5% on the withholding tax, resulting
in an aggregate tax rate of 26.375%. This, however, will not apply if and to the extent that dividend payments
are funded from the company’s contribution account for tax purposes (steuerliches Einlagekonto; Section 27
of the German Corporate Income Tax Act (Körperschaftsteuergesetz, or KStG)); in this case, no withholding
tax will be withheld. The basis for the withholding tax is the dividend approved for distribution by the company’s
shareholders’ meeting. The amount of the relevant taxable income is based on the gross amount in euro;
any currency differences should be irrelevant.
In general, withholding tax on dividends distributed by a company to its shareholders is withheld and
discharged for the account of the shareholders by the company. However, if and when shares are admitted
for collective custody by a securities custodian bank (Wertpapiersammelbank) pursuant to Section 5 of the
German Act on Securities Accounts (Depotgesetz) and are entrusted to such bank for collective custody
(Sammelverwahrung) in Germany, the withholding tax is withheld and passed on for the account of the
shareholders by the domestic credit or financial services institution (inländisches Kredit- oder
Finanzdienstleistungsinstitut) (including domestic branches of such foreign enterprises), by the domestic
securities trading company (inländisches Wertpapierhandelsunternehmen) or the domestic securities trading
bank (inländische Wertpapierhandelsbank) which keeps or administers the shares and disburses or credits
the dividends or disburses the dividends to a foreign agent or by the central securities depository to which
the shares were entrusted for collective custody if the dividends are disbursed to a foreign agent by such
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central securities depository, each a Paying Agent. The company in which shares are held does not assume
any responsibility for the withholding of the withholding tax. In general, the withholding tax must be withheld
regardless of whether and to which extent the distribution is exempt from tax at the level of a shareholder
and whether the shareholder is domiciled in Germany or abroad.
As the ADS holders should, for German tax purposes, be treated as directly holding an interest in the
company’s Class A shares, the description in the paragraph above should apply accordingly.
More specifically as regards to the distributions from ADSs, the German withholding tax will be withheld
either by (i) the German financial institution that holds or administers the underlying Class A shares in custody
and disburses or credits the dividend income from the underlying Class A shares or (ii) the German collective
securities custodian, i.e., on the payment made to the depositary (in both cases (i) or (ii), a Paying Agent).
Further, a withholding tax certificate should be issued which entitles the addressee of such certificate to a
refund or tax credit of the German taxes withheld. The ADS holder should be entitled to any refund or tax
credit (and not the legal owner which is the depositary) as it is treated for German tax purposes as the
beneficial owner of the Class A shares. Consequently, the German taxes levied on the payments under the
ADSs should be the same as if the ADS holder invested directly in the Class A shares because the ADS
holder is either entitled to a refund or a tax credit. The ADS holders would be treated as if they hold Class A
shares directly and withholding tax would be charged only once.
Taxation of the distributions from ADSs for investors not domiciled in Germany
ADS holders without a tax domicile in Germany whose ADSs are attributable to a German permanent
establishment or fixed place of business or are part of business assets for which a permanent representative
in Germany has been appointed, are also subject to tax in Germany on their dividend income. In this respect,
the provisions outlined below for ADS holders with a tax domicile in Germany whose ADS are held as business
assets apply accordingly (“—Taxation of the distributions from ADSs for investors domiciled in Germany—
ADSs held as business assets”). The withholding tax (including the solidarity surcharge thereon) withheld
and passed on will be credited against the income or corporate income tax liability or refunded in the amount
of any excess.
In all other cases, ADS holders are only subject to German taxation with respect to specific German source
income (beschränkte Steuerpflicht), in particular, dividends distributed by a German tax resident corporation.
Dividend payments that are funded from the company’s contribution account for tax purposes (steuerliches
Einlagekonto; Section 27 KStG) are not taxable in Germany (provided the respective certification
requirements are properly fulfilled). According to the ADR Tax Circular, dividend income from the underlying
shares should be attributed to the holder of the ADSs for German tax purposes and not to the legal owner
of the shares. As a consequence thereof, dividend income derived from ADSs should be treated as German
source income (beschränkte Steuerpflicht).
Any German limited tax liability on dividends is discharged by withholding tax. Withholding tax is only
reimbursed in the cases and to the extent described below.
However, withholding tax on dividends distributed to an ADS holder being a company domiciled in another
EU Member State within the meaning of Article 2 of the Parent-Subsidiary Directive may be refunded or
exempted upon application and subject to further conditions. This also applies to dividends distributed to a
permanent establishment in another EU Member State of such a parent company or to a permanent
establishment in another EU Member State of a parent company that is subject to unlimited tax liability in
Germany, provided that the participation in the company actually forms part of such permanent
establishment’s business assets. As further requirements for a refund or exemption of withholding tax under
the Parent-Subsidiary Directive, the ADS holder needs to hold ADSs that represent at least a 10% direct
stake in the company’s registered capital for one year and to file a respective application with the German
Federal Central Tax Office (Bundeszentralamt für Steuern, Hauptdienstsitz Bonn-Beuel, An der Küppe 1,
53225 Bonn) using an official form.
Based on the double taxation treaty concluded between Germany and the jurisdiction where an investor is
tax resident for purposes of the respective double taxation treaty, which we refer to in the following as the
Treaty, German withholding tax may be reduced to a lower tax rate usually amounting to 15% of the gross
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dividend on the basis of an applicable Treaty. In this event, the excess of the total withholding tax, including
the solidarity surcharge, over the maximum rate of withholding tax permitted by the Treaty should be refunded
to the investors upon application. A U.S. investor for example initially should receive a net payment of €73.625
from a gross dividend amounting to €100 (i.e., €100 minus the 26.375% withholding tax). Such U.S. investor
may, subject to fulfilling procedural requirements, be entitled to a partial refund from the German tax authorities
in the amount of 11.375% of the gross dividend. As a result, the U.S. investor may ultimately receive a
payment of €85 in total (85% of the gross dividend amount), provided that it is entitled to Treaty benefits.
On December 1, 2016, the German Federal Parliament (Bundestag) approved a new provision (section 50j
EStG) to limit the entitlement of non-resident shareholders to a refund or a reduction of German dividend
withholding tax under a double taxation treaty under certain circumstances. The new rule came into force
for assessment periods starting January 1, 2017. Under the new rule, a refund or a reduction of German
dividend withholding tax under a double taxation treaty will, in principle, only be granted, if (i) the non-resident
ADS holder is not obliged to forward the dividend proceeds received from the company to any other person,
the non-resident shareholder has continuously held beneficial ownership in the shares of the company during
the 45-day-period prior to the due date of the distribution (Pre-Holding Period), the non-resident shareholder
continuously holds beneficial ownership in the shares of the company during the 45-day-period after the due
date of the distribution (Post-Holding Period), and the non-resident shareholder has continuously borne the
market risk exposure during both the Pre-Holding Period and the Post-Holding Period, taking hedging or
comparable transaction into account. On the other hand, the new rule shall not apply (and the entitlement
of a non-resident ADS holder to a refund or a reduction of German dividend withholding tax is not limited by
this rule), if (i) the applicable double taxation treaty of the non-resident shareholder provides for a withholding
tax rate of at least 15%, or (ii) the non-resident ADS holder is subject to income taxation in its state of
residency (without being tax exempt) and holds directly at least 10% in the share capital of the company
paying the dividend or (iii) the non-resident ADS holder has continuously been holding the beneficial
ownership in the shares of the company for a period of at least twelve months prior to the date on which the
income accrued (Zufluss).
Investors should note that the aforementioned refund or reduction of German withholding tax under a Treaty
requires the investor to make tax filings with the competent German tax office using a withholding tax certificate
issued under German law by the agent, who has withheld and remitted the withholding tax (the Paying
Agent). If the depositary operates an interface with DTC, it should have under regular circumstances sufficient
information about the identity of the ADS holder so that a tax reclaim process can be filed with the competent
German tax office and a withholding tax certificate can be issued to the ADS holder. In the absence of such
withholding tax certificate, an ADS holder will not be entitled to receive a tax refund from the German tax
authorities and may not credit the German withholding tax against its tax liability.
Claims for refunds may be made on a separate form, which must be filed with the German Federal Central
Tax Office (Bundeszentralamt für Steuern, An der Küppe 1, 53225 Bonn, Germany). The form is available
at the same address, on the German Federal Central Tax Office’s website (www.bzst.de). The refund claim
becomes time-barred after four years following the calendar year in which the dividend is received unless
the commencement starts later, the period is interrupted or suspended. As described above, an investor
must submit to the German tax authorities the original withholding tax certificate (or a certified copy thereof)
issued by the Paying Agent and documenting the tax withheld. Furthermore, an official certification of tax
residency must be submitted.
Under a simplified refund procedure based on electronic data exchange (Datenträgerverfahren), a paying
or disbursing agent that is registered as a participant in the electronic data exchange procedure with the
German Federal Central Tax Office (Bundeszentralamt für Steuern) may file an electronic collective refund
claim on behalf of all of the ADS holders for whom it holds the company’s ADSs in custody. However, the
simplified refund procedure only allows for a refund up to the regular tax rate provided in the Treaty. It is not
possible to use the simplified refund procedure to claim a further refund, for example based on special
privileges under a Treaty.
If dividends are distributed to corporations subject to a limited tax liability in Germany, i.e. corporations with
no statutory seat or place of management in Germany, and if the shares neither belong to the assets of a
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permanent establishment or fixed place of business in Germany nor form part of business assets for which
a permanent representative in Germany has been appointed, two-fifths of the tax withheld at the source can
be, subject to national anti-treaty shopping provisions, refunded even if the prerequisites for a refund under
the Parent-Subsidiary Directive or the relevant Treaty are not fulfilled. The relevant application forms are
available at the German Federal Central Tax Office at the address specified above.
The exemption from withholding tax under the Parent-Subsidiary Directive as well as the aforementioned
possibilities for a refund of withholding tax depend on certain other conditions being met (particularly the
fulfillment of so-called substance requirements - Substanzerfordernisse).
Taxation of the distributions from ADSs for investors domiciled in Germany
Based on the assumption that the ADS holder should be treated, in line with the ADR Tax Circular, as the
beneficial owner of the Class A shares for German tax purposes, German ADS holders should be subject
to German taxation as if they owned the Class A shares directly.
ADSs held as non-business assets
Dividends distributed to ADS holders with a tax domicile in Germany whose ADSs are held as non-business
assets form part of their taxable capital investment income, which is subject to a flat tax at a rate of 25%
plus solidarity surcharge of 5.5% thereon (i.e. 26.375% in total plus church tax, if applicable). The income
tax owed for this dividend income is in general discharged by the withholding tax levied by the company (flat
tax - Abgeltungsteuer) unless the ADS holder applies for the regular, progressive tax rate. Income-related
expenses cannot be deducted from the capital investment income, except for an annual lump sum deduction
(Sparer-Pauschbetrag) of €801 (€1,602 for married couples and for partners in accordance with the registered
partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing jointly). However, the ADS holder
may request that its capital investment income (including dividends) along with its other taxable income is
taxed at the progressive income tax rate (instead of the flat tax on capital investment income) if this results
in a lower tax burden (Günstigerprüfung). In this case, the withholding tax will be credited against the
progressive income tax and any excess amount will be refunded. Pursuant to the view of the German tax
authorities (which has been confirmed by a decision by the German Federal Tax Court (Bundesfinanzhof)),
in this case as well, income-related expenses cannot be deducted from the capital investment income, except
for the aforementioned annual lump sum deduction.
Exceptions from the flat tax apply upon application for ADS holders with underlying shares of at least 25%
in the company and for ADS holders with underlying shares of at least 1% in the company and who work for
the company in a professional capacity.
With regard to dividends received after December 31, 2014, an automatic procedure for deducting church
tax applies unless the ADS holder has filed a blocking notice (Sperrvermerk) with the German Federal Central
Tax Office. The church tax payable on the dividend is withheld and passed on by the Paying Agent. In this
case, the church tax for dividends is satisfied by the Paying Agent withholding such tax. Church tax withheld
at source may not be deducted as a special expense (Sonderausgabe) in the course of the tax assessment,
but the Paying Agent may reduce the withholding tax (including the solidarity surcharge) by 26.375% of the
church tax to be withheld on the dividends. If the ADS holder has filed a blocking notice and no church tax
is withheld by a Paying Agent, an ADS holder subject to church tax is obliged to declare the dividends in his
income tax return. The church tax on the dividends is then levied by way of a tax assessment.
As an exemption, dividend payments that are funded from the company’s contribution account for tax
purposes (steuerliches Einlagekonto; Section 27 KStG) and are paid to ADS holders with a tax domicile in
Germany with ADSs held as non-business assets, do, contrary to the above, not form part of the ADS holder’s
taxable income (provided the respective certification requirements are properly fulfilled). If the dividend
payment funded from the company’s contribution account for tax purposes (steuerliches Einlagekonto;
Section 27 KStG) exceeds the ADS holder’s acquisition costs, negative acquisition costs will arise which
can result in a higher capital gain in case of the ADSs’ or shares’ disposal. This will not apply if (i) the ADS
holder or, in the event of a gratuitous transfer, its legal predecessor, or, if the ADSs have been gratuitously
transferred several times in succession, one of his legal predecessors at any point during the five years
preceding the (deemed, as the case may be) disposal, directly or indirectly held ADSs (and/or shares) that
108
represent at least 1% of the underlying share capital of the company (a “Qualified Holding”), and (ii) the
dividend payment funded from the company’s contribution account for tax purposes (steuerliches
Einlagekonto; Section 27 KStG) exceeds the acquisition costs of the ADSs. In such a case of a Qualified
Holding, a dividend payment funded from the company’s contribution account for tax purposes (steuerliches
Einlagekonto; Section 27 KStG) is deemed a sale of the ADSs and is taxable as a capital gain if and to the
extent the dividend payment funded from the company’s contribution account for tax purposes (steuerliches
Einlagekonto; Section 27 KStG) exceeds the acquisition costs of the ADSs. In this case, the taxation
corresponds with the description in “—German taxation of capital gains from ADSs—ADS holder with a
domicile in Germany” made with regard to ADS holders maintaining a Qualified Holding.
The Paying Agent which keeps or administers the ADSs and pays or credits the capital income is required
to create so-called pots for the loss set-off (Verlustverrechnungstöpfe) to allow for setting-off of negative
capital income with current and future positive capital income. A set-off of negative capital income
administrated by one Paying Agent with positive capital income administrated by another Paying Agent is
not possible and can only be achieved in the course of the income tax assessment at the level of the respective
investor. In this case, the taxpayer has to apply for a certificate confirming the amount of losses not offset
with the Paying Agent where the pots for the loss set off exist. The application is irrevocable and has to reach
the Paying Agent before December 15th of the respective year; otherwise the losses will be carried forward
to the following year by the Paying Agent.
Withholding tax will not be withheld by a Paying Agent if the taxpayer provides the Paying Agent with an
application for exemption (Freistellungsauftrag) to the extent that the capital income does not exceed the
annual lump sum allowance (Sparerpauschbetrag) of €801 (€1,602 for married couples and for partners in
accordance with the registered partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing
jointly) as outlined on the application for exemption. Furthermore, no withholding tax will be levied if the
taxpayer provides the Paying Agent with a non-assessment certificate (Nichtveranlagungsbescheinigung)
to be applied for with the competent tax office of the investor.
ADSs held as business assets
Dividends from ADSs held as business assets by an ADS holder with a tax domicile in Germany are not
subject to the flat tax. The taxation depends on whether the ADS holder is a corporation, a sole proprietor
or a partnership (co-entrepreneurship). The withholding tax (including the solidarity surcharge thereon and
church tax, if applicable) withheld and paid will be credited against the ADS holder’s income tax or corporate
income tax liability (including the solidarity surcharge thereon and church tax, if applicable) or refunded in
the amount of any excess.
Dividend payments that are funded from the company’s contribution account for tax purposes (steuerliches
Einlagekonto; Section 27 KStG) and are paid to ADS holders with a tax domicile in Germany whose ADSs
are held as business assets are fully tax-exempt in the hands of such ADS holder (provided the respective
certification requirements are properly fulfilled). To the extent the dividend payments funded from the
company’s contribution account for tax purposes exceed the acquisition costs of the ADS, a taxable capital
gain should occur. The taxation of such gain corresponds with the description in “—German taxation of
capital gains from ADSs” made with regard to ADS holders whose ADSs are held as business assets
(however, as regards the application of the 95% exemption in case of a corporation this is not undisputed).
Corporations
If the ADS holder is a corporation with a tax domicile in Germany, the dividends are effectively 95% exempt
from corporate income tax and the solidarity surcharge unless an exception is applicable thereto. 5% of the
dividends are treated as non-deductible business expenses and are therefore subject to corporate income
tax (plus the solidarity surcharge thereon) at a total tax rate of 15.825%. In other respects, business expenses
actually incurred in direct relation to the dividends may be deducted. However, dividends are not exempt
from corporate income tax (including solidarity surcharge thereon), if the ADS holder only held (or holds) a
direct participation of less than 10% in the underlying share capital of the distributing corporation at the
beginning of the calendar year (hereinafter in all cases, a “Portfolio Participation” (Streubesitzbeteiligung)).
Underlying participations of at least 10% acquired during a calendar year are deemed to have been acquired
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at the beginning of the calendar year. Underlying participations that an ADS holder holds through a partnership
(including those that are co-entrepreneurships (Mitunternehmerschaften)) are attributable to the ADS holder
only on a pro rata basis at the ratio of the interest share of the ADS holder in the assets of the relevant
partnership.
However, the dividends (after deducting business expenses economically related to the dividends) are subject
to trade tax in the full amount, unless the requirements of the trade tax participation exemption privilege are
fulfilled. In this latter case, the dividends are not subject to trade tax; however, trade tax is levied on amounts
considered to be non-deductible business expenses (amounting to 5% of the dividend). Depending on the
municipal trade tax multiplier applied by the relevant municipal authority, in most cases trade tax ranges
from 7% to approximately 18%.
Sole proprietors
If the ADSs are held as business assets by a sole proprietor with a tax domicile in Germany, only 60% of
the dividends are subject to progressive income tax (plus the solidarity surcharge thereon) at a total tax rate
of up to approximately 47.5% (plus church tax, if applicable), under the so-called partial income method
(Teileinkünfteverfahren). Only 60% of the business expenses economically related to the dividends are tax-
deductible. If the ADSs belong to a domestic permanent establishment in Germany of a business operation
of an ADS holder, the dividend income (after deducting business expenses economically related thereto) is
fully subject to trade tax, unless the prerequisites of the trade tax participation exemption privilege are fulfilled.
In this latter case, the net amount of dividends, i.e. after deducting directly related expenses, is exempt from
trade tax. As a rule, trade tax can be credited against the ADS holder’s personal income tax, either in full or
in part, by means of a lump sum tax credit method, depending on the level of the municipal trade tax multiplier
and certain individual tax-relevant circumstances of the taxpayer.
Partnerships
If the ADS holder is a genuine business partnership or a deemed business partnership (co-entrepreneurship)
with a permanent establishment in Germany, the income tax or corporate income tax is not levied at the
level of the partnership but at the level of the respective partner. The taxation of every partner depends on
whether the partner is a corporation or an individual. If the partner is a corporation, the dividends contained
in the profit share of the partner will be taxed in accordance with the rules applicable for corporations (see
“—Corporations” above). If the partner is an individual, the taxation follows the rules described for sole
proprietors, (see “—Sole proprietors” above). Upon application and subject to further conditions, an individual
as a partner can have his personal income tax rate reduced for earnings retained at the level of the partnership.
In addition, the dividends are subject to trade tax in the full amount at the partnership level if the ADSs are
attributed to a German permanent establishment of the partnership, unless the requirements of the trade
tax participation exemption privilege are fulfilled. If a partner of the partnership is an individual, the portion
of the trade tax paid by the partnership pertaining to his profit share will be credited, either in full or in part,
against his personal income tax by means of a lump sum method, depending on the level of the municipal
trade tax multiplier and certain individual tax-relevant circumstances of the taxpayer. Due to a lack of case
law and administrative guidance, it is currently unclear how the rules for the taxation of dividends from
Portfolio Participations (see “—Corporations” above) might impact the trade tax treatment at the level of the
partnership. ADS holders are strongly recommended to consult their tax advisors. Under a literal reading of
the law, if the partnership qualifies for the trade tax exemption privilege at the beginning of the relevant
assessment period, the dividends should not be subject to trade tax. However, in this case, trade tax should
be levied on 5% of the dividends to the extent they are attributable to the profit share of such corporate
partners to whom at least 10% of the underlying shares in the company are attributable on a look-through
basis, since such portion of the dividends should be deemed to be non-deductible business expenses. The
remaining portion of the dividend income attributable to other than such specific corporate partners (which
includes individual partners and should, under a literal reading of the law, also include corporate partners to
whom, on a look-through basis, only Portfolio Participations are attributable) should (after the deduction of
business expenses economically related thereto) not be subject to trade tax.
110
Special treatment of companies in the financial and insurance sectors and pension funds
If credit institutions (Kreditinstitute) or financial services institutions (Finanzdienstleistungsunternehmen)
hold ADSs that are allocable to their trading book pursuant to Section 340e para. 3 of the German Commercial
Code (Handelsgesetzbuch), they will neither be able to use the partial income method nor have 60% of their
dividend income exempt from taxation nor be entitled to the effective 95% exemption from corporate income
tax plus the solidarity surcharge and any applicable trade tax. Thus, dividend income is fully taxable. The
same applies to financial institutions (Finanzunternehmen) in the meaning of the German Banking Act if they
have acquired the ADSs prior to January 1, 2017 for the purpose of generating profits from short-term
proprietary trading or if they have acquired the ADSs after December 31, 2016 and are predominantly owned
by banks or financial services providers and have to book the ADSs as current assets (Umlaufvermögen)
upon acquisition. The preceding sentences apply accordingly for ADSs held in a permanent establishment
in Germany by foreign credit institutions, financial services institutions, and financial institutions. Likewise,
the tax exemption described earlier afforded to corporations from ADSs does not apply to ADSs that qualify
as a capital investment in the case of life insurance and health insurance companies, or those which are
held by pension funds. However, an exemption to the foregoing, and thus a 95% effective tax exemption,
applies to dividends obtained by the aforementioned companies, to which the Parent-Subsidiary Directive
applies.
Withholding tax-ADSs held in a German custody account
If and when the ADSs are held in a German custody account withholding tax may apply at different levels:
• at a first level, there will be German withholding tax of 26.375% (including solidarity surcharge) on trivago
N.V.’s dividend payment made to the ADS Agent; this withholding tax may be reduced to 15% or to a
lower tax rate;
• at a second level, the German paying agent that holds the ADSs in custody for the investor, or the German
Distribution Paying Agent, is required to withhold again German withholding tax of 26.375% (including
solidarity surcharge) plus church tax, if any. The German Distribution Paying Agent is the German domestic
credit or financial services institution (inländisches Kredit- oder Finanzdienstleistungsinstitut) (including
German domestic branches of such foreign enterprises), the German domestic securities trading company
(inländisches Wertpapierhandelsunternehmen) or the German domestic securities trading bank
(inländische Wertpapierhandelsbank) which keeps or administers the ADSs and disburses or credits the
ADS distributions.
Consequently, a higher tax burden may arise if the respective withholding tax certificate cannot be issued
and therefore neither the German investor nor the ADS agent are able to use the withholding tax withheld
at the first level or the second level as a tax credit or apply for a respective tax refund. The German Federal
Ministry of Finance (Bundesministerium der Finanzen) has suggested and described a procedural solution
to avoid such potential double taxation in an interpretation circular dated October 26, 2011 (BMF IV C 1 - S
2400/11/10002:003). However, from a procedural perspective, it is not entirely clear whether this circular
also applies to ADSs. According to our German tax counsel’s opinion, this should be the case since ADSs
are representing the underlying Class A shares (see above).
Especially if the ADS are not held with a German Distribution Paying Agent, a German investor should be
required to include any payment from the ADSs in its German tax return and may not be entitled to credit
taxes withheld at the first or second level against its German tax liability for the reason that the required
withholding tax certificate has not been issued.
Further, the refund or credit of the withholding tax may be denied in a portion of three-fifths under certain
circumstances as
Income Tax Act
(Einkommensteuergesetz), inter alia, if and when the ADS holder is not the beneficial owner of the ADSs
within a time frame of 45 days around the ex-date of the underlying Class A shares.
in Section 36a German
further described
in more detail
111
German taxation of capital gains from ADS
Taxation of capital gains from ADSs-ADS holder not tax resident in Germany
The capital gains from the disposition of ADSs realized by an ADS holder who is not a German tax resident
should be subject to German tax only if such investor held ADSs that directly or indirectly represent 1% or
more in the underlying company’s ordinary shares (i.e., a Qualified Holding as defined in “-Taxation of the
distributions from ADS for investors domiciled in Germany-ADSs held as non-business assets”) at any time
during a five-year-period preceding the disposition or if the ADSs or underlying shares belong to a domestic
permanent establishment or fixed place of business or are part of business assets for which a permanent
representative in Germany has been appointed. If such holder had acquired the ADSs without consideration,
the previous owner’s holding period and amount of the holding would also be taken into account.
In case of a Qualified Holding, 5% of the gains from the disposal of the ADSs could, under German domestic
tax law, currently be subject to corporate income tax plus solidarity surcharge thereon if the ADS holder is
a corporation. However, the German Federal Tax Court (Bundesfinanzhof) has, in a recent decision, ruled
against the application of the 5% rule in case of foreign corporations which have neither a permanent
establishment nor a permanent representative in Germany. If the ADS holder is an individual, only 60% of
the gains from the disposal of the ADSs are subject to the progressive income tax rate plus solidarity surcharge
thereon (partial income method). However, most Treaties provide for an exemption from German taxation
and attribute the right of taxation to the ADS holder’s state of residence. According to German tax authorities
there is no obligation to levy withholding tax at source in the case of a Qualified Holding if the ADS holder
submits to the Paying Agent a certificate of residence issued by the competent foreign tax authority.
In case of a Qualified Holding, the relevant ADS holder has to file a German tax return. Please note that a
tax return is also required if Germany does not have the right to tax such capital gains pursuant to the
individual applicable Treaty.
With regard to capital gains or losses from ADSs attributable to a domestic permanent establishment or fixed
place of business or which form part of business assets for which a permanent representative in Germany
has been appointed, the above-mentioned provisions pertaining to ADS holders with a tax domicile in
Germany whose ADSs are business assets apply mutatis mutandis (see “—Taxation of capital gains from
ADSs—ADS holder with a domicile in Germany—ADSs held as business assets”). The Paying Agent can
refrain from deducting the withholding tax if the ADS holder declares to the Paying Agent on an official form
that the ADSs form part of domestic business assets and certain other requirements are met.
German statutory law requires the disbursing agent to levy withholding tax on capital gains from the sale of
ordinary shares or other securities, including ADSs, held in a custodial account in Germany. With regard to
the German taxation of capital gains, disbursing agent means a credit institution, a financial services
institution, a securities trading company or a securities trading bank (each as defined in the German Banking
Act (Kreditwesengesetz) and, in each case including a German branch of a foreign enterprise, but excluding
a foreign branch of a German enterprise) that holds the ADSs in custody or administers the ADSs for the
investor or conducts sales or other dispositions and disburses or credits the income from the ADSs to the
holder of the ADSs. The German statutory law with the exception of ADSs held by an ADS holder holding
directly or indirectly through ADSs and shares at least 1% in the company’s ordinary share capital, does not
create a limited tax liability in Germany so that there should be no obligation to withhold taxes on such capital
gains. Further, it is not entirely clear by the German statutory law whether a withholding should be made if
and when the (share) ADS holder creates a limited tax liability in Germany with its holding. However, an
interpretation circular (Einzelfragen zur Abgeltungsteuer) issued by the German Federal Ministry of Finance
(Bundesministerium der Finanzen) dated January 18, 2016 (reference number IV C 1-S2252/08/10004:017)
provides that taxes need not to be withheld when the holder of the custody account is not a resident of
Germany for German tax purposes and the income is not subject to German taxation. The interpretation
circular further states that there is no obligation to withhold such tax even if the non-resident holder holds
1% or more of the share capital of a German company through ADSs and shares. Although this circular is
not binding on German tax courts, in practice, the disbursing agents are required to follow the guidance
contained in such interpretation circulars. But even if there is no withholding in Germany, the ADS holder is
112
required to make a tax filing with the German tax authorities if and when it is subject to a limited tax liability
in Germany with its capital gains under German domestic tax law.
Taxation of capital gains from ADSs-ADS holder with a domicile in Germany
The capital gain from the disposition of ADSs realized by an ADS holder who is tax resident in Germany
should be subject to German tax as if the ADS holder owned the underlying Class A shares directly. This is
supported by an interpretation circular (Einzelfragen zur Abgeltungsteuer) issued by the German Federal
Ministry of Finance (Bundesministerium der Finanzen) dated January 18, 2016 (reference number IV C 1-
S2252/08/10004:017) with respect to the limitation on the offsetting of capital loss from ADRs with capital
gains from shares and/or ADRs and the exchange of the ADRs into the respective (represented) shares.
ADSs held as non-business assets
Gains from the disposal of ADSs by an ADS holder with a tax domicile in Germany and held as non-business
assets are, regardless of the holding period, subject to a flat tax on capital investment income at a rate of
25% (plus the solidarity surcharge of 5.5% thereon, i.e. 26.375% in total plus any church tax if applicable)
unless the ADS holder applies for the regular, progressive tax rate regime.
The taxable capital gain is computed as the difference between (a) the sale proceeds and (b) the acquisition
costs of the ADS and the expenses related directly and economically to the disposal. Dividend payments
that are funded from the company’s contribution account for tax purposes (steuerliches Einlagekonto;
Section 27 KStG) reduce the original acquisition costs; if dividend payments that are funded from the
company’s contribution account for tax purposes (steuerliches Einlagekonto; Section 27 KStG) exceed the
acquisition costs, negative acquisition costs, which can increase a capital gain, can arise in case of ADS
holders, whose ADS are held as non-business assets and do not qualify as Qualified Holding.
Only an annual lump sum deduction of €801 (€1,602 for married couples filing jointly) may be deducted from
the entire capital investments income. It is not possible to deduct income-related expenses in connection
with capital gains, except for the expenses directly related in substance to the disposal which can be deducted
when calculating the capital gains. Losses from disposals of ADSs or shares may only be offset against
capital gains from the disposal of ADSs or shares.
If the disposal of the ADSs is executed by a domestic credit institution, domestic financial services institution
(inländisches Kredit- oder Finanzdienstleistungsinstitut) (including domestic branches of foreign credit and
(inländisches
financial
services
Wertpapierhandelsunternehmen)
(inländische
domestic
Wertpapierhandelsbank), and such office pays out or credits the capital gains (a Paying Agent), the tax on
the capital gains will under regular circumstances be discharged for the account of the seller by the Paying
Agent imposing the withholding tax on investment income at the rate of 26.375% (including the solidarity
surcharge thereon) on the capital gain.
institutions),
securities
securities
company
domestic
trading
trading
bank
or
a
However, the ADS holder can apply for his total capital investment income together with his other taxable
income to be subject to his progressive income tax rate as opposed to the flat tax on investment income, if
this results in a lower tax liability. In this case, the withholding tax is credited against the progressive income
tax and any resulting excess amount will be refunded. Pursuant to the current view of the German tax
authorities (which has been confirmed by a decision by the German Federal Tax Court (Bundesfinanzhof)),
in this case as well, income-related expenses cannot be deducted from the capital investment income, except
for the aforementioned annual lump sum deduction. Further, the limitations on offsetting losses are also
applicable under the income tax assessment.
If the withholding tax or, if applicable, the church tax on capital gains is not withheld by a Paying Agent, the
ADS holder is required to declare the capital gains in his income tax return. The income tax and any applicable
church tax on the capital gains will then be collected by way of assessment.
An automatic procedure for deducting church tax applies unless the ADS holder has filed a blocking notice
(Sperrvermerk) with the German Federal Central Tax Office; church tax on capital gains is then withheld by
the Paying Agent and is deemed to have been paid when the tax is deducted. A deduction of the withheld
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church tax as a special expense is not permissible, but the withholding tax to be withheld (including the
solidarity surcharge) is reduced by 26.375% of the church tax to be withheld on the capital gains.
Regardless of the holding period and the time of acquisition, gains from the disposal of ADSs are not subject
to the flat tax but to progressive income tax if an ADS holder domiciled in Germany, or, in the event of a
munificent transfer, their legal predecessor, or, if the ADSs have been munificently transferred several times
in succession, one of his legal predecessors at any point during the five years preceding the disposal, directly
or indirectly held ADSs (and/or shares) that represent at least 1% of the underlying share capital of the
company (i.e., a Qualified Holding). In this case the partial income method applies to gains from the disposal
of ADSs, which means that only 60% of the capital gains are subject to tax and only 60% of the losses on
the disposal and expenses economically related thereto are tax deductible. Even though withholding tax has
to be withheld by a Paying Agent in the case of a Qualified Holding, this does not discharge the tax liability
of the ADS holder. Consequently, an ADS holder must declare his capital gains in his income tax return. The
withholding tax (including the solidarity surcharge thereon and church tax, if applicable) levied and paid will
be credited against the ADS holder’s income tax liability as assessed (including the solidarity surcharge
thereon and any church tax if applicable) or refunded in the amount of any excess.
ADSs held as business assets
Gains from the sale of ADSs held as business assets of an ADS holder with a tax domicile in Germany are
not subject to the flat tax. The taxation of the capital gains depends on whether the ADS holder is a corporation,
a sole proprietor or a partnership (co-entrepreneurship).
Corporations
If the ADS holder is a corporation with a tax domicile in Germany, the gains from the disposal of ADSs are,
effectively 95% exempt from corporate income tax (including the solidarity surcharge thereon) and trade tax,
regardless of the size of the participation and the holding period unless an exception is applicable thereto. 5%
of the gains are treated as non-deductible business expenses and are therefore subject to corporate income
tax (plus the solidarity surcharge thereon) at a rate of 15.825% and trade tax (depending on the municipal
trade tax multiplier applied by the municipal authority, in most cases between 7% and approximately 18%).
As a rule, capital losses and other profit reductions in connection with ADSs (e.g. from a write-down) cannot
be deducted for tax purposes. Currently, there are no specific rules for the taxation of gains arising from the
disposal of Portfolio Participations.
Sole proprietors
If the ADSs are held as business assets by a sole proprietor with a tax domicile in Germany, only 60% of
the gains from the disposal of the ADSs are subject to progressive income tax (plus the solidarity surcharge
thereon) at a total tax rate of up to approximately 47.5%, and, if applicable, church tax (partial income method).
Only 60% of the losses on the disposal and expenses economically related thereto are tax deductible. If the
ADSs belong to a German permanent establishment of a business operation of the sole proprietor, 60% of
the gains of the disposal of the ADSs are, in addition, subject to trade tax.
Trade tax
Trade tax can be credited against the ADS holder’s personal income tax liability, either in full or in part, by
means of a lump sum tax credit method depending on the level of the municipal trade tax multiplier and
certain individual tax-relevant circumstances of the taxpayer.
Partnerships
If the ADS holder is a genuine business partnership or a deemed business partnership (co-entrepreneurship)
with a permanent establishment in Germany, the income or corporate income tax is not levied at the level
of the partnership but at the level of the respective partner. The taxation depends on whether the partner is
a corporation or an individual. If the partner is a corporation, the capital gains from the ADSs as contained
in the profit share of the partner will be taxed in accordance with the rules applicable to corporations (see
“—Corporations” above). For capital gains in the profit share of a partner that is an individual, the principles
outlined above for sole proprietors apply accordingly (partial income method, see above under “—Sole
114
proprietors”). Upon application and subject to further conditions, an individual as a partner can obtain a
reduction of his personal income tax rate for earnings retained at the level of the partnership.
In addition, capital gains from the ADSs are subject to trade tax at the level of the partnership if the ADSs
are attributed to a domestic permanent establishment of a business operation of the partnership, (i) at 60%
as far as they are attributable to the profit share of an individual as the partner of the partnership, and,
(ii) currently, at 5% as far as they are attributable to the profit share of a corporation as the partner of the
partnership. Capital losses and other profit reductions in connection with the ADSs are currently not deductible
for trade tax purposes if they are attributable to the profit share of a corporation; however, 60% of the capital
losses are deductible subject to general limitations to the extent such losses are attributable to the profit
share of an individual.
If the partner of the partnership is an individual, the portion of the trade tax paid by the partnership attributable
to his profit share will be credited, either in full or in part, against his personal income tax by means of a lump
sum method, depending on the level of the municipal trade tax multiplier and certain individual tax-relevant
circumstances of the taxpayer.
Special treatment of companies in the financial and insurance sectors and pension funds
If credit institutions (Kreditinstitute) or financial services institutions (Finanzdienstleistungsunternehmen) sell
ADSs that are allocable to their trading book pursuant to Section 340e para. 3 of the German Commercial
Code (Handelsgesetzbuch), they will neither be able to use the partial income method nor have 60% of their
gains exempted from taxation nor be entitled to the effective 95% exemption from corporate income tax plus
the solidarity surcharge and any applicable trade tax. Thus, capital gains are fully taxable. The same applies
to financial institutions (Finanzunternehmen) in the meaning of the German Banking Act if they have acquired
the ADSs prior to January 1, 2017 for the purpose of generating profits from short-term proprietary trading
or if they have acquired the ADSs after December 31, 2016 and are predominantly owned by banks or
financial services providers and have to book the ADSs as current assets (Umlaufvermögen) upon acquisition.
The preceding sentences apply accordingly for ADSs held in a permanent establishment in Germany by
foreign credit institutions, financial service institutions and financial institutions or if the ADSs reflect at least
1% of the share capital of the company. Likewise, the tax exemption described earlier afforded to corporations
for dividend income and capital gains from the sale of ADSs does not apply to ADSs that qualify as a capital
investment in the case of life insurance and health insurance companies, or those which are held by pension
funds.
Withholding tax
institutions),
If the disposal of the ADSs is executed by a domestic credit institution, or domestic financial services institution
(inländisches Kredit- oder Finanzdienstleistungsinstitut) (including domestic branches of foreign credit and
(inländisches
financial
services
Wertpapierhandelsunternehmen)
(inländische
domestic
Wertpapierhandelsbank), and such office pays out or credits the capital gains (a Paying Agent), a withholding
tax, if applicable, at the rate of 26.375% (including the solidarity surcharge) plus church tax, if any, on the
capital gains for the account of the seller will be withheld by the Paying Agent. No withholding tax should
become due, however, if the investor held directly or indirectly 1% or more in the share capital of the company
through ADSs and/or shares at any time during a five-year-period preceding the disposition. In this event,
the relevant investor has to file a German tax return.
securities
securities
company
domestic
trading
trading
bank
or
a
In case of a Paying Agent, capital gains from ADSs held as business assets are not subject to withholding
tax in the same way as ADSs held as non-business assets by an ADS holder (see “—Taxation of capital
gains from ADSs—ADS holder with a domicile in Germany—ADSs held as non-business assets”). Instead,
the Paying Agent will not levy the withholding tax, provided that (i) the ADS holder is a corporation, association
of persons or estate with a tax domicile in Germany, or (ii) the ADSs belong to the domestic business assets
of an ADS holder, and the ADS holder declares so to the Paying Agent using the designated official form
and certain other requirements are met. If withholding tax is imposed by a Paying Agent, the withholding tax
(including the solidarity surcharge thereon and church tax, if applicable) imposed and discharged will be
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credited against the income tax or corporate income tax liability (including the solidarity surcharge thereon
and church tax, if applicable) or will be refunded in the amount of any excess.
Taxation of capital gains from ADSs-Class A shares in exchange of the ADSs
An ADS holder may request from the issuer of the ADSs to receive the Class A shares in exchange for the
ADSs. This kind of exchange should not be qualified as a sale of the ADSs followed by an acquisition of the
Class A shares, because ADSs should represent a beneficial ownership interest in the underlying shares
and the holders of ADSs should for German tax purposes be treated as if they held the shares directly (please
refer to “Item 3 D. Risk factors” above). This treatment is supported by an interpretation circular (Einzelfragen
zur Abgeltungsteuer) issued by the German Federal Ministry of Finance (Bundesministerium der Finanzen)
dated January 18, 2016 (reference number IV C 1-S2252/08/10004:017). The income taxation of Class A
shares follows the same basic principles as described for the ADSs.
German inheritance and gift tax
It is unclear whether the German inheritance or gift tax applies to the transfer of ADSs, as the ADR Tax
Circular does not refer explicitly to the German Inheritance and Gift Tax Act (Erbschaftsteuer- und
Schenkungsteuergesetz). However, if German inheritance or gift tax is applicable to ADSs, then, under
German law, this transfer would be subject to German gift or inheritance tax if:
(a) the decedent or donor or heir, beneficiary or other transferee (i) maintained his or her residence or a
habitual abode in Germany or had its place of management or registered office in Germany at the time of
the transfer, or (ii) is a German citizen who has spent no more than five consecutive years outside Germany
without maintaining a residence in Germany or (iii) is a German citizen who serves for a German entity
established under public law and is remunerated for his or her service from German public funds (including
family members who form part of such person’s household, if they are German citizens) and is only subject
to estate or inheritance tax in his or her country of residence or habitual abode with respect to assets located
in such country (special rules apply to certain former German citizens who neither maintain a residence nor
have their habitual abode in Germany), or
(b) at the time of the transfer, the ADSs are held by the decedent or donor as business assets forming part
of a permanent establishment in Germany or for which a permanent representative in Germany has been
appointed, or
(c) the ADSs subject to such transfer form part of a portfolio that represents at the time of the transfer 10%
or more of the registered share capital of the company and that has been held directly or indirectly by the
decedent or donor, either alone or together with related persons.
Generally, the transferee may be subject to inheritance or gift tax in Germany and in the jurisdiction where
he or she is tax resident if such jurisdiction levies such kind of tax. There are only limited treaties that intend
to avoid the potential double taxation. Under the treaty between the Federal Republic of Germany and the
United States of America for the avoidance of double taxation with respect to taxes on inheritances and gifts
(Abkommen zwischen der Bundesrepublik Deutschland und den Vereinigten Staaten von Amerika zur
Vermeidung der Doppelbesteuerung auf dem Gebiet der Nachlass-, Erbschaft- und Schenkungsteuern in
der Fassung vom 21. Dezember 2000), or the United States-Germany Inheritance and Gifts Tax Treaty, and
assuming that this treaty applies to ADSs, a transfer of ADSs by gift or upon death is not subject to German
inheritance or gift tax if the donor or the transferor is domiciled in the United States within the meaning of
the United States-Germany Inheritance and Gift Tax Treaty and is neither a citizen of Germany nor a former
citizen of Germany and, at the time of the transfer, the ADSs are not held by the decedent or donor as
business assets forming part of a permanent establishment in Germany or for which a permanent
representative in Germany has been appointed. Notwithstanding the foregoing, in case the heir, transferee
or other beneficiary (i) has, at the time of the transfer, his or her residence or habitual abode in Germany, or
(ii) is a German citizen who has spent no more than five (or, in certain circumstances, ten) consecutive years
outside Germany without maintaining a residence in Germany or (iii) is a German citizen who serves for a
German entity established under public law and is remunerated for his or her service from German public
funds (including family members who form part of such person’s household, if they are German citizens)
and is only subject to estate or inheritance tax in his or her country of residence or habitual abode with
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respect to assets located in such country (or special rules apply to certain former German citizens who
neither maintain a residence nor have their habitual abode in Germany), the transferred ADSs are subject
to German inheritance or gift tax.
If, in this case, Germany levies inheritance or gift tax on the ADSs with reference to the heir’s, transferee’s
or other beneficiary’s residence in Germany or his or her German citizenship, and the United States also
levies federal estate tax or federal gift tax with reference to the decedent’s or donor’s residence (but not with
reference to the decedent’s or donor’s citizenship), the amount of the U.S. federal estate tax or the U.S.
federal gift tax, respectively, paid in the United States with respect to the transferred ADSs is credited against
the German inheritance or gift tax liability, provided the U.S. federal estate tax or the U.S. federal gift tax,
as the case may be, does not exceed the part of the German inheritance or gift tax, as computed before the
credit is given, which is attributable to the transferred ADSs. A claim for credit of the U.S. federal estate tax
or the U.S. federal gift tax, as the case may be, may be made within one year of the final determination
(administrative or judicial) and payment of the U.S. federal estate tax or the U.S. federal gift tax, as the case
may be, provided that the determination and payment are made within ten years of the date of death of the
decedent or of the date of the making of the gift by the donor. Similarly, U.S. state-level estate or gift tax is
also creditable against the German inheritance or gift tax liability to the extent that U.S. federal estate or gift
tax is creditable.
Other German taxes
There are no transfer, stamp or similar taxes which would apply to the purchase, sale or other disposition
of ADSs in Germany. Further, no value added tax is currently levied on the purchase or disposal or other
forms of transfer of the ADSs; however, an entrepreneur may opt to subject disposals of ADSs, which are
in principle exempt from value added tax, to value added tax if the sale is made to another entrepreneur for
the entrepreneur’s business. Net worth tax (Vermögensteuer) is currently not levied in Germany. It is still
unclear and not yet decided whether Germany, based on a potential EU Directive, will introduce a Financial
Transaction Tax.
Material Netherlands tax considerations
General
The following is a summary of material Netherlands tax consequences of the acquisition, holding and disposal
of our ADSs or Class A shares. This summary does not purport to describe all possible tax considerations
or consequences that may be relevant to a holder or prospective holder of our ADSs or Class A shares and
does not purport to deal with the tax consequences applicable to all categories of investors, some of which
may be subject to special treatment under applicable law (such as trusts or other arrangements). In view of
its general nature, it should be treated with corresponding caution. To the extent this summary relates to
legal conclusions under current Netherlands tax law, and subject to the qualifications it contains, it represents
the opinion of NautaDutilh N.V., our special Dutch counsel. Holders should consult with their tax advisors
with regard to the tax consequences of investing in the ADSs or Class A shares in their particular
circumstances. The discussion below is included for general information purposes only. For purposes of
Dutch tax law, a holder of ADSs or Class A shares may include an individual or entity who does not have
the legal title of these ADSs or Class A shares, but to whom nevertheless the ADSs or Class A shares or the
income thereof is attributed based on specific statutory provisions or on the basis of such individual or entity
having an interest in the ADSs or Class A shares or the income thereof.
Please note that this summary does not describe the tax considerations for:
(i) holders of ADSs or Class A shares if such holders, and in the case of individuals, his or her partner or
certain of their relatives by blood or marriage in the direct line (including foster children), have a substantial
interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in us under the
Netherlands Income Tax Act 2001 (Wet inkomstenbelasting 2001). A holder of securities in a company is
considered to hold a substantial interest in such company if such holder alone or, in the case of individuals,
together with his/her partner (as defined in the Netherlands Income Tax Act 2001), directly or indirectly holds
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(i) an interest of 5% or more of the total issued and outstanding capital of that company or of 5% or more of
the issued and outstanding capital of a certain class of shares of that company; or (ii) rights to acquire,
directly or indirectly, such interest; or (iii) certain profit sharing rights in that company that relate to 5% or
more of the company’s annual profits and/or to 5% or more of the company’s liquidation proceeds. A deemed
substantial interest may arise if a substantial interest (or part thereof) in a company has been disposed of,
or is deemed to have been disposed of, on a non-recognition basis;
(ii) a holder of ADSs or Class A shares that is not an individual for which its shareholdings qualify or qualified
as a participation (deelneming) for purposes of the Netherlands Corporate Income Tax Act 1969 (Wet op de
vennootschapsbelasting 1969). A taxpayer’s shareholding of 5% or more in a company’s nominal paid-up
share capital qualifies as a participation. A holder may also have a participation if such holder does not have
a shareholding of 5% or more but a related entity (statutorily defined term) has a participation or if the company
in which the shares are held is a related entity (statutorily defined term);
(iii) holders of ADSs or Class A shares who are individuals for whom the ADSs or Class A shares or any
benefit derived from the ADSs or Class A shares are a remuneration or deemed to be a remuneration for
(employment) activities performed by such holders or certain individuals related to such holders (as defined
in the Netherlands Income Tax Act 2001); and
(iv) pension funds, investment institutions (fiscale beleggingsinstellingen), exempt investment institutions
(vrijgestelde beleggingsinstellingen) and other entities that are, in whole or in part, not subject to or exempt
from corporate income tax in the Netherlands, as well as entities that are exempt from corporate income tax
in their country of residence, such country of residence being another state of the European Union, Norway,
Liechtenstein, Iceland or any other state with which the Netherlands have agreed to exchange information
in line with international standards.
Except as otherwise indicated, this summary only addresses Netherlands national tax legislation and
published regulations, whereby the Netherlands and Dutch law means the part of the Kingdom of the
Netherlands located in Europe and its law respectively, as in effect on the date hereof and as interpreted in
published case law until this date as available in printed form, without prejudice to any amendment introduced
(or to become effective) at a later date and/or implemented with or without retroactive effect. The applicable
tax laws or interpretations thereof may change, or the relevant facts and circumstances may change, and
such changes may affect the contents of this section, which will not be updated to reflect any such changes.
Dividend withholding tax
We are required to withhold Dutch dividend withholding tax at a rate of 15% from dividends distributed by
us (which withholding tax will not be borne by us, but will be withheld by us from the gross dividends paid
on the Class A shares). However, as long as we continue to have our place of management in Germany,
and not in the Netherlands, under the Convention between the Federal Republic of Germany and the
Netherlands for the avoidance of double taxation with respect to taxes on income of 2012, we will be
considered to be exclusively tax resident in Germany and we should not be required to withhold Dutch
dividend withholding tax. This exemption from withholding does not apply to dividends distributed by us to
a holder who is resident or deemed to be resident in the Netherlands for Dutch income tax purposes or Dutch
corporation tax purposes or to holders of ADSs or Class A shares that are neither resident nor deemed to
be resident of the Netherlands if the ADSs or Class A shares are attributable to a Netherlands permanent
establishment of such non-resident holder, in which events the following applies. See “Item 3 D. Risk factors
—If we pay dividends, we may need to withhold tax on such dividends in both Germany and the Netherlands.”
Dividends distributed by us to individuals and corporate legal entities who are resident or deemed to be
resident in the Netherlands for Netherlands tax purposes (“Netherlands Resident Individuals” and
“Netherlands Resident Entities” as the case may be) or to holders of ADSs or Class A shares that are neither
resident nor deemed to be resident of the Netherlands if the ADSs or Class A shares are attributable to a
Netherlands permanent establishment of such non-resident holder are subject to Netherlands dividend
withholding tax at a rate of 15%. The expression “dividends distributed” includes, among other things:
• distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital
not recognized for Netherlands dividend withholding tax purposes;
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•
liquidation proceeds, proceeds of redemption of Class A shares, or proceeds of the repurchase of Class
A shares by us or one of our subsidiaries or other affiliated entities to the extent such proceeds exceed
the average paid-in capital of those Class A shares as recognized for purposes of Netherlands dividend
withholding tax, unless, in case of a repurchase, a particular statutory exemption applies;
• an amount equal to the par value of Class A shares issued or an increase of the par value of Class A
shares, to the extent that it does not appear that a contribution, recognized for purposes of Netherlands
dividend withholding tax, has been made or will be made; and
• partial repayment of the paid-in capital, recognized for purposes of Netherlands dividend withholding tax,
if and to the extent that we have net profits (zuivere winst), unless the holders of Class A shares have
resolved in advance at a general meeting to make such repayment and the par value of the Class A shares
concerned has been reduced by an equal amount by way of an amendment of our articles of association.
Netherlands Resident Individuals and Netherlands Resident Entities can generally credit the Netherlands
dividend withholding tax against their income tax or corporate income tax liability. The same applies to holders
of ADSs or Class A shares that are neither resident nor deemed to be resident of the Netherlands if the ADSs
or Class A shares are attributable to a Netherlands permanent establishment of such non-resident holder.
Pursuant to legislation to counteract "dividend stripping," a reduction, exemption, credit or refund of
Netherlands dividend withholding tax is denied if the recipient of the dividend is not the beneficial owner as
described in the Netherlands Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965). This
legislation targets situations in which a shareholder retains its economic interest in shares but reduces the
withholding tax costs on dividends by a transaction with another party. It is not required for these rules to
apply that the recipient of the dividends is aware that a dividend stripping transaction took place. The
Netherlands State Secretary of Finance takes the position that the definition of beneficial ownership
introduced by this legislation will also apply in the context of a double taxation convention.
Taxes on income and capital gains
Netherlands Resident Individuals
If a holder of ADSs or Class A shares is a Netherlands Resident Individual, any benefit derived or deemed
to be derived from the ADSs or Class A shares is taxable at the progressive income tax rates (with a maximum
of 51.75%, rate for 2019), if:
a.
b.
the ADSs or Class A shares are attributable to an enterprise from which the Netherlands Resident
Individual derives a share of the profit, whether as an entrepreneur (ondernemer) or as a person
who has a co-entitlement to the net worth (medegerechtigd tot het vermogen) of such enterprise,
without being an entrepreneur or a shareholder in such enterprise, as defined in the Netherlands
Income Tax Act 2001; or
the holder of the ADSs or Class A shares is considered to perform activities with respect to the ADSs
or Class A shares that go beyond ordinary asset management (normaal, actief vermogensbeheer)
or derives benefits from the ADSs or Class A shares that are taxable as benefits from other activities
(resultaat uit overige werkzaamheden).
If the above-mentioned conditions (a) and (b) do not apply to the individual holder of ADSs or Class A shares,
such holder will be taxed annually on a deemed, variable return (with a maximum of 5.60% in 2019) of his
or her net investment assets for the year at an income tax rate of 30%. The net investment assets for the
year are the fair market value of the investment assets less the allowable liabilities on 1 January of the
relevant calendar year. The ADSs or Class A shares are included as investment assets. A tax-free allowance
may be available. Actual benefits derived from the ADSs or Class A shares are as such not subject to
Netherlands income tax.
For the net investment assets on January 1, 2019, a deemed return between 1.94% and 5.60% (depending
on the amount of such net investment assets on January 2019) will be applied. The deemed, variable return
will be adjusted annually on the basis of historic market yields.
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Netherlands Resident Entities
Any benefit derived or deemed to be derived from the ADSs or Class A shares held by Netherlands Resident
Entities, including any capital gains realized on the disposal thereof, will be subject to Netherlands corporate
income tax at a rate of 19% with respect to taxable profits up to €200,000 and 25% with respect to taxable
profits in excess of that amount (rates and brackets for 2019).
Non-residents of the Netherlands
A holder of ADSs or Class A shares that is neither a Netherlands Resident Entity nor a Netherlands Resident
Individual will not be subject to Netherlands taxes on income or on capital gains in respect of any payment
under ADSs or the Class A shares or any gain realized on the disposal or deemed disposal of the ADSs or
Class A shares, provided that:
i.
ii.
such holder does not have an interest in an enterprise or a deemed enterprise (as defined in the
Netherlands Income Tax Act 2001 and the Netherlands Corporate Income Tax Act 1969) which, in
whole or in part, is either effectively managed in the Netherlands or carried on through a permanent
establishment, a deemed permanent establishment or a permanent representative in the
Netherlands and to which enterprise or part of an enterprise the ADSs or Class A shares are
attributable; and
in the event the holder is an individual, such holder does not carry out any activities in the Netherlands
with respect to the ADSs or Class A shares that go beyond ordinary asset management and does
not derive benefits from the ADSs or Class A shares that are taxable as benefits from other activities
in the Netherlands.
Gift and inheritance taxes
Residents of the Netherlands
Gift or inheritance taxes will arise in the Netherlands with respect to a transfer of the ADSs or Class A shares
by way of a gift by, or on the death of, a holder of ADSs or Class A shares who is resident or deemed to be
resident in the Netherlands at the time of the gift or his/her death.
Non-residents of the Netherlands
No gift or inheritance taxes will arise in the Netherlands with respect to a transfer of the ADSs or Class A
shares by way of gift by, or on the death of, a holder of ADSs or Class A shares who is neither resident nor
deemed to be resident in the Netherlands, unless:
i.
ii.
in the case of a gift of ADSs or Class A shares by an individual who at the date of the gift was neither
resident nor deemed to be resident in the Netherlands, such individual dies within 180 days after
the date of the gift, while being resident or deemed to be resident of the Netherlands; or
the transfer is otherwise construed as a gift or inheritance made by, or on behalf of, a person who,
at the time of the gift or death, is or is deemed to be resident of the Netherlands.
For purposes of Netherlands gift and inheritance taxes, amongst others, a person that holds the Netherlands
nationality will be deemed to be resident of the Netherlands if such person has been resident in the
Netherlands at any time during the ten years preceding the date of the gift or his or her death. Additionally,
for purposes of Netherlands gift tax, amongst others, a person not holding the Netherlands nationality will
be deemed to be resident of the Netherlands if such person has been resident in the Netherlands at any
time during the twelve months preceding the date of the gift. Applicable tax treaties may override deemed
residency.
Other taxes and duties
No Netherlands value added tax (omzetbelasting) and no Netherlands registration tax, stamp duty or any
other similar documentary tax or duty will be payable by a holder of ADSs or Class A shares on any payment
in consideration for the acquisition, ownership or disposal of the ADSs or Class A shares (other than a
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payment for financial services that are not exempt from Netherlands value added tax and that are rendered
to the holder of ADSs or Class A shares that is resident in Netherlands for Netherlands tax purposes).
Material U.S. federal income tax considerations
The following is a discussion of the material U.S. federal income tax consequences to U.S. Holders (as
defined below) under present law of the ownership and disposition of our ADSs. Other than the discussion
relating to whether we qualify as a PFIC, and subject to the qualifications contained herein, the discussion
below of U.S. federal income tax laws and the legal conclusions with respect thereto represents the opinion
of Latham & Watkins LLP, our special U.S. counsel. This discussion applies only to U.S. Holders that acquired
ADSs in a prior offering, hold such ADSs as “capital assets” (within the meaning of Section 1221 of the Code)
and that have the U.S. dollar as their functional currency. This discussion is based on the Internal Revenue
Code of 1986, as amended, the Code, the U.S. Treasury regulations promulgated thereunder, administrative
rulings of the IRS and judicial decisions, each as in effect as of the date hereof. All of the foregoing authorities
are subject to change or differing interpretations, possibly with retroactive effect, and any such change or
differing interpretation could affect the tax consequences described below. This discussion does not purport
to be a complete analysis or listing of all potential U.S. federal income tax considerations that may be relevant
to holders with respect to their ownership and disposition of ADSs. Accordingly, it is not intended to be, and
should not be construed as, tax advice. This summary does not address any consequences under any U.S.
federal tax laws other than those pertaining to the income tax (e.g., estate or gift taxes), any alternative
minimum tax consequences, any consequences under the Medicare tax imposed at 3.8% on certain
investment income, any withholding required pursuant to the Foreign Account Tax Compliance Act of 2010
(including the U.S. Treasury regulations promulgated thereunder and intergovernmental agreements entered
into in connection therewith) or any state, local or non-U.S. tax consequences.
The following discussion also does not address U.S. federal income tax consequences that may be relevant
to a U.S. Holder in light of such holder’s particular circumstances or to U.S. Holders subject to special rules
under the U.S. federal income tax laws such as:
• banks and other financial institutions;
•
•
regulated investment companies, real estate investment trusts and grantor trusts;
insurance companies;
• broker-dealers;
•
•
traders in securities that elect to mark to market;
tax-exempt entities or any individual retirement account or Roth IRA as defined in Sections 408 and 408A
of the Code, respectively;
• U.S. expatriates;
• persons holding our ADSs as part of a straddle, hedging, constructive sale, conversion or other integrated
transaction;
• persons that actually or constructively own 10% or more of the voting power or value of our stock;
• persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction
outside the United States or persons that are not U.S. Holders (as defined below);
• persons subject to special tax accounting rules as a result of any item of gross income with respect to
our ADSs being taken into account in an applicable financial statement;
• persons who acquired our ADSs pursuant to the exercise of any employee share option or otherwise as
compensation; or
• partnerships or other pass-through entities or arrangements treated as such (or persons holding our ADSs
through partnerships or other pass-through entities or arrangements treated as such).
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PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE
APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS
WELL AS THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF OUR ADSS.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of an ADS that is, for U.S. federal
income tax purposes:
• an individual who is a citizen or resident of the United States;
• a corporation (or other entity taxable as a corporation) created or organized under the laws of the United
States, any state thereof or the District of Columbia;
• an estate whose income is subject to U.S. federal income taxation regardless of its source; or
• a trust if (1) the administration of the trust is subject to the primary supervision of a court within the United
States and one or more U.S. persons have authority to control all substantial decisions of the trust, or
(2) a valid election is in effect under applicable U.S. Treasury regulations to treat the trust as a U.S. person.
The tax treatment of a partner in a partnership or other entity or arrangement taxable as a partnership for
U.S. federal income tax purposes that holds our ADSs will depend on such partner’s status and the activities
of the partnership.
The discussion below assumes the representations contained in the deposit agreement are true and that
the obligations in the deposit agreement and any related agreement have been and will be complied with in
accordance with their terms. For U.S. federal income tax purposes, a U.S. Holder of ADSs should be treated
as the beneficial owner of the underlying Class A shares represented by the ADSs. Accordingly, no gain or
loss should be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those
ADSs.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder
of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with
the beneficial ownership of the underlying security. Accordingly, the creditability of any foreign taxes paid
and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders,
including individual U.S. Holders (as discussed below), could be affected by actions taken by intermediaries
in the chain of ownership between the holders of ADSs and us if as a result of such actions the holders of
ADSs are not properly treated as beneficial owners of underlying Class A shares.
Distributions
Subject to the passive foreign investment company, or PFIC, rules discussed below, the gross amount of
distributions made with respect to our ADSs (including the amount of any foreign taxes withheld therefrom,
if any, and excluding certain pro rata distributions of our Class A Shares or other similar equity interests) will
be includable in a U.S. Holder’s gross income, in accordance with such U.S. Holder’s method of accounting
for U.S. federal income tax purposes, as dividend income, to the extent that such distributions are paid out
of our current or accumulated earnings and profits as determined under U.S. federal income tax principles.
So long as we do not compute earnings and profits under U.S. federal income tax principles, all such
distributions made with respect to our ADSs should be treated as dividends. Dividends on our ADSs will not
be eligible for the dividends-received deduction allowed under the Code to U.S. Holders that are corporations.
With respect to non-corporate U.S. Holders, dividends on our ADSs may qualify as “qualified dividend income”
which is eligible for reduced rates of taxation provided that (1) we are eligible for the benefits of the income
tax treaty between the United States and the federal republic of Germany or with respect to any dividend
paid on ADSs which are readily tradable on an established securities market in the United States, (2) we
are not a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding
taxable year, (3) the U.S. Holder satisfies certain holding period requirements, and (4) the U.S. Holder is not
under an obligation to make related payments with respect to positions in substantially similar or related
property. U.S. Holders should consult their tax advisors regarding the availability of the lower rate for dividends
paid with respect to our ADSs. Our ADSs are listed on Nasdaq, which is an established securities market in
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the United States. The ADSs should be considered readily tradable on Nasdaq. However, there can be no
assurance that the ADSs will be considered readily tradable on an established securities market in the United
States in later years.
The amount of any distribution on our ADSs paid in foreign currency will be equal to the U.S. dollar value of
such currency on the date such distribution is includible in income by the recipient, regardless of whether
the payment is in fact converted into U.S. dollars at that time. The amount of any distribution of property
other than cash will be the fair market value of such property on the date of distribution.
Sale or other taxable disposition of our ADSs
Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of ADSs, a U.S. Holder
will recognize a capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference
between the amount realized on such disposition and such U.S. Holder’s adjusted tax basis in such ADSs.
Any such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period for
such ADSs exceeds one year. Non-corporate U.S. Holders (including individuals) are currently subject to
U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of capital losses is
subject to significant limitations.
If the consideration received for our ADSs is paid in foreign currency, the amount realized will be the U.S.
dollar value of the payment received translated at the spot rate of exchange on the date of disposition. If our
ADSs are treated as traded on an established securities market and the relevant U.S. Holder is either a cash
basis taxpayer or an accrual basis taxpayer who has made a special election (which must be applied
consistently from year to year and cannot be changed without the consent of the Internal Revenue Service),
such holder will determine the U.S. dollar value of the amount realized in a foreign currency by translating
the amount received at the spot rate of exchange on the settlement date of the sale. If our ADSs are not
treated as traded on an established securities market, or the relevant U.S. Holder is an accrual basis taxpayer
that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement
date, such U.S. Holder will recognize foreign currency gain or loss to the extent of any difference between
the U.S. dollar amount realized on the date of disposition (as determined above) and the U.S. dollar value
of the currency received at the spot rate on the settlement date. A U.S. Holder’s initial tax basis in our ADSs
will equal the cost of such ADSs. If a U.S. Holder used foreign currency to purchase our ADSs, the cost of
our ADSs will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. If our
ADSs are treated as traded on an established securities market and the relevant U.S. Holder is either a cash
basis taxpayer or an accrual basis taxpayer who has made the special election described above, such holder
will determine the U.S. dollar value of the cost of such ADSs by translating the amount paid at the spot rate
of exchange on the settlement date of the purchase.
Foreign taxes
Foreign taxes (if any) withheld or paid on dividends on, or upon the sale or other taxable disposition of, our
ADSs may, subject to limitations and conditions, be treated as foreign income tax eligible for credit against
such U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules or, at such holder’s
election, eligible for deduction in computing such holder’s U.S. federal taxable income. If a refund of any
such foreign tax is available to a U.S. Holder under the laws of the country imposing such tax or under an
applicable income tax treaty, the amount of such tax that is refundable will not be eligible for the credit or
deduction against the U.S. Holder’s U.S. federal income tax liability. Subject to the following sentence,
dividends paid on our ADSs will constitute foreign source income and generally will be considered “passive
category” income in computing the foreign tax credit allowable to U.S. Holders under U.S. federal income
tax laws. However, if we are a “United States-owned foreign corporation,” solely for foreign tax credit purposes,
a portion of the dividends allocable to our U.S. source earnings and profits may be re-characterized as U.S.
source. A “United States-owned foreign corporation” is any foreign corporation in which U.S. persons own,
directly or indirectly, 50% or more (by vote or by value) of the stock. United States-owned foreign corporations
with less than 10% of earnings and profits attributable to sources within the United States are excepted from
these rules. We are currently a United States-owned foreign corporation. As a result, so long as 10% or
more of our earnings and profits are attributable to sources within the United States, a portion of the dividends
allocable to our U.S. source earnings and profits will be treated as U.S. source. In addition, any gain from
123
the sale or other taxable disposition of ADSs by a U.S. Holder will constitute U.S. source income. A U.S.
Holder may not be able to offset any foreign tax withheld or paid as a credit against U.S. federal income tax
imposed on that portion of any dividends or gain that is U.S. source unless the U.S. Holder has foreign
source income or gain in the same category from other sources. The rules governing the treatment of foreign
taxes imposed on a U.S. Holder and foreign tax credits are complex, and U.S. Holders should consult their
tax advisors about the impact of these rules in their particular situations.
Passive Foreign Investment Company
Notwithstanding the foregoing, certain adverse U.S. federal income tax consequences could apply to a U.S.
Holder if we are treated as a PFIC for any taxable year during which such U.S. Holder holds ADSs. 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 Code), 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. For
this purpose, “passive income” includes, subject to certain exceptions, dividends, interest, royalties, rents,
annuities, gains from commodities and securities transactions, net gains from the sale or exchange of property
producing such passive income, net foreign currency gains and amounts derived by reason of the temporary
investment of funds.
Based on the bases of our assets, the market price of our ADSs and the composition of our income, assets
and operations, we do not expect to be treated as a PFIC for U.S. federal income tax purposes for the current
taxable year or in the foreseeable future. However, the application of the PFIC rules to us may be subject
to 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 or for any future taxable year. Furthermore, because PFIC status is a factual determination
based on actual results for the entire taxable year, our U.S. counsel expresses no opinion with respect to
our PFIC status and expresses no opinion with respect to our expectations contained in this paragraph.
If we were classified as a PFIC for any taxable year during which a U.S. Holder held ADSs, such holder
would be subject to special tax rules with respect to any “excess distribution” that it receives in respect of
our ADSs and any gain it realizes from a sale or other disposition (including a pledge) of our ADSs, unless
such holder makes a “mark-to-market” election as discussed below. Under these special tax rules:
•
•
•
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for our
ADSs;
the amount allocated to the current taxable year, and any taxable year in such holder’s holding period
prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and
the amount allocated to each other year will be subject to the highest tax rate in effect for that year and
the interest charge applicable to underpayments of tax will be imposed on the resulting tax attributable
to each such year.
In addition, dividend distributions made to such holder will not qualify for the lower rates of taxation applicable
to long-term capital gains discussed above under “—Distributions.”
A U.S. Holder will be required to make an annual filing with the Internal Revenue Service if such holder holds
our ADSs in any year in which we are classified as a PFIC.
If we are a PFIC for any year during which a U.S. Holder holds our ADSs, we will continue to be treated as
a PFIC with respect to such holder for all succeeding years during which the holder holds our ADSs. If we
cease to be a PFIC, such a U.S. Holder may be able to avoid some of the adverse effects of the PFIC regime
by making a deemed sale election with respect to our ADSs. If such election is made, the U.S. Holder will
be deemed to have sold the ADSs it holds at their fair market value on the last day of the last taxable year
in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences
described above. After the deemed sale election, the U.S. Holder’s ADSs with respect to which the deemed
sale election was made will not be treated as ADSs in a PFIC unless we subsequently become a PFIC.
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If a U.S. Holder is eligible to and does make a mark-to-market election, such holder will include as ordinary
income the excess, if any, of the fair market value of our ADSs at the end of each taxable year over their
adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis
of our ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount
of previously included income as a result of the mark-to-market election). Any gain recognized on the sale
or other disposition of our ADSs will be treated as ordinary income. The mark-to-market election is available
only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15
days during each calendar quarter on a qualified exchange or other market, as defined in the applicable
U.S. Treasury regulations. U.S. Holders should consult their own tax advisors regarding the potential
application of the PFIC rules to their ownership of our ADSs.
A timely election to treat us as a qualified electing fund under the Code would result in an alternative treatment.
However, we do not intend to prepare or provide the information that would enable U.S. Holders to make a
qualified electing fund election.
The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to
consult their own tax advisers with respect to the application of the PFIC rules to their investment in the
ADSs.
U.S. information reporting and backup withholding
Dividend payments with respect to our ADSs and proceeds from the sale, exchange or redemption of our
ADSs may be subject to information reporting to the Internal Revenue Service and possible U.S. backup
withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer
identification number on a properly completed Internal Revenue Service Form W-9 or otherwise properly
establishes an exemption from backup withholding. U.S. Holders who are required to establish their exempt
status may be required to provide such certification on Internal Revenue Service Form W-9. U.S. Holders
should consult their tax advisors regarding the application of the U.S. information reporting and backup
withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against
a U.S. Holder’s U.S. federal income tax liability, if any, and such holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund and
furnishing any required information to the Internal Revenue Service.
Foreign financial asset reporting
Individuals that own “specified foreign financial assets” with an aggregate value in excess of certain threshold
amounts are required to file an information report with respect to such assets with their tax returns. “Specified
foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well
as any of the following, but only if they are not held in accounts maintained by financial institutions: (1) stocks
and securities issued by non-U.S. persons, (2) financial instruments and contracts held for investment that
have non-U.S. issuers or counterparties, and (3) interests in foreign entities. Our ADSs may be subject to
these rules. Additionally, under certain circumstances, an entity may be treated as an individual for purposes
of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of this requirement
to their ownership of our ADSs.
THE DISCUSSION ABOVE DOES NOT COVER ALL TAX MATTERS THAT MAY BE IMPORTANT TO
YOU. EACH PROSPECTIVE PURCHASER SHOULD CONSULT ITS TAX ADVISOR ABOUT THE TAX
CONSEQUENCES OF AN INVESTMENT IN OUR ADSS UNDER THE INVESTOR’S CIRCUMSTANCES.
F. Dividends and paying agents
Not applicable.
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G. Statements by experts
Not applicable.
H. Documents on display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under
the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are
required to file annually a Form 20-F no later than four months after the close of each fiscal year, which is
December 31. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information
statements, and other information regarding registrants that make electronic filings with the SEC using its
EDGAR system. Our filings made with the SEC are available on the SEC’s website. We also make available
on the investor relations section of our website, free of charge, our annual reports on Form 20‑F and the
text of our reports on Form 6‑K, including any amendments to these reports, as well as certain other SEC
filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our
website address is www.ir.trivago.com. The information contained on our website is not incorporated by
reference in this document.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing
and content of quarterly reports and proxy statements, and officers, directors and major shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange
Act.
I.
Subsidiary information
Not applicable.
126
Item 11: Quantitative and qualitative disclosures about
market risk
See “Item 5 Operating and financial review and prospects—Quantitative and qualitative disclosures about
market risk.”
Item 12: Description of securities other than equity
securities
A. Debt securities
Not applicable.
B. Warrants and rights
Not applicable.
C. Other securities
Not applicable.
127
D. American Depositary Shares
Deutsche Bank Trust Company Americas, as depositary, registers and delivers American Depositary Shares,
also referred to as ADSs. Each ADS represents one Class A share (or a right to receive one Class A share)
deposited with Deutsche Bank AG, or any successor, as custodian for the depositary. A deposit agreement
among us, the depositary and you the ADS holders sets out ADS holder rights as well as the rights and
obligations of the depositary. A copy of the Agreement is incorporated by reference as an exhibit to this
annual report.
Fees and Expenses
Pursuant to the terms of the deposit agreement, the holders of ADSs will be required to pay the following
fees:
Service
• To any person to which ADSs are issued or to any person to which a distribution is
made in respect of ADS distributions pursuant to stock dividends or other free
distributions of stock, bonus distributions, stock splits or other distributions (except
where converted to cash)
• Cancellation of ADSs, including the case of termination of the deposit agreement
• Distribution of cash dividends
• Distribution of cash entitlements (other than cash dividends) and/or cash proceeds
from the sale of rights, securities and other entitlements
• Distribution of ADSs pursuant to exercise of rights.
• Distribution of securities other than ADSs or rights to purchase additional ADSs
• Depositary services
Fees
Up to US$0.05 per ADS
issued
Up to US$0.05 per ADS
cancelled
Up to US$0.02 per ADS
held
Up to US$0.02 per ADS
held
Up to US$0.02 per ADS
held
Up to US$0.02 per ADS
held
Up to US$0.02 per ADS
held on the applicable
record date(s)
established by the
depositary bank
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing Class
A shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
depositary collects fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its
annual fee for depositary services by deduction from cash distributions or by directly billing investors or by
charging the book-entry system accounts of participants acting for them. The depositary may collect any of
its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees.
The depositary may generally refuse to provide for-fee services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse or share revenue from the fees
collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs
and expenses arising out of establishment and maintenance of the ADS program. In performing its duties
under the deposit agreement, the depositary may use brokers, dealers or other service providers that are
affiliates of the depositary and that may earn or share fees or commissions.
128
PART II
Item 13: Defaults, dividend arrearages and
delinquencies
None.
Item 14: Material modifications to the rights of
securities holders
None.
Item 15: Control and procedures
A. Disclosure controls and procedures
We maintain disclosure controls and procedures, as defined in Rules 13a‑15(e) and 15d‑15(e) under the
Exchange Act. Our management, with the participation of our chief executive officer and chief financial officer,
has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as
of December 31, 2018. Based upon that evaluation, our chief executive officer and chief financial officer
concluded that, as of December 31, 2018, the design and operation of our disclosure controls and procedures
were effective to accomplish their objectives.
B. Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. 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.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the criteria for effective control over financial reporting described in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that, as of December 31, 2018, the Company’s internal
control over financial reporting was effective. Management has reviewed its assessment with the Audit
Committee.
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm,
has audited the effectiveness of our internal control over financial reporting as of December 31, 2018, as
stated in their report which is included below.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial
reporting will prevent or detect all cases of error and fraud. Any control system, no matter how well designed
and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance
that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any,
within the Company have been detected.
129
C. Attestation report of the registered public accounting firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of trivago N.V.
Opinion on Internal Control over Financial Reporting
We have audited trivago N.V.’s internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, trivago
N.V. maintained, in all material respects, effective internal control over financial reporting as of December
31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of trivago N.V. as of December 31, 2018 and
2017, and the related consolidated statements of operations, comprehensive income, changes in equity and
cash flows for each of the three years in the period ended December 31, 2018, and the related notes and
our report dated March 6, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s 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 for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
130
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Marcus Senghaas /s/ Nicole Dietl
Wirtschaftsprüfer Wirtschaftsprüferin
(German Public Auditor) (German Public Auditor)
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
Cologne, Germany
March 6, 2019
D. Changes in internal control over financial reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) occurred during the fiscal year ended December 31, 2018 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
131
Item 16A: Audit committee financial expert
Mr. Hiren Mankodi, an independent director and a member of the Audit Committee, qualifies as an “audit
committee financial expert,” as defined in Item 16 A. of Form 20-F and as determined by our supervisory
board.
Item 16B: Code of ethics
We have adopted a code of business conduct and ethics that applies to all of our employees, members of
our senior management and members of our management board and supervisory board, including those
members of our senior management responsible for financial reporting. Our code of ethics is posted on our
company website at: http://ir.trivago.com/phoenix.zhtml?c=254450&p=irol-govHighlights. We will disclose
any substantive amendments to the code of business conduct and ethics, or any waiver of its provisions,
on our website. The reference to our website does not constitute incorporation by reference of the information
contained at or available through our website.
Item 16C: Principal accountant fees and services
The following table sets forth, for each of the years indicated, the fees billed by Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft, our independent registered public accounting firm and the percentage of
each of the fees out of the total amount billed. Audit fees also include fees for services rendered for the audit
of our financial statements but charged to our controlling shareholder.
(in thousands)
Audit Fees
Audit-related Fees
Tax Fees
All Other Fees
Total
Year ended December 31,
2017
4,014
€
%
99.9% €
2018
2,866
%
99.9%
3
0.1%
3
0.1%
€
4,017
€
2,869
Audit Fees are defined as the standard audit work that needs to be performed each year in order to issue
opinions on our consolidated financial statements and to issue reports on our local statutory financial
statements. Also included are services that can only be provided by our auditor, such as reviews of quarterly
financial results, consents and comfort letters and any other audit services required for SEC or other regulatory
filings.
Audit Related Fees include those other assurance services provided by the independent auditor but not
restricted to those that can only be provided by the auditor signing the audit report.
Tax Fees relate to the aggregate fees for services rendered on tax compliance.
All Other Fees are any additional amounts billed for products and services provided by the independent
auditor.
132
Pre-Approval Policies and Procedures
Our Audit Committee has adopted a policy that requires pre-approval of all services performed for us by our
independent registered public accounting firm, effective for the period following the completion of our IPO.
The policy was adopted on December 9, 2016. The Audit Committee pre-approval function can be delegated
to the Audit Committee Chairman or another Audit Committee member outside of meetings. All services
provided by our independent registered public accounting firm during the years ended December 31, 2018
and December 31, 2017 were approved in advance by either the Audit Committee or members thereof to
whom authority had been delegated, in accordance with the Audit Committee's pre-approval policy.
Item 16D: Exemptions from the listing requirements
and standards for audit committees
Mr. Alan Pickerill has observer status on our Audit Committee, and he is the Chief Financial Officer of Expedia
Group, Inc., our indirect majority shareholder. He relies on the exemption provided in Rule 10A-3(b)(1)(iv)
(D) of the Exchange Act. We do not believe that his status as an affiliate materially adversely affects the
ability of our Audit Committee to act independently or to satisfy the other requirements of the Nasdaq listing
standards relating to audit committees contained in Rule 10A-3 under the Exchange Act.
Item 16E: Purchases of equity securities by the issuer
and affiliated purchasers
None.
Item 16F: Change in registrant's certifying accountant
None.
133
Item 16G: Corporate governance
The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires
foreign private issuers, including our company, to comply with various corporate governance practices. In
addition, Nasdaq rules provide that foreign private issuers may follow home country practice in lieu of the
Nasdaq corporate governance standards, subject to certain exceptions and except to the extent that such
exemptions would be contrary to U.S. federal securities laws. In addition to the home country practices
described under Item 6C. of this annual report, the home country practices followed by our company in lieu
of Nasdaq rules are described below:
• We do not intend to follow the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to
provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-
third of the outstanding voting stock. Although we must provide shareholders with an agenda and other
relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory
regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business
practice in the Netherlands, thus our practice will vary from the requirement of Nasdaq Listing Rule 5620
(b).
• We do not intend to follow the requirements of Nasdaq Listing Rule 5605(d), which requires an issuer
to have a compensation committee that, inter alia, consists entirely of independent directors, and Nasdaq
Listing Rule 5605(e), which requires an issuer to have independent director oversight of director
nominations.
• We do not intend to follow the requirements of Nasdaq Listing Rule 5635, which generally requires an
issuer to obtain shareholder approval for the issuance of securities in connection with certain events,
such as the acquisition of stock or assets of another company, the establishment of or amendments to
equity-based compensation plans for employees, a change of control of us and certain private
placements.
Because we are a foreign private issuer, our management board members, supervisory board members and
senior management are not subject to short-swing profit and insider trading reporting obligations under
Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share
ownership under Section 13 of the Exchange Act and related SEC rules.
The Dutch Corporate Governance Code, or DCGC, contains both principles and best practice provisions for
management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors,
disclosure, compliance and enforcement standards. As a Dutch company, we are subject to the DCGC and
are required to disclose in our annual report, filed in the Netherlands, whether we comply with the provisions
of the DCGC. If we do not comply with the provisions of the DCGC (for example, because of a conflicting
Nasdaq requirement or otherwise), we must list the reasons for any deviation from the DCGC in our Dutch
annual board report.
We acknowledge the importance of good corporate governance. However, at this stage, we do not comply
with all the provisions of the DCGC, to a large extent because such provisions conflict with or are inconsistent
with the corporate governance rules of Nasdaq and U.S. securities laws that apply to us, or because such
provisions do not reflect best practices of international companies listed on Nasdaq.
The best practice provisions we do not apply include the following. We may deviate from additional best
practice provisions in the future. Such deviations will be disclosed in our Dutch annual board report.
In order to safeguard independence of the supervisory board, the DCGC recommends that:
•
•
for each ten percent shareholder or group of affiliated shareholders, there is at most one supervisory
board member who can be considered to be a shareholder representative;
there is at most one non-independent supervisory board member who cannot be considered as
independent due to circumstances other than being a shareholder representative; and
134
•
the total number of non-independent supervisory board members should account for less than half of
the total number of supervisory board members.
A majority of our supervisory board members is independent. It is our view that given the nature of our
business and the practice in our industry and considering our shareholder structure, it is justified that only
4 supervisory board members will be independent. We may need to deviate from the DCGC’s independence
definition for supervisory board members either because such provisions conflict with or are inconsistent
with the corporate governance rules of Nasdaq and U.S. securities laws that apply to us, or because such
provisions do not reflect best practices of global companies listed on Nasdaq. We may need to further deviate
from the DCGC’s independence definition for supervisory board members when looking for the most suitable
candidates. For example, a future supervisory board candidate may have particular knowledge of, or
experience in our industry, but may not meet the definition of independence in the DCGC. As such background
is very important to the efficacy of our supervisory board, our supervisory board may decide to nominate
candidates for appointment who do not fully comply with the criteria as listed under best practice provision
2.1.8 of the DCGC.
The DCGC recommends that our supervisory board establish a selection and appointment committee.
Because we are a “controlled company” within the meaning of the corporate governance standards of The
NASDAQ Global Select Market, we do not believe that a selection and appointment committee will be
beneficial for our governance structure. We have not established and do not intend to establish a selection
and appointment committee.
The DCGC further recommends that the compensation committee is not chaired by the chairman of the
supervisory board. The chairman of our supervisory board is also the chairman of our compensation
committee. Given the chairman's expertise and vision, we consider him to be the best person for the job.
Consistent with corporate practice for non-executive members of a board in the United States, the terms of
office of our supervisory directors run and end simultaneously. Our supervisory board continuously monitors
succession of its members as well as the managing directors. In light of this, we have not drawn up a
retirement schedule. Under our articles of association, members of the management board and the
supervisory board shall be appointed on the basis of a binding nomination prepared by the supervisory
board. This means that the nominee shall be appointed to the management board or supervisory board, as
the case may be, unless the general meeting of shareholders strips the binding nature of the nomination (in
which case a new nomination shall be prepared for a subsequent general meeting of shareholders). Our
articles of association will provide that the general meeting of shareholders can only pass such resolution
by a two-thirds majority representing at least half of the issued share capital. However, the DCGC
recommends that the general meeting can pass such resolution by simple majority, representing no more
than one-third of the issued share capital.
Under our articles of association, members of the management board and the supervisory board can only
be dismissed by the general meeting of shareholders by simple majority, provided that the supervisory board
proposes the dismissal. In other cases, the general meeting can only pass such resolution by a two-thirds
majority representing at least half of the issued share capital. Similar to what has been described above,
the DCGC recommends that the general meeting of shareholders can pass a resolution to dismiss a member
of the management board or supervisory board by simple majority, representing no more than one-third of
the issued share capital.
The DCGC recommends against providing equity awards as part of the compensation of a supervisory board
member. However, the company may wish to deviate from this recommendation and grant equity awards to
its supervisory board members.
The DCGC further recommends that the management board appoints the senior internal auditor and the
company secretary, subject to approval by the supervisory board. We have simplified this process as our
CFO appoints the senior internal auditor and the company secretary, and allow the audit committee to express
its views regarding the senior internal auditor.
The DCGC recommends having a diversity policy for the composition of the management board and
supervisory board. We acknowledge the importance of diversity in the broadest sense and consider aspects
135
of diversity relevant to our company. Although the supervisory board has not set specific targets with respect
to diversity, the supervisory board believes that it is important for its members to represent diverse viewpoints
and further that the personal backgrounds and qualifications of the managing and supervisory board
members, considered as a group, should provide a significant composite mix of experience, knowledge and
abilities.
The DCGC recommends that the compensation report includes, among other things, statements on (i)
scenario analyses that are carried out relating to director compensation, (ii) pay ratios between management
and an average or median employee salary within the company and (iii) the relationship between the variable
part of a director's compensation and the contribution of such compensation to long-term value creation. We
have engaged a specialized compensation consultant to provide us with information regarding compensation
program and related disclosures, and are working on implementing the foregoing described DCGC disclosure
recommendations.
Item 16H: Mine safety disclosure
Not applicable.
136
PART III
Item 17: Financial statements
See “Item 18 Financial statements.”
Item 18: Financial statements
See the Financial statements beginning on page F-1.
137
Item 19: Exhibits
The following exhibits are filed as part of this annual report:
Exhibit Description
Form
Incorporated by Reference
Number
File
Number
Provided
Herewith
X
X
Exhibit
Number
1.1
1.2
1.3
2.1
2.2
English translation of Form of Articles of
Association of trivago N.V.
Amended Management Board Rules.
F-1
11/14/2016
3.3
333-214591
Amended Supervisory Board Rules.
F-3
4/5/2018
3.3
333-224151
Amended and Restated Shareholders’
Agreement of trivago N.V.
Amendment to Amended and Restated
Shareholders' Agreement of trivago N.V.
F-3
4/5/2018
4.1
333-224151
20-F
3/6/2017
2.2
001-37959
Second Amendment to Amended and
Restated Shareholders' Agreement of trivago
N.V.
2.2(a)
IPO Structuring Agreement by and among the
Founders, Expedia Lodging Partner Services
S.à.r.l., travel B.V. and trivago GmbH.
F-3
4/5/2018
4.2
333-224151
Side letter to IPO Structuring Agreement
20-F
3/6/2017
2.4
001-37959
Contribution Agreement by and among the
Founders, trivago GmbH, trivago N.V.,
Expedia Lodging Partner Services S.à.r.l and
Expedia, Inc.
20-F
3/6/2017
2.5
001-37959
Deposit Agreement.
F-3
4/5/2018
4.4
333-224151
Form of American Depositary Receipt
(included in Exhibit 2.6).
Form of management board member
Indemnification Agreement for management
board members as of November 2016.
Letter Agreement Regarding Uncommitted
Credit Facility by and between trivago GmbH
and Bank of America Merrill Lynch
International Ltd., dated September 5, 2014,
as amended December 19, 2014.
Lease Agreement between BF Real I.S. / DB
Real Estate Immobilienverwaltung Objekte
and trivago GmbH, dated March 1, 2015.
English translation of Commercial Lease
Agreement between Warburg-Henderson
Kapitalanlagegesellschaft fürImmobilien mbH
and trivago GmbH, dated September 15,
2011.
F-1/A
12/5/2016
4.4
333-214591
F-1/A
12/5/2016
10.1
333-214591
F-1/A
12/5/2016
10.2
333-214591
F-1/A
12/5/2016
10.3
333-214591
F-1/A
12/5/2016
10.4
333-214591
2.3
2.4
2.5
2.6
2.7
4.1
4.2
4.3
4.4
138
Exhibit
Number
Exhibit Description
Form
Incorporated by Reference
Number
File
Number
Provided
Herewith
English translation of Commercial Lease
Agreement between Allianz Sky Office
Düsseldorf and trivago GmbH, dated
November 26, 2013.
English translation of Lease Agreement
between Jupiter
EINHUNDERTVIERUNDFÜNFZIG GmbH and
trivago GmbH, dated July 23, 2015.
Data Hosting Services Agreement by and
between Expedia, Inc. and trivago GmbH,
dated May 1, 2013.
Services and Support Agreement by and
between Expedia Lodging Partner Services
Sarl and trivago GmbH, dated September 1,
2016.
Amended and Restated trivago N.V. 2016
Omnibus Incentive Plan.
4.5
4.6
4.7
4.8
4.9
Form of Indemnification Agreement for
supervisory board, management board and
certain other officers.
4.10
Joint Cross-Border Merger Plan between
trivago N.V. and trivago GmbH, dated June
29, 2017.
Joint Explanatory Report to a Cross-Border
Merger Plan between trivago N.V. and trivago
GmbH, dated June 29, 2017.
Dutch Notarial Deed of Cross-Border Merger
between trivago N.V. and trivago GmbH,
dated September 6, 2017.
4.11
4.12
4.13
8.1
List of Subsidiaries.
Certification by Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification by Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification by Principal Executive Officer and
Principal Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Consent of Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft.
12.1
12.2
13.1
15.1
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema
Document.
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition
Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase
Document.
F-1/A
12/5/2016
10.5
333-214591
F-1/A
12/5/2016
10.6
333-214591
F-1/A
12/5/2016
10.7
333-214591
F-1/A
12/5/2016
10.8
333-214591
F-1/A
12/5/2016
10.11
333-214591
F-3
4/5/2018
2.1
333-224151
F-3
4/5/2018
2.2
333-224151
F-3
4/5/2018
2.3
333-224151
139
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
Exhibit Description
Form
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document.
Incorporated by Reference
Number
File
Number
Provided
Herewith
X
140
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its behalf.
Signatures
trivago N.V.
By:
/s/ Rolf Schrömgens
Rolf Schrömgens
Chief Executive Officer, Managing
Director
Date:
3/6/2019
By:
/s/ Axel Hefer
Axel Hefer
Chief Financial Officer, Managing
Director
Date:
3/6/2019
141
Index to financial statements
trivago N.V.
Consolidated financial statements
Report of independent registered public accounting firm
Consolidated statements of operations
Consolidated statements of comprehensive income (loss)
Consolidated balance sheets
Consolidated statements of changes in equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Page
F-2
F-3
F-6
F-7
F-8
F-10
F-12
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of trivago N.V.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of trivago N.V. (the Company) as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income,
changes in equity and cash flows for each of the three years in the period ended December 31, 2018, and
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 6,
2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcus Senghaas /s/ Nicole Dietl
Wirtschaftsprüfer Wirtschaftsprüferin
(German Public Auditor) (German Public Auditor)
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft
We have served as the Company’s auditor since 2014
Cologne, Germany
March 6, 2019
F-2
Consolidated Financial Statements
trivago N.V.
F-3
trivago N.V.
Consolidated statements of operations
(€ thousands, except per share amounts)
Revenue
Revenue from related party
Total revenue
Costs and expenses:
Cost of revenue, including related party,
excluding amortization(1)(3)
Selling and marketing(1)(3)
Technology and content, including related party (1)(2)(3)
General and administrative, including related party (1)(2)(3)
Amortization of intangible assets(2)
Operating loss
Other income/(expense)
Interest expense
Gain on deconsolidation of entity
Other, net
Total other income/(expense), net
Loss before income taxes
Expense/(benefit) for income taxes
Net loss before equity method investment
Income from equity method investment
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to trivago N.V.
Year ended December 31,
2016
485,942 €
268,227
754,169
2017
667,802 €
367,581
1,035,383
4,273
673,224
51,658
55,602
13,857
(44,445)
(137)
—
(139)
(276)
(44,721)
6,670
(51,391)
—
(51,391)
710
(50,681) €
5,930
946,925
52,232
47,444
3,220
(20,368)
(44)
2,007
592
2,555
(17,813)
(4,764)
(13,049)
—
(13,049)
568
(12,481) €
2018
583,395
331,421
914,816
5,435
805,633
66,904
54,326
1,684
(19,166)
(1,839)
—
539
(1,300)
(20,466)
1,086
(21,552)
63
(21,489)
—
(21,489)
€
€
Earnings per share attributable to trivago N.V. available to common stockholders(4):
Basic and diluted
Shares used in computing earnings per share:
Basic and diluted
(1) Includes share-based compensation as follows:
Cost of revenue
Selling and marketing
Technology and content
General and administrative
(2) Includes amortization as follows:
Amortization of internal use software and website
development costs included in technology and content
Amortization of internal use software costs included in general
and administrative
Amortization of acquired technology included in amortization
of intangible assets
(3) Includes related party expense as follows:
Cost of revenue
Selling and marketing
Technology and content
General and administrative
€
F-4
€
€
0.00 €
(0.05) €
(0.06)
237,811
274,666
350,852
737 €
115 €
10,913
15,816
26,256
3,514
3,614
8,782
184
3,273
5,260
11,985
€
1,410 €
1,742 €
2,214
—
3,750
— €
—
—
5,128
408
59
68 €
—
361
109
785
278
59
42
700
9
(4) Represents earnings per share of Class A and Class B common stock and weighted-average shares of Class A
and Class B common stock outstanding for the period from December 16, 2016 to December 31, 2016, the period
following the capitalization of the parent company and IPO, and for the period from January 1, 2017 through
December 31, 2018 (see Note 14).
We have reclassified certain amounts related to our prior period results to conform to current period presentation. See notes to trivago
N.V. consolidated financial statements
F-5
trivago N.V.
Consolidated statements of comprehensive income
(loss)
(in thousands)
Net loss
Other comprehensive income (loss)
Currency translation adjustments
Total other comprehensive income (loss)
Comprehensive loss
Less: Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to trivago N.V.
See notes to trivago N.V. consolidated financial statements
Year ended December 31,
2016
(51,391) €
2017
(13,049) €
2018
(21,489)
161
161
(51,230)
581
(50,649) €
(201)
(201)
(13,250)
568
(12,682) €
91
91
(21,398)
—
(21,398)
€
€
F-6
trivago N.V.
Consolidated balance sheets
(€ thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, less allowance of €231 and €250 at December 31,
2017 and December 31, 2018, respectively
Accounts receivable, related party
Tax receivable
Prepaid expenses and other current assets
Total Current Assets
Property and equipment, net
Other long-term assets
Intangible assets, net
Goodwill
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Income taxes payable
Deferred revenue
Payroll liabilities
Accrued expenses and other current liabilities
Total Current Liabilities
Financing obligations
Deferred income taxes
Other long-term liabilities
Commitments and contingencies (Note 16)
Stockholders' equity:
Class A common stock, €0.06 par value - 700,000,000 shares authorized,
30,916,474 and 42,559,884 shares issued and outstanding as of December
31, 2017 and December 31, 2018, respectively
Class B common stock, €0.60 par value - 320,000,000 shares authorized,
319,799,968 and 308,687,967 shares issued and outstanding as of
December 31, 2017 and December 31, 2018, respectively
Reserves
Contribution from Parent
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity attributable to trivago N.V.
Noncontrolling interest
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
As of December 31,
2017
2018
€
190,201 €
103
43,062
39,063
2,092
18,758
293,279
161,871
122
54,981
39,655
281
8,346
265,256
114,471
6,955
173,294
490,455
1,078,454 €
162,001
6,148
171,609
490,529
1,095,543
51,307 €
3,428
8,941
5,580
9,131
78,387
92,322
48,305
5,465
33,656
1,221
7,863
8,531
9,650
60,921
127,705
46,550
6,784
1,855
2,554
191,880
185,213
730,431
122,307
(180)
(192,318)
853,975
—
853,975
1,078,454 €
757,262
122,307
(89)
(213,664)
853,583
—
853,583
1,095,543
€
€
€
We have reclassified certain amounts related to our prior period results to conform to current period presentation. See notes to trivago
N.V. consolidated financial statements
F-7
trivago N.V.
Consolidated statements of changes in equity
(in thousands)
Description
Subscribed
capital
Class A
common
stock
Class B
common
stock
Reserves
Retained
earnings
(accumulated
deficit)
Accumulated
other
comprehensive
income (loss)
Contribution
from
Parent
Noncontrolling
interest
Total
members'
equity
Balance at January 1, 2016
€
48
€
— €
— €
695,871
€
(129,156) €
(12) €
55,529
€
— €
622,280
Net loss prior to IPO (excludes
€952 of net loss attributable to
redeemable noncontrolling
interest holders)
Other comprehensive income
(net of tax)
Settlement of options exercised
1
Adjustment to the fair value of
redeemable noncontrolling
interests
Contribution from Parent
Share-based compensation
expense prior to IPO
Corporate reorganization
Dividends to noncontrolling
interest holder
Issuance of common stock, net
of issuance costs of €4,921
Changes in ownership of
noncontrolling interests
Net income subsequent to IPO
(excludes €43 of net loss
attributable to redeemable
noncontrolling interest holders)
Share-based compensation
expense subsequent to IPO
Reclassification of option liability
to reserves
Changes in ownership of
redeemable noncontrolling
interests
(51,581)
33
4,929
(995)
2,465
4,185
62,486
(51,581)
33
4,930
(995)
4,185
64,951
—
(170)
202,921
(49)
552
125,405
(344,914)
219,006
1,250
(170)
201,671
19,478
459
4,893
980
900
(19,478)
—
285
1,185
459
4,893
980
Balance at December 31, 2016
€
— €
1,802
€
125,405
€
584,667
€
(179,837) €
21
€
122,200
€
199,813
€
854,071
Net loss
Other comprehensive income
(net of tax)
Adjustment to the fair value of
redeemable noncontrolling
interests
(12,481)
(459)
(201)
(12,940)
(201)
(149)
(149)
F-8
Description
Transaction with Parent
Share-based compensation
expense
Merger of trivago GmbH into and
with trivago N.V.
Issued capital, options exercised
Subscribed
capital
Class A
common
stock
Class B
common
stock
Retained
earnings
(accumulated
deficit)
Accumulated
other
comprehensive
income (loss)
Reserves
16,071
Contribution
from
Parent
107
Noncontrolling
interest
Total
members'
equity
107
16,071
66,475
132,879
53
(3,037)
(199,354)
—
(2,984)
Balance at December 31, 2017
€
— €
1,855
€
191,880
€
730,431
€
(192,318) €
(180) €
122,307
€
— €
853,975
Impact of adoption of new
accounting guidance
Net loss
Other comprehensive income
(net of tax)
Share-based compensation
expense
Conversion of Class B shares
Issued capital, options exercised
143
(21,489)
91
667
32
(6,667)
20,702
6,000
129
143
(21,489)
91
20,702
—
161
Balance at December 31, 2018
€
— €
2,554
€
185,213
€
757,262
€
(213,664) €
(89) €
122,307
€
— €
853,583
See notes to trivago N.V. consolidated financial statements.
F-9
trivago N.V.
Consolidated statements of cash flows
(€ thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by/(used in):
Depreciation (property and equipment, internal-use software and
website development)
Amortization of intangible assets
Impairment of internal-use software and website development
Share-based compensation (See Note 10)
Deferred income taxes
Foreign exchange (gain) loss
Bad debt expense
Non-cash charge, contribution from Parent
Gain on deconsolidation of entity
Loss on sale of fixed assets
Gain from equity method investment
Changes in operating assets and liabilities:
Accounts receivable, including related party
Prepaid expense and other assets
Accounts payable
Payroll liabilities
Accrued expenses and other liabilities
Deferred revenue
Taxes payable/receivable, net
Year ended December 31,
2016
2017
2018
€
(51,391) €
(13,049) €
(21,489)
5,083
13,857
—
53,722
(4,838)
(16)
1,589
4,185
—
—
—
(11,256)
(6,945)
13,879
2,784
4,702
2,814
3,177
7,802
3,220
—
16,025
(4,851)
(217)
78
107
(2,007)
—
—
(29,734)
(10,434)
13,590
988
8,195
3,863
(2,097)
11,370
1,684
1,437
20,702
(1,755)
587
630
—
—
605
(19)
(13,432)
11,127
(18,012)
2,951
199
(773)
(396)
Net cash provided by/(used in) operating activities
€
31,346 €
(8,521) €
(4,584)
Investing activities:
Acquisition of business, net of cash acquired
Acquisition of redeemable noncontrolling interests
Cash divested from deconsolidation
Capital expenditures, including internal-use software and website
development
Proceeds from sale of fixed assets
Net cash used in investing activities
Financing activities:
Payments of initial public offering costs
Dividends paid to noncontrolling interest
Proceeds from issuance of credit facility
Payments on credit facility
Net proceeds from issuance of common stock
Tax payments for shares withheld
—
(874)
—
(673)
—
(249)
—
—
—
(8,121)
(17,364)
(24,779)
—
—
634
€
(8,995) €
(18,286) €
(24,145)
(882)
—
20,000
(40,000)
208,526
(4,038)
(158)
—
—
42
—
(3,062)
—
—
—
—
161
—
161
(24)
Net cash provided by/(used in) financing activities
€
187,644 €
(7,216) €
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(54)
(1,259)
F-10
Net increase/(decrease) in cash, cash equivalents and
restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental cash flow information:
Cash paid for interest
Cash paid for taxes, net of refunds
Non-cash investing and financing activities:
Offering costs included in accrued expenses
Fixed assets-related payable
Capitalization of construction in process related to build-to-suit
lease
Extinguishment of loan to members through contribution from
Parent in members’ equity
Extinguishment of loan from related party through members’
liability
€
€
€
209,941 €
(35,282) €
(28,592)
18,241
228,182
192,900
228,182 €
192,900 €
164,308
160 €
2 €
8,696
2,550
4,038
129
30,883
7,129
7,129
—
1,557
56,586
—
—
223
3,325
—
992
36,979
—
—
We have reclassified certain amounts related to our prior period results to conform to current period presentation. See notes to trivago
N.V. consolidated financial statements.
F-11
trivago N.V.
Notes to the consolidated financial statements
1. Organization and basis of presentation
Description of business
trivago N.V., (“trivago” the “Company,” “us,” “we” and “our”) and its subsidiaries offer online meta-search for
hotels by facilitating consumers’ search for hotel accommodation, through online travel agents (“OTAs”),
hotel chains and independent hotels. Our search-driven marketplace, delivered on websites and apps,
provides users with a tailored search experience via our proprietary matching algorithms. We employ a ‘cost-
per-click’ (or “CPC”) pricing structure, allowing advertisers to control their own return on investment and the
volume of lead traffic we generate for them. During 2013, the Expedia Group, Inc. (formerly Expedia, Inc.,
the "Parent" or "Expedia Group") completed the purchase of a controlling interest in the Company.
Initial public offering
In December 2016, we sold 20,826,606 ADSs, each representing one Class A share, with a nominal value
of €0.06 per share, in our initial public offering (“IPO”) at a public offering price of $11.00 per ADS, for
aggregate net offering proceeds to us, after deducting underwriting discounts and commissions, of €207.8
million.
Corporate reorganization
Prior to the completion of the IPO, Expedia owned through its wholly owned subsidiary, Expedia Lodging
Partner Services S.à r.l. ("ELPS") 63.5% and Messrs. Schrömgens, Vinnemeier and Siewert, (whom we
collectively refer to as the “Founders”) owned 36.5%, in aggregate, of the voting power in trivago GmbH.
On November 7, 2016, travel B.V., a Dutch private company with limited liability under Dutch law was formed
in order to affect a corporate reorganization. Prior to the completion of the IPO, Expedia Group contributed
all of its shares in trivago GmbH to travel B.V. in a capital increase in exchange for newly issued Class B
shares of travel B.V. The Founders contributed 940 units of trivago GmbH, representing 6.7% 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. As a result of these contributions, 96.3% of the share capital and 99.6% of the
voting power in travel B.V. was held by Expedia Group and 3.7% of the share capital and 0.4% of the voting
power in travel B.V. was held by the Founders, whereas 66.0% of the voting power in trivago GmbH was
held by travel B.V. and 34.0% of the voting power in trivago GmbH was held by the Founders. Effective with
the IPO, travel B.V., changed its legal form and became trivago N.V and all Class A and B shares of travel
B.V. were converted to Class A and B shares of trivago N.V.
ADSs representing the 9,200,029 Class A shares of the Founders in trivago N.V. and an additional 20,826,606
ADSs representing newly issued Class A shares in trivago N.V. were sold in the IPO.
After the IPO and as of December 31, 2016, 68.3% of the voting power in trivago GmbH was held by trivago
N.V. and 31.7% was held by the Founders which was reflected as noncontrolling interest in the consolidated
financial statements through September 7, 2017. On September 7, 2017 (the "merger date") the merger of
trivago GmbH into and with trivago N.V. became effective. Pursuant to the merger, our founders exchanged
all of their units of trivago GmbH remaining after our pre-IPO corporate reorganization for Class B shares
of trivago N.V.
As of December 31, 2018, Expedia Group’s ownership interest and voting interest in trivago N.V. is 59.5%
and 66.8%, respectively, and the Founders had an ownership interest and voting interest of 28.4% and
31.9%, respectively.
Basis of presentation
The corporate reorganization, as described above, is considered a transaction between entities under
common control. As a result, the financial statements for periods prior to the IPO and the corporate
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reorganization are the financial statements of trivago GmbH as the predecessor to the Company for
accounting and reporting purposes. Upon the merger of trivago GmbH with and into trivago N.V., the merger
date, no further noncontrolling interest exists between trivago GmbH and trivago N.V. Unless otherwise
specified, “the Company” refers to trivago N.V., and trivago GmbH and its respective subsidiaries throughout
the remainder of these notes.
These consolidated financial statements reflect Expedia Group’s basis of accounting due to the change in
control in 2013 when Expedia Group acquired a controlling ownership in trivago, as we elected the option
to apply pushdown accounting in the period in which the change in control event occurred.
The Expedia Group incurs certain costs on behalf of trivago. The consolidated financial statements include
certain corporate expenses that have been allocated to trivago by the Expedia Group (see Note 17 - Related
party transactions for further information). We recorded all corporate allocation charges from the Expedia
Group within our consolidated statement of operations and as a contribution from Parent within the
consolidated statement of changes in equity. Our management believes that the assumptions underlying
the consolidated financial statements are reasonable. However, this financial information does not necessarily
reflect the future financial position, results of operations and cash flows of trivago, nor does it reflect what
the historical financial position, results of operations and cash flows of trivago would have been had we been
a stand-alone company during the periods presented.
Certain amounts previously reported in the consolidated financial statements have been reclassified in the
accompanying consolidated financial statements to conform to the current period’s presentation, primarily
to separately present financing obligations, which were previously classified as other liabilities long-term, as
well as payroll liabilities, which were previously classified as accrued expenses and other current liabilities
on the balance sheet.
Seasonality
We experience seasonal fluctuations in the demand for our services as a result of seasonal patterns in travel.
For example, 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 return on advertising 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.
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. 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.
2. Significant accounting policies
Consolidation
Our consolidated financial statements include the accounts of trivago and entities we control. All significant
intercompany balances and transactions have been eliminated in consolidation. We deconsolidate entities
from our results of operations on the day when we lose control. Further, the equity method of accounting is
used for investments in associated companies in which we have a financial interest in but do not have control.
We record noncontrolling interest in our consolidated financial statements to recognize the minority ownership
interest in our consolidated subsidiaries. Noncontrolling interest in the earnings and losses of consolidated
subsidiaries represent the share of net income or loss allocated to members or partners in our consolidated
entities, which includes the noncontrolling interest share of net income or loss from our redeemable
noncontrolling interest entities and our noncontrolling interest in trivago GmbH; up and until the merger of
trivago GmbH with and into trivago N.V. on September 7, 2017.
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As discussed in Note 1, as a result of the corporate reorganization, trivago N.V. consolidates trivago GmbH
and trivago GmbH is considered to be the predecessor to trivago N.V. for accounting and reporting purposes.
As a result of the merger of trivago GmbH with and into trivago N.V. during 2017, as of December 31, 2017
there no longer remains a minority interest related to trivago GmbH classified as noncontrolling interest as
a component of stockholders’ equity in our consolidated financial statements.
As of December 31, 2018 and December 31, 2017 all subsidiaries of the Company are wholly-owned.
Throughout 2017 until the deconsolidation of myhotelshop, noncontrolling interests with shares redeemable
at the option of the minority holders in myhotelshop have been included in redeemable noncontrolling
interests. See Note 12 - Redeemable noncontrolling interests for further discussion.
Accounting estimates
We use estimates and assumptions in the preparation of our consolidated financial statements in accordance
with accounting principles generally accepted in the United States (“GAAP”). Our estimates and assumptions
affect the reported amounts of assets and liabilities and 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 include revenue
recognition, intangible assets and goodwill, redeemable noncontrolling interest, acquisition purchase price
allocations, and share-based compensation.
Revenue recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or
services. We derive our revenues from the following streams:
Referral Revenue
Revenue relates to fees earned on the display of a customer‘s (advertiser‘s) link on the trivago website on
a cost-per-click (CPC) basis. Revenue from click-through fees is recorded after the traveler makes the click-
through to the related advertiser’s website. Control is deemed to have transferred at a point in time, being
when the link or advertisement has been displayed and the click-through to the customer's website has
occurred. The prices per click for an advertising campaign, which generally have a duration of one month
or less, are negotiated in advance, thus, the amount to be recognized as revenue for the respective click is
fixed and determinable when the performance obligation has been satisfied.
Most of our revenue is invoiced on a monthly basis after the performance obligation has been satisfied with
payment terms between 10 to 90 days. For some advertisers we require prepayments.
Subscription Revenue
Revenue from subscription services is recognized ratably over the contract term, which is 12 months or less
from the subscription commencement date. Customers may choose to be billed annually or monthly via
SEPA or credit card. The price per subscription is fixed and determinable when the contract commences.
We consider ourselves principal in all our revenue transactions.
We do not have any unsatisfied performance obligations for contracts with an original expected length of
one year or less and contracts for which we recognize revenue at the amount to which we have the right to
invoice for services performed. As permitted under ASC 606-10-55, we elected not to disclose the transaction
price allocated to performance obligations expected to be satisfied in future periods.
Deferred revenue
Deferred revenue relates to advanced payments received for services provided in future periods, primarily
related to subscription services. Deferred revenue changed from €8.9 million as of December 31, 2017 to
€7.9 million as of December 31, 2018. During the year ended December 31, 2018, €8.0 million were
recognized as revenue that were included in the beginning deferred revenue balance as of December 31,
2017.
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Cost of revenue
Cost of revenue consists of expenses that are directly or closely correlated to revenue generation, including
data center costs, salaries and share-based compensation for our data center operations staff and our
customer service team who are directly involved in revenue generation. For the years ended December 31,
2016, 2017 and 2018 cost of revenue excludes €3.8 million, €0.1 million and €0.3 million, respectively, of
amortization expense of acquired technology. For the years ended December 31, 2016, 2017 and 2018 cost
of revenue excludes €1.4 million, €1.7 million and €3.0 million, respectively, of amortization expense related
to internal use software and website development.
Cash and Cash Equivalents
Our cash and cash equivalents include cash and liquid financial instruments, primarily time deposit
investments, with maturities of three months or less when purchased.
Restricted cash
Restricted cash primarily consists of funds held as guarantees in connection with corporate leases and funds
held in escrow accounts in the event of default on corporate credit card statements. The carrying value of
restricted cash approximates its fair value. As of December 31, 2017 and December 31, 2018, restricted
cash was €2.7 million and €2.4 million, respectively. From the total balance as of December 31, 2018, €2.3
million is presented as other long-term assets based on the expected dates the restricted cash will be refunded
or made available to the Company.
Accounts receivable
Accounts receivable are generally due within 10 to 90 days and are recorded net of an allowance for doubtful
accounts. We determine our allowance by considering a number of factors, including the length of time trade
accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to
us, and the condition of the general economy and industry as a whole.
Property and equipment, net including software and website capitalization
We record property and equipment at cost, net of accumulated depreciation and amortization. We compute
depreciation using the straight-line method over the estimated useful lives of the assets, which is generally
three to five years for computer equipment, capitalized software and software development cost and furniture
and other equipment, and 39 years for buildings. We amortize leasehold improvements using the straight-
line method, over the shorter of the estimated useful life of the improvement or the remaining term of the
lease.
In June 2015, we signed a contract to build our new corporate headquarters in Düsseldorf, Germany. We
were deemed to be the accounting owner of the premises during the construction period under build-to-suit
lease accounting guidance under ASC 840. Therefore, a construction-in-progress asset and a related
construction financing obligation were recorded on our consolidated balance sheets up until the move-in
date. 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. After we moved into
our new headquarters in June 2018, we have capitalized the amounts incurred related to the construction
cost and normal tenant improvements to property and equipment, which are amortized using the straight-
line method, over the shorter of the estimated useful life of the improvement or the remaining term of the
lease. At the date of the move in, it was determined that the sale-leaseback guidance was not met, resulting
in our accounting for the lease as a financing obligation as further explained in the “Leases” section below.
Certain direct development costs associated with website and internal-use software are capitalized during
the application development stage. Capitalized costs include external direct costs of services and payroll
costs (including share-based compensation). The payroll costs are for employees devoting time to the
software development projects principally related to website and mobile app development, including support
systems, software coding, designing system interfaces and installation and testing of the software. These
costs are recorded as property and equipment and are generally amortized over a period of three years
beginning when the asset is ready for use. Costs incurred for enhancements that are expected to result in
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additional features or functionality are capitalized and amortized over the estimated useful life of the
enhancements, which is generally a period of three years. Costs incurred during the preliminary project
stage, as well as maintenance and training costs, are expensed as incurred.
Certain acquired software licenses and implementation costs are capitalized during the implementation
stage. Capitalized costs include the license fee, external direct costs of services provided in regards to the
implementation and customization of the software, and internal payroll costs for employees involved with
the implementation process. These costs are recorded as property and equipment and are amortized over
the license term when the asset is ready for use. Costs incurred during the preliminary project stage, as well
as maintenance and training costs, are expensed as incurred.
Leases
We lease office space in several countries under non-cancellable 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 the date we become legally obligated for the
rent payments or when we take possession of the office space, whichever is earlier. Additionally we have
entered into subleases for unoccupied leased office space. We recognize sublease payments on a straight-
line basis over the term of the sublease.
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.
The contractual lease agreement for our new campus in Düsseldorf triggered build-to-suit treatment under
U.S. GAAP during the construction period of both buildings. We moved into the first building in June 2018,
at which point it was determined that the sale-leaseback guidance was not met, resulting in our accounting
for the lease as a financing obligation. We have bifurcated our lease payments relating to the premises into
a portion that is allocated to the building (a reduction of the financing obligation) and a portion that is allocated
to the land on which the building was constructed. The portion of the lease obligations allocated to the land
is treated as an operating lease that commenced in July 2015. For the years ended December 31, 2016,
2017 and 2018, we have recorded €1.7 million, €1.7 million and €1.8 million respectively, of land rent expense
in connection with this lease. Until our move-in in June 2018, our non-cash land expense was entirely
classified as general and administrative expense. Since our move, we have been allocating these expenses
to all of our operating costs. Depreciation on the building commenced upon construction completion, resulting
in €1.6 million of depreciation expense for the year ended December 31, 2018, of which the majority is
recorded as technology and content expense. The second building relating to our campus remains under
construction at December 31, 2018 and is accounted for as a build-to-suit.
Business combinations
We assign the value of the consideration transferred to acquire a business to the 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 values of assets acquired and liabilities assumed,
management makes significant estimates and assumptions, especially with respect to intangible assets.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows
from customer relationships and discount rates. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a
result, actual results may differ from estimates.
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. We assess goodwill and indefinite-
lived assets, neither of which are amortized, for impairment annually in the fourth quarter of the year, or more
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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, we prospectively adopted accounting guidance that simplified our 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, 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, long-term rate of growth and profitability of our business.
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 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
fair values of our reporting units in relation to the company’s total fair value.
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. 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 with goodwill, periodically, we may choose to forgo the initial qualitative assessment and perform
a quantitative analysis in our annual evaluation of indefinite-lived intangible assets.
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.
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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.
Presentation of taxes in the statements of operations
We present taxes that we collect from advertisers and remit to government authorities on a net basis in our
consolidated statements of operations.
Foreign currency translation and transaction gains and losses
The consolidated Financial Statements have been prepared in euros, the reporting currency. Certain of our
operations outside of the Eurozone use the local currency as their functional currency. We translate revenue
and expense at average exchange rates during the period and assets and liabilities at the exchange rates
as of the consolidated balance sheet dates and include such foreign currency translation gains and losses
as a component of other comprehensive income. Due to the nature of our operations and our corporate
structure, we also have subsidiaries that have significant transactions in foreign currencies other than their
functional currency. We record transaction gains and losses in our consolidated statements of operations
related to the recurring remeasurement and settlement of such transactions.
Advertising expense
We incur advertising expense consisting of offline costs, including television and radio advertising, as well
as online advertising expense to promote our brands. A significant portion 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 costs to be indirect
advertising fees. We expense the production costs associated with advertisements in the period in which
the advertisement first takes place. We expense the costs of communicating the advertisement (e.g.,
television airtime) 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, 2016,
2017 and 2018, our advertising expense was €623.5 million, €884.7 million and €732.5 million, respectively.
As of December 31, 2017 and 2018, we had €12.6 million and €6.3 million, respectively, of prepaid marketing
expenses included in prepaid expenses and other current assets.
Share-based compensation
Share-based compensation included in our consolidated financial statements relates to certain outstanding
trivago employee options replaced with new trivago employee option awards exercisable into trivago Class
A shares, in connection with the controlling-interest acquisition of trivago by the Expedia Group (formerly
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Expedia, Inc.) in 2013. During 2017 and 2018, there were additional awards granted in connection with the
Omnibus Incentive Plan to employees of trivago.
The fair value of share options accounted for as equity settled transactions is measured at the grant date
using the Black-Scholes option pricing model. The valuation model incorporates 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 median 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 of the IPO. The simplified method was used as we do not have sufficient relatable historical
term data 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. Subsequent to the IPO, the share price assumption used in
the model is based our publicly traded share price on the date of grant. 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-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 assessed as probable, we record compensation expense
for these awards over the total performance and service period using the accelerated method. At each
reporting period, we reassess the probability of achieving the performance targets, which requires judgment,
and to the extent actual results or updated estimates differ from our current estimates, the cumulative effect
on current and prior periods of those changes will be 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 issued and the related
compensation expense recognized will be based on a comparison of the final performance metrics to the
specified targets. As at December 31, 2018, there were no awards remaining subject to a performance target
condition to be determined in a future period.
In 2018, Restricted Stock Units (RSUs), which are stock awards entitling the holder to shares of common
stock as the award vests, were granted. The RSUs are service-based awards which vest between one and
three years. We measure the value of RSUs at fair value based on the number of shares granted and the
quoted price of our common stock at the date of grant. We amortize the fair value, net of actual forfeitures,
as stock-based compensation expense over the vesting term on a straight-line basis.
Prior to the IPO, we classified certain employee option awards as liabilities when we deemed it not probable
that the employees holding the awards would bear the risks and rewards of stock ownership for a reasonable
period of time. We remeasured these instruments at fair value at the end of each reporting period using a
Black-Scholes option pricing model which relied upon an estimate of the fair value of trivago’s shares as of
the reporting date which was 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
was equal the settlement amount. Upon the IPO, all liability classified awards were reclassified to equity
settled awards. For the years ended December 31, 2017 and 2018, we had no option awards classified as
liabilities.
We recognize the effect of forfeitures in the period that the award was forfeited.
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Fair value recognition, measurement and disclosure
The carrying amounts of cash and restricted cash reported on our consolidated balance sheets approximate
fair value as we maintain them with various high-quality financial institutions. The accounts receivable are
short-term in nature and their carrying value generally approximates fair value.
We disclose the fair value of our financial instruments based on the fair value hierarchy using the following
three categories:
Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that are observable or can be corroborated by
observable market data.
Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent
with reasonably available assumptions made by other market participants. These valuations require
significant judgment.
Certain risks and concentration of credit risk
Our business is subject to certain risks and concentrations including dependence on relationships with
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 the Company's cash and
customers with significant accounts receivable balances.
Our customer base includes primarily online travel agencies and hoteliers. 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, our controlling shareholder, and its affiliates
accounted for 36% of our total revenue for each of the years ended December 31, 2016, 2017 and 2018,
respectively, and 47% and 41%, respectively, of total accounts receivable as of December 31, 2017 and
2018. Booking Holdings and its affiliates represent 43%, 44% and 39%, respectively, of revenues for the
years ended December 31, 2016, 2017 and 2018 and 28% and 35%, respectively, of total accounts receivable
as of December 31, 2017 and 2018.
Contingent liabilities
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out
of our operations, as discussed further in Note 16 - Commitments and contingencies. Periodically, and at
year end, we review the status of all significant outstanding matters to assess the potential financial exposure.
When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount
of the loss can be reasonably estimated, we record the estimated loss in our consolidated statements of
operations. We provide disclosure in the notes to the consolidated financial statements for loss contingencies
that do not meet both of these conditions if there is a reasonable possibility that a loss may have been
incurred that would be material to the financial statements. Significant judgment is required to determine the
probability that a liability has been incurred and whether such liability is reasonably estimable. We base
accruals made on the best information available at the time, which can be highly subjective. The final outcome
of these matters could vary significantly from the amounts included in the accompanying consolidated
financial statements.
Adoption of new accounting pronouncements
Revenue from Contracts with Customers. As of January 1, 2018, we adopted ASU 2014-09 amending revenue
recognition guidance using the modified retrospective method for contracts with completion dates subsequent
to January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance
with the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance
with our historic accounting policies.
F-20
The adoption of the new guidance did not result in a cumulative adjustment to the opening retained earnings
balance as of January 1, 2018, and it did not have a material impact to our consolidated financial statements
as of and for the year ended December 31, 2018 or on how we recognize revenue.
Statement of Cash Flows. As of January 1, 2018, we adopted ASU 2016-15 and ASU 2016-18 which clarify
how companies present and classify certain cash receipts and cash payments as well as the presentation
of restricted cash in the statement of cash flows. Upon adoption, we retrospectively adjusted the prior periods
presented in our statement of cash flows. The most significant impact of the adoption was the inclusion of
those amounts deemed to be restricted cash and cash equivalents in our cash and cash-equivalent balances
in the consolidated statement of cash flows.
Intra-entity Transfers of Assets Other Than Inventory. As of January 1, 2018, we adopted ASU 2016-16
amending the accounting for income taxes associated with intra-entity transfers of assets other than inventory.
This new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer
of an asset other than inventory when the transfer occurs rather than our historical practice of deferring and
amortizing the tax consequence over a specified period of time. The adoption of this new guidance resulted
in an adjustment to retained earnings of €143 thousand, with an offset against our deferred tax balance.
Definition of a Business. As of January 1, 2018, we adopted ASU 2017-01 that clarifies the definition of a
business for determining whether transactions should be accounted for as acquisitions (or disposals) of
assets or businesses. The standard must be applied prospectively and will impact how we assess acquisitions
(or disposals) of assets or businesses. The adoption of this new guidance did not have a material impact to
our consolidated financial statements.
Stock Compensation. As of January 1, 2018, we adopted ASU 2017-09, which clarifies which changes to
the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. The adoption of this new guidance did not have a material impact to our consolidated financial
statements.
Non-employee Share-based Payment Arrangements. In June 2018, the FASB issued ASU 2018-07, which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and
services from nonemployees. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based
payments used to effectively provides (1) financing to the issuer or (2) awards granted in conjunction with
selling goods or services to customers as part of a contract accounted for under Revenue from Contracts
with Customers (Topic 606). ASU 2018-07 is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption is permitted. We elected to early adopt the
new guidance in the second quarter of 2018, which requires us to reflect any adjustments as of January 1,
2018, the beginning of the annual period that includes the interim period of adoption. The primary impact of
the adoption was to treat share-based compensation awarded to non-employees as equity awards and not
option liabilities. Prior to adoption, we did not have material share-based compensation awards to non-
employees; therefore, the adoption of this new guidance did not have a material impact to our consolidated
financial statements.
Recognition and Measurement of Financial Instruments. In January 2016, the FASB issued ASU 2016-01
that provides new guidance related to accounting for equity investments, financial liabilities under the fair
value option, and the presentation and disclosure requirements for financial instruments. In February 2018,
the FASB issued ASU 2018-03, which provides technical corrections and improvements related to ASU
2016-01. We have adopted the new guidance on January 1, 2018. The adoption of this new guidance did
not have a material impact to our consolidated financial statements.
Codification Improvements. In July 2018, the FASB issued ASU 2018-09, which does not prescribe any new
accounting guidance, but instead makes minor improvements and clarifications of several different Financial
Accounting Standards Board Accounting Standards Codification areas based on comments and suggestions
made by various stakeholders. Certain updates are applicable immediately while others provide for a
transition period to adopt in fiscal years beginning after December 15, 2018. We adopted the new guidance
in the second quarter of 2018. The adoption of this new guidance did not have a material impact to our
consolidated financial statements.
F-21
Recent accounting pronouncements not yet adopted
Leases. In February 2016, the FASB issued ASU 2016-02, that provides new guidance related to accounting
and reporting guidelines for leasing arrangements. The new guidance requires entities that lease assets to
recognize assets and liabilities on the balance sheet related to the rights and obligations created by those
leases regardless of whether they are classified as finance or operating leases. Consistent with current
guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease
primarily will depend on its classification as a finance or operating lease. The guidance also requires new
disclosures to help financial statement users better understand the amount, timing and uncertainty of cash
flows arising from leases. This guidance is effective for annual and interim reporting periods beginning after
December 15, 2018. We will adopt this guidance on January 1, 2019 and will elect certain available practical
expedients under the transition guidance, including the transition package expedients but excluding the
hindsight practical expedient. Additionally, we have elected the optional transition method that allows for a
cumulative-effect adjustment in the period of adoption and will not restate prior periods. Based on our lease
portfolio as of December 31, 2018, upon adoption we anticipate recording on our consolidated balance sheet
right-of use assets of approximately €104 million (representing right-of use asset of approximately €106
million net of approximately €2 million of existing lease incentives and deferred rent) as well as operating
lease liabilities of approximately €106 million with no material impact to our consolidated statements of
operations or cash flows. Additionally, we will remove the assets and liabilities previously recorded pursuant
to build-to-suit lease guidance resulting in an expected increase to retained earnings of less than €10 million.
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13,
which changes the guidance related to the measurement of credit losses for financial assets measured at
amortized cost, including accounts receivable, and available-for-sale debt securities. The new guidance
replaces the existing incurred loss impairment model with an expected loss methodology, which will result
in more timely recognition of credit losses. This update is effective for annual periods beginning after
December 15, 2019, including interim periods within those annual periods. We are in the process of evaluating
the impact of adopting this new guidance on our consolidated financial statements; however, we currently
do not expect a material impact.
Cloud Computing Arrangements. In August 2018, the FASB issued ASU 2018-15, which provides additional
guidance on the accounting for implementation costs incurred for a cloud computing arrangement that is a
service contract. The amendments in the standard align the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that
include an internal use software license). Costs for implementation activities in the application development
stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project
and post implementation stages are expensed as the activities are performed. The additional guidance is
effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year.
We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial
statements.
Fair Value Measurements. In August 2018, the FASB issued ASU 2018-13, which is applicable to all entities
that are required under existing GAAP to make disclosures about recurring or nonrecurring fair value
measurements. The standard removes, modifies, and adds certain disclosure requirements in ASC 820, Fair
Value Measurement and is effective for all entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. We are in the process of evaluating the impact of adopting this
new guidance on our consolidated financial statements, however, we currently do not expect a material
impact.
F-22
3. Acquisitions and divestitures
On December 22, 2016, we exercised our call option in order to purchase the remaining 47.7% noncontrolling
interest in base7booking.com Sarl ("base7"), a cloud-based property management service provider, for a
cash consideration of approximately €0.9 million. As such, we became the sole owner of base7. Given we
had a controlling interest in base7 prior to the exercise of the call option, the change in ownership was treated
as a step-acquisition and accounted for as an equity transaction. As such, we eliminated the redeemable
noncontrolling interest of base7 and changes in redeemable noncontrolling interest due to attributed earnings
and foreign exchange gains/losses as of December 22, 2016 and any difference between carrying value
and acquisition value was adjusted to Reserves in shareholders’ equity as of that date. See Note 12 -
Redeemable noncontrolling interests.
In August 2017, we acquired all material assets of tripl GmbH through a business combination for a total
purchase consideration of €0.7 million. The acquisition is intended to enhance trivago's product with
personalization technology that uses big data and a customer-centric approach.
During December 2017, myhotelshop GmbH issued 8,074 new common shares for a total of €0.1 million to
a minority shareholder, who was and continues to be an unrelated party to trivago. The capital infusion diluted
our share in myhotelshop from 61.3% to 49.0%. In addition to the capital infusion, we no longer have any
put/call rights to purchase the minority interest in myhotelshop. Following the increase in capital, we lost
controlling financial interest in myhotelshop. We deconsolidated myhotelshop’s assets and liabilities,
including the historical redeemable noncontrolling interest of myhotelshop, as of that date from the
consolidated financial statements and present our remaining share in myhotelshop as an equity investment,
initially at fair value, in other long-term assets in the consolidated balance sheet. The fair value of the retained
investment was determined based on the intrinsic value of myhotelshop underlying the capital contribution
in December 2017. We recognized a gain from deconsolidation of €2.0 million, including a gain on our
retained noncontrolling investment of €0.4 million and a gain of €1.0 million from the recognition of receivables
from a loan granted to myhotelshop in 2015.
4. Fair value measurement
As of December 31, 2017 and 2018, we had no financial assets measured at fair value. See Note 12 -
Redeemable noncontrolling interests for further information on the fair value of the put/call option that was
classified as Level 3 as of December 31, 2016. See Note 2 - Significant accounting policies for more
information.
5. Prepaid expenses and other current assets
(in thousands)
Prepaid advertising
Other prepaid expenses
Other assets
Total
As of December 31,
2017
12,577 €
3,755
2,426
18,758 €
€
€
2018
6,267
1,341
738
8,346
F-23
6. Property and equipment, net
(in thousands)
Building and leasehold improvements
Capitalized software and software development costs
Computer equipment
Furniture and fixtures
Office equipment
Subtotal
Less: accumulated depreciation
Construction in process
Property and equipment, net
As of December 31,
2017
2018
€
3,985 €
120,738
13,287
13,387
3,620
786
35,065
17,695
97,101
16,123
15,231
6,285
2,167
160,544
25,697
27,154
€
114,471 €
162,001
In June 2018, we moved into our new headquarters in Düsseldorf, Germany and started depreciation of
capitalized costs incurred related to the construction cost and normal tenant improvements to property and
equipment. See Note 2 - Significant accounting policies, Leases, for further information. As of December
31, 2017 and 2018, our building and leasehold improvement costs, net of accumulated depreciation, were
€2.7 million and €118.3 million, respectively. As of December 31, 2017, €92.3 million in building related
construction cost were included in construction in progress.
We establish assets and liabilities for the present value of estimated future costs to return our new
headquarters and certain of our leased facilities to their original condition under the authoritative accounting
guidance for asset retirement obligations. Such assets are depreciated over the useful live of the underlying
asset or the lease period and the recorded liabilities are accreted to the future value of the estimated
restoration costs. As of December 31, 2017 and 2018, an asset retirement obligation asset and liability of
€1.0 million and €0.6 million, respectively, is included within building and leasehold improvements, gross of
accumulated depreciation of €0.3 million and €0.04 million, respectively, for the cost to decommission the
physical space of our new headquarters and our leased facilities. 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.
As of December 31, 2017 and 2018, our internally developed capitalized software and acquired software
development costs, net of accumulated amortization, were €9.0 million in both periods.
As of December 31, 2017 and 2018, our computer equipment costs, net of accumulated amortization, were
€6.6 million and €4.8 million, respectively.
In 2018, we recorded an impairment of €1.5 million related to internally developed capitalized software and
acquired software development costs, which was a result of software previously under development that
was discontinued during the period and will not be placed into service. We recognized the loss on impairment
within our operating expenses on our consolidated statements of operations.
F-24
7. Goodwill and intangible assets, net
The following table presents our goodwill and intangible assets as of December 31, 2017 and 2018:
(in thousands)
Goodwill
Intangible assets with definite lives, net
Intangible assets with indefinite lives
Total
Impairment Assessments
As of December 31,
2017
2018
490,455 €
490,529
3,794
169,500
663,749 €
2,064
169,545
662,138
€
€
As of December 31, 2017 and 2018, we had no accumulated impairment losses of goodwill or indefinite-
lived intangible assets.
Goodwill
The following table presents the changes in goodwill by reporting segment:
(in thousands)
Balance as of January 1, 2017
Foreign exchange translation
Acquisition of Tripl
Deconsolidation of myhotelshop
Balance as of December 31, 2017
Balance as of January 1, 2018
Foreign exchange translation
Balance as of December 31, 2018
Developed
Europe
Americas
Rest of World
Total
€
€
€
€
215,271 €
(77)
110
(54)
215,250 €
192,719 €
(69)
98
(48)
192,700 €
215,250 €
33
215,283 €
192,700 €
29
192,729 €
82,513 €
(29)
42
(21)
82,505 €
82,505 €
12
82,517 €
490,503
(175)
250
(123)
490,455
490,455
74
490,529
Indefinite-lived Intangible Assets
Our indefinite-lived intangible assets relate principally to trade names, trademarks and domain names.
Intangible Assets with Definite Lives
The following table presents the components of our intangible assets with definite lives as of December 31,
2017 and 2018:
(in thousands)
December 31, 2017
(Accumulated
Amortization)
Cost
Net
Cost
December 31, 2018
(Accumulated
Amortization)
Customer relationships
€
34 €
(5) €
29 €
34 €
(16) €
Partner relationships
Technology
Non-compete agreement
34,254
60,190
10,800
(34,224)
(59,831)
(7,424)
30
359
3,376
34,254
60,145
10,800
(34,235)
(59,951)
(8,967)
Total
€ 105,278 €
(101,484) €
3,794 € 105,233 €
(103,169) €
Net
18
19
194
1,833
2,064
F-25
Amortization expense was €13.9 million for the year ended December 31, 2016, €3.2 million for the year
ended December 31, 2017 and €1.7 million for the year ended December 31, 2018. The estimated future
amortization expense related to intangible assets with definite lives as of December 31, 2018, assuming no
subsequent impairment of the underlying assets, is as follows:
(in thousands)
2019
2020
2021
2022
Future years
Total
Amortization
€
1,685
374
1
1
3
€
2,064
8. Debt-credit facility
We maintain a €50.0 million uncommitted credit facility with an interest rate of LIBOR, floored at zero, plus
1% per annum, which is guaranteed by Expedia Group, that may be terminated at any time by the lender.
As of December 31, 2017 and 2018, we had no borrowings outstanding on the consolidated balance sheet.
9. Employee benefit plans
For defined contribution plans, trivago pays contributions to publicly or privately administered pension
insurance plans on a mandatory, contractual or voluntary basis. We have no further payment obligations
once the contributions have been paid. The contributions are recognized as employee benefit expense when
they are due. The amount of expense recognized for defined contribution pension plans was not material
for the years ended December 31, 2016, 2017 and 2018.
10. Share-based awards and other equity instruments
Option issuance prior to IPO
In connection with the controlling-interest acquisition of trivago by the Expedia Group, Inc. (formerly Expedia,
Inc., the "Parent" or "Expedia") in 2013, certain outstanding trivago employee options as of the acquisition
date were replaced with new trivago employee option awards exercisable into trivago Class A shares. The
replacement awards were exchanged at acquisition date fair value and maintained their original service-
based vesting schedule and strike price of €1. The original service-based vesting period for these awards
are between one and three years. The options also contained conditions which allowed holders to put
underlying shares to Expedia (and for which Expedia was able to call) during prescribed liquidity windows
in 2016 and 2018, however holders are required to exercise options and hold underlying shares for a
reasonable period of time prior to liquidation in order to participate in the risks and rewards of equity ownership.
Of the 887 option awards outstanding as of January 1, 2014, 858 option awards were replaced at the time
of Expedia’s acquisition of a controlling interest in us and the remaining were additional grants in 2013 which
contained similar provisions as the replacement awards.
77 and 146 Class A employee share options were granted in 2015 and 2016, respectively. Additionally,
62,178 and 74,580 Class B employee share options were granted in 2015 and 2016, respectively, which
have economic and voting rights that are 1/1000 of a Class A option. Class A and Class B are presented as
the same class of shares and Class B option awards are presented in terms of Class A equivalents. The
majority of the employee share options granted in 2015 and 2016 had a strike price of €1. The remaining
F-26
options granted in 2015 were granted with strike prices which approximated the 2013 acquisition date fair
value of trivago shares and the remaining 2016 options were granted with a strike price equal to the fair
value of trivago shares estimated at the time of grant. All option awards granted in 2015 and 2016 contain
service based vesting provisions between two and three years. The shares subscribed for underlying the
grants in 2015 and 2016 are eligible to participate in prescribed liquidity events originally scheduled to occur
in 2016, 2018 and 2020. Options granted with exercise prices in excess of €1 are not expected to participate
in the risks and rewards of ownership for a reasonable period of time and are therefore accounted for as
liability awards.
In the third quarter of 2015, 484 Class A equivalent trivago employee option awards were exercised for
nominal proceeds. The underlying shares were held by employees in order to participate in the 2016 liquidity
window. Upon exercise of these options, trivago 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, trivago recognized a related party payable
for this amount. trivago’s extension of this nonrecourse loan to employees triggered an accounting
modification and changed the classification of the awards from equity to liability accounting treatment,
resulting in a one-time modification charge of €7.3 million and subsequent liability accounting treatment
requiring remeasurement to fair value at each reporting period until settlement in 2016. The shareholder
loan receivable was netted within the members’ liability balance which reflects the value of the liability awards,
net of the loan.
There were certain shares held by trivago employees which were originally awarded in the form of share-
based options pursuant to the trivago employee option plan and subsequently exercised by such employees.
During the second quarter of 2016, Expedia exercised a call right on these shares and elected to do so at
a premium to fair value, the aggregate payment of which, €62.5 million, was recorded as a Contribution from
Parent in Members’ Equity. The exercise resulted in an incremental share-based compensation charge of
approximately €43.7 million in the second quarter of 2016 pursuant to liability award treatment. The differential
between the cash settlement amount and the incremental share-based compensation charge reflects share-
based compensation expense recorded on these awards in previous periods. 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. The acquisition of these employee minority interests increased Expedia’s ordinary
ownership of trivago to 63.5%.
In the third quarter of 2016, 38 Class A equivalent trivago employee option awards were exercised for nominal
proceeds. All of these awards were liability-classified awards and their subsequent settlement resulted in a
reclassification of €4.2 million from Option liability to Reserves in equity. The options exercised were later
called by Expedia, with the options exercised having strike prices in excess of €1. Expedia withheld all of
the proceeds from exercise, which resulted in a €0.7 million payment to trivago and an offsetting impact to
Reserves in equity.
Amendment to trivago option plan
In conjunction with the IPO of trivago N.V. there was a modification to the trivago option plan on December
22, 2016. The modification converted the options for shares in trivago GmbH into options for shares in trivago
N.V. The adjustment to the terms of the options was equitable to the option holder, whereas the fair value
calculated before and after the adjustment resulted in no incremental fair value. There was no change to
the vesting or service conditions of the awards due to the amendment to the trivago option plan. The liquidity
windows in 2018 and beyond are no longer in effect under the amended trivago option plan.
Furthermore, as part of the modification of options for units in trivago GmbH to options for shares in trivago
N.V., all awards are considered to be equity classified awards as of the modification date. Prior to the
modification, certain awards with an exercise price higher than €1 were liability classified as the option
holders were not expected to participate in the risks and rewards normally associated with equity share
ownership for a reasonable period of time. However, with the modification, the employees no longer have
the option for the Company to settle the options in cash and with the IPO the employees can now have
access to a liquid market for the shares of trivago N.V., allowing them to participate in the risks and rewards
F-27
or equity share ownership. The amendment to the plan and modification resulted in a €4.9 million
reclassification of the liability for these options to Reserves in equity and the awards are classified as equity
going forward.
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 are members of the management board 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 Class A shares, which does not include any
Class B share conversions. Class A shares issuable under the 2016 Plan will be represented by ASDs 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 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 with 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. 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 include options, share appreciation rights, restricted 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.
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.
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.
As of December 31, 2016, there were no awards granted under the 2016 Plan. During the years ended 2017
and 2018, 10,561,001 and 5,002,236, respectively, awards were granted under the 2016 Plan.
trivago amended option plan
Under the trivago amended option plan, we may grant share options and other share-based awards to
management board and supervisory board members, officers, employees and consultants. We issue new
shares to satisfy the exercise or settlement of share-based awards.
F-28
The following table presents a summary of our share option activity in trivago N.V. equivalent shares for
periods prior to January 1, 2017 and trivago N.V. shares after January 1, 2017:
Weighted
average
exercise
price
Options
Remaining
contractual
life
(In years)
Aggregate
intrinsic
value
(in
thousands)
Balance as of January 1, 2016
Granted
Exercised
Cancelled
Balance as of December 31, 2016
Balance as of December 31, 2016 (trivago N.V.
equivalents)
Granted
Exercised
Cancelled
Balance as of December 31, 2017
Granted
Exercised
Cancelled
Balance as of December 31, 2018
Exercisable as of December 31, 2018
Vested and expected to vest after December 31,
2018
722 €
221 €
39 €
2 €
902 €
3,239
80,926
17,953
1
21,637
7,704,659
10,561,001 €
1,093,428 €
63,658 €
17,108,574 €
4,944,430 €
531,410 €
828,196 €
20,693,398 €
7,057,182 €
20,693,398 €
7.16
0.13
8.15
5.66
3.99
0.30
6.23
5.54
4.08
5.54
49
68,235
11,827
14,860
366
32,178
12,573
2,855
1,182
32,050
21,894
32,050
21
17
35
17
As discussed above, the options legally exercised in 2015 were subject to an accounting modification that
changed their classification from equity to liability awards. These awards remained subject to variable
accounting treatment through their settlement date in June 2016. Prior to the IPO, 93 Class A and 6 Class
B options (in terms of Class A equivalents options) were subject to liability accounting. As of December, 31,
2017 and 2018, no option awards are subject to liability accounting.
The total intrinsic value of share options exercised was €14.9 million and €2.9 million for the year ended
December 31, 2017 and December 31, 2018, respectively.
During the years ended December 31, 2016, 2017 and 2018, we awarded share options as part of our share-
based compensation. The fair value of share options granted during the years ended December 31, 2016,
2017 and 2018 were estimated at the date of grant using the Black-Scholes option-pricing model, assuming
the following weighted average assumptions:
Year ended December 31,
Risk-free interest rate
Expected volatility
Expected life (in years)
Dividend yield
2016
1.31%
46%
2.68
—%
Weighted-average estimated fair value of options granted
during the year
€
34,425
€
2017
2.18%
41%
4.62
—%
4
€
2018
1.74%
33%
4.42
—%
3
F-29
In 2018, we granted restricted stock units (RSUs) as part of our share-based compensation. The RSUs are
service-based awards which vest between one and three years. The fair value of the RSUs granted are
based on the stock price on the day of grant. The following table presents a summary of our RSUs:
Balance as of January 1, 2018
Granted
Vested
Cancelled
Balance as of December 31, 2018
Weighted
Average
Grant Date
Fair Value
Remaining
contractual
life
RSUs
— €
57,806 €
— €
— €
57,806 €
—
3.88
—
—
3.88
7
7
In 2016, 2017 and 2018, we recognized total share-based compensation expense of €53.7 million, €16.0
million and €20.7 million, respectively. There was no income tax benefit related to share-based compensation
expense for 2016, 2017 and 2018. Additionally, €318 thousand and €85 thousand of share-based
compensation cost was capitalized in 2016 and 2017, respectively, as part of software development costs.
No share-based compensation cost was capitalized in 2018.
Cash received from share-based award exercises for the years ended December 31, 2016, 2017 and 2018
was €686 thousand, €42 thousand and €161 thousand, respectively.
As of December 31, 2018, there was approximately €27.0 million in unrecognized share-based compensation
expense related to unvested share-based awards subject to equity treatment, which is expected to be
recognized in expense over the weighted average period of 1.8 years.
Income taxes
11.
The following table summarizes our income tax expense/(benefit):
(in thousands)
Current income tax expense (benefit):
Germany
Other countries
Current income tax expense (benefit)
Deferred income tax (benefit) expense:
Germany
Other countries
Deferred income tax (benefit) expense
Income tax expense (benefit)
Year ended December 31,
2016
2017
€
€
11,405 €
103
11,508
(4,838)
—
(4,838)
6,670 €
323 €
112
435
(4,851)
(348)
(5,199)
(4,764) €
2018
2,225
125
2,350
(1,264)
—
(1,264)
1,086
F-30
Reconciliation of German statutory income tax rate to effective income tax rate
The following table summarizes our income (loss) before income taxes allocated to Germany and to other
countries:
(in thousands)
Germany
Other countries
Income (loss) before income taxes
Year ended December 31,
2016
2017
2018
€
€
(32,985) €
(20,018) €
(20,574)
(11,736)
2,205
108
(44,721) €
(17,813) €
(20,466)
A reconciliation of amounts computed by applying the German statutory income tax rate to income (loss)
before income taxes to total income tax expense (benefit) is as follows:
(in thousands)
Income (loss) before income taxes
Income tax expense at German tax rate (31.23%)
Foreign rate differential
Expected tax expense (benefit)
Tax effect from:
Non-deductible share-based compensation
Non-deductible corporate costs
Movement in valuation allowance
Foreign withholding taxes
Other differences
Income tax expense (benefit)
Year ended December 31,
2016
(44,721) €
(13,964)
219
(13,745)
16,875
1,306
1,921
29
284
6,670 €
2017
(17,813) €
(5,562)
33
(5,529)
5,017
34
(3,517)
—
(769)
(4,764) €
2018
(20,466)
(6,391)
(5)
(6,396)
6,465
—
(184)
813
388
1,086
€
€
Our effective tax rate was (14.9)% in 2016, 26.7% in 2017 and (5.3)% in 2018. This is primarily due to non-
deductible share-based compensation of (pre-tax) €53.7 million in 2016, €16.0 million in 2017 and €20.7
million in 2018. Furthermore, (pre-tax) corporate costs amounting to €4.2 million for 2016 and €0.1 million
for 2017 were pushed down from Expedia Group. No amounts were pushed down from Expedia Group in
2018. These corporate costs are non-deductible for tax purposes. Additional details on the movement in
valuation allowance are included below.
Other differences relate to one-off items during the year. In 2018, €0.8 million relate to foreign withholding
tax deductions. The remainder of the other permanent differences amounts in 2016, 2017 and 2018 relate
to individually insignificant non-deductible expenses.
Uncertain tax positions
There are no uncertain tax positions provided for as of December 31, 2016, 2017 and 2018.
The Company is subject to audit by federal, state, local and foreign income tax authorities. As of December 31,
2018, there is an ongoing audit of tax returns from 2013 through 2015 for corporate and trade income tax
as well as value-added tax for trivago GmbH. According to the statute of limitation, the German tax authorities
may initiate additional audits of tax returns for 2014 through 2018. Management determined that it is not
more likely than not that the current or any future audits result in an unfavorable outcome.
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Deferred income taxes
At December 31, 2017 and 2018, the significant components of our deferred tax assets and deferred tax
liabilities were as follows:
(in thousands)
Deferred tax assets:
Net operating loss and tax credit carryforwards
Prepaid expense and other current assets
Deferred rent
Property and Equipment
Accrued expenses and other current liabilities
Intangible assets, net
Other long-term liabilities
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets, net
Property and equipment
Accrued expenses and other current liabilities
Other
Total deferred tax liabilities
Net deferred tax asset/(liability)
Year Ended December 31,
2017
2018
€
€
2,522 €
2,458
1,429
537
473
—
326
405
8,150
(348)
7,802
949
5,042
1,778
459
1,381
372
299
329
10,609
—
10,609
53,981
2,059
67
—
56,107
(48,305) €
53,499
2,778
448
434
57,159
(46,550)
At December 31, 2018, we had net operating loss carryforwards (“NOLs”) for a tax-effected amount of
approximately €0.9 million. The tax-effected NOL carryforwards decreased by €1.6 million from the amount
recorded at December 31, 2017 primarily due to utilization of pre-tax losses at the level of the trivago N.V.
trivago N.V. is a Dutch listed entity, however has its tax residency in Germany. In 2017, trivago N.V. and
trivago GmbH merged for tax purposes. This merger enables trivago N.V. to offset its NOLs with any future
taxable profits of trivago GmbH. As a result, the €3.2 million previously unrecognized losses of trivago N.V.
have been fully recognized in FY 2017.
Of this €3.2 million, €0.7 million of NOLs have not been utilized at December 31, 2018. If not utilized, the
tax-effected NOL carryforwards of €0.7 million may be carried forward indefinitely. €0.3 million tax-effected
NOLs referred to previously unrecognized losses of Base7 GmbH, which also may be carried forward
indefinitely.
The tax-effected valuation allowance decreased by €0.3 million from the amount recorded at December 31,
2017 and relates to the recognition of previously unrecognized losses at the Base7 GmbH level.
The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future
taxable income during the carryforward period change, or if objective negative evidence in the form of
cumulative losses is no longer present and additional weight may be given to subjective evidence such as
our projections for growth.
The total cumulative amount of undistributed earnings related to investments in certain foreign subsidiaries
where the foreign subsidiary has or will invest undistributed earnings indefinitely was €2.0 million at
December 31, 2018. We have not provided for any deferred income taxes on this difference as only 5% refer
to a taxable temporary difference under German tax law, which is insignificant. In the event we distribute
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such earnings in the form of dividends or otherwise, these would be tax exempt for all investments located
in Europe. Any capital gains on the sale of participations would be 95% exempt under German tax law.
12. Redeemable noncontrolling interests
Noncontrolling interest existed in myhotelshop until its deconsolidation in December 2017 as it was majority
owned by us. We carried it at fair value as the noncontrolling interests contained certain rights, whereby we
may have acquired and the minority shareholders may have sold to us the additional shares of the company.
A reconciliation of redeemable noncontrolling interest for the year December 31, 2017 is as follows:
(in thousands)
Balance, beginning of the period
Net loss attributable to noncontrolling interests
Fair value adjustments through members’ equity
Currency translation adjustments and other
Change in ownership of noncontrolling interest
Deconsolidation of entity
Balance, end of period
Year ended
December 31,
2017
€
€
351
(110)
149
0
0
(390)
—
During the year ended December 31, 2017, the fair value of the redeemable noncontrolling interest was
adjusted by €0.1 million for the net loss attributable to the noncontrolling interest in myhotelshop. A total fair
value adjustment of €0.1 million was recorded to reflect the fair value of the noncontrolling interests as of
the deconsolidation date of myhotelshop. On December 15, 2017, after losing control of myhotelshop, we
deconsolidated the entity including the redeemable noncontrolling interests with a fair value of €0.4 million.
There is no redeemable noncontrolling interest as of December 31, 2017 and December 31, 2018.
13. Stockholders' equity
Class A and Class B common stock (after the corporate reorganization, see Note 1 - Organization and basis
of presentation)
As of December 31, 2018, we had ADSs representing 42,559,884 Class A shares outstanding, 308,687,967
Class B shares outstanding. During the third quarter of 2017, the Founders exchanged their units in trivago
GmbH for 110,791,880 Class B shares in trivago N.V. in connection with the merger of trivago GmbH with
and into trivago N.V. Each Class B share is convertible into one Class A share at any time by the holder.
During 2018, 11,112,001 Class B shares were converted into Class A shares.
Class A and Class B common stock has a par value of €0.06 and €0.60, respectively. The holder of our Class
B shares, Expedia Group and Founders, are entitled to ten votes per share, and holders of our Class A
shares are entitled to one vote per share. All other terms and preferences of Class A and Class B common
stock are the same.
Reserves
Reserves primarily represents the effects of pushdown accounting applied due to the change in control in
2013 in addition to share premium as result of the corporate reorganization and IPO. See Note 1 - Organization
and basis of presentation. Further effects to the Reserves are due to the merger of trivago GmbH with and
into trivago N.V., exercises of employee stock options, and the effect of the Founders' conversion of Class
B shares to Class A shares in 2018.
Accumulated other comprehensive income (loss)
F-33
Accumulated other comprehensive income represents foreign currency translation adjustments for our
subsidiaries in foreign locations. As of December 31, 2018, we do not expect to reclassify any amounts
included in accumulated other comprehensive income (loss) into earnings during the next 12 months.
Contribution from Parent
The beginning contribution from Parent balance represents the pushdown of share-based compensation
expense from Expedia Group. See Note 1 - Organization and basis of presentation, Note 10 - Share-based
awards and other equity instruments and Note 17 - Related party transactions.
Dividends
In December 2016, trivago GmbH agreed to affect a one-time dividend payment in respect of fiscal year
2016. The dividend is in the amount of €0.5 million and was paid to shareholders of record prior to the IPO,
resulting in a €0.2 million cash outflow to trivago N.V. in the year ended December 31, 2017.
14. Earnings per share
Effective with our IPO, basic and diluted earnings per share of Class A and Class B common stock is computed
by dividing net income attributable to trivago N.V., after adjusting for noncontrolling interest, by the weighted
average number of Class A and Class B common stock outstanding during the same period. Diluted earnings
per share is calculated using our weighted-average outstanding common shares including the dilutive effect
of stock awards as determined under the treasury stock method.
There were no shares of Class A or Class B common stock outstanding prior to December 16, 2016, therefore
no earnings per share information has been presented for any period prior to that date.
The following table presents our basic and diluted earnings per share:
(In thousands, except per share data)
Numerator:
Net income/(loss)
Less: net income attributable to
noncontrolling interest
Net income/(loss) attributable to trivago N.V.
Denominator:
Weighted average shares of Class A and
Class B common stock outstanding - basic
and diluted
Earnings per share attributable to trivago
N.V. available to Class A and Class B
common stockholders - basic and diluted
December 16, 2016
through
December 31, 2016
January 1, 2017
through
December 31, 2017
January 1, 2018
through
December 31, 2018
€
€
€
1,185 €
(13,049) €
(21,489)
285
900 €
568
(12,481) €
—
(21,489)
237,811
274,666
350,852
— €
(0.05) €
(0.06)
Diluted weighted average common shares outstanding does not include the effects of the exercise of
outstanding stock options and RSUs as the inclusion of these instruments would have been anti-dilutive.
F-34
15. Other, net
For the years ended December 31, 2016, 2017 and 2018, Other, net were primarily made up of the following:
(i) foreign exchange rate gains (losses) due to the revaluation of foreign currency receivables and payables
and, (ii) income from ADSs offset by custodial fees related to ADSs, (iii) income from campus canteen, (iv)
government subsidies for research and development activities and (v) rent income for office subleases.
(in thousands)
Foreign exchange rate gains (losses), net
Net income from ADS fees
Income campus canteen
Government subsidies
Rent income
Other income (expenses)
Total
Year ended December 31,
2016
2017
€
16 €
120 €
—
—
—
—
(155)
(139) €
€
294
—
115
—
63
592 €
2018
(590)
431
307
278
128
(15)
539
16. Commitments and contingencies
Credit facility, purchase obligations and guarantees
We have commitments and obligations which include purchase commitments, which could potentially require
our payment in the event of demands by third parties or contingent events. Commitments and obligations
as of December 31, 2018 were as follows:
(in thousands)
Purchase obligations
Total
Less than
1 year
1 to 3 years
3 to 5 years
By Period
More than
5 years
€
19,812 €
19,812 €
— €
— €
—
Our purchase obligations represent 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.
Lease commitments
We have contractual obligations in the form of operating leases for office space and related office equipment,
employee apartments and a financing obligation related to the failed sale-leaseback of our corporate
headquarter. Certain operating leases contain periodic rent escalation adjustments and renewal options.
Rent expense related to such leases is recorded on a straight-line basis over the lease term. Lease obligations
expire at various dates through 2038. For the years ended December 31, 2016, 2017 and 2018, our rental
expense was €4.6 million, €4.8 million and €4.7 million, respectively. For the failed sale-leaseback of our
corporate headquarters, we do not recognize rent expense related to the lease; the cash payments are
recognized as interest expense and amortization of the liability for the financing obligation. See Note 2 for
further information.
We have recognized on our balance sheet asset retirement obligation liabilities as of December 31, 2017
and 2018 of €1.0 million and €0.6 million, respectively, 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
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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.
The following table presents our estimated future minimum rental payments under operating leases with
noncancelable lease terms that expire after December 31, 2018 and financing obligations under the failed
sale-leaseback of our corporate headquarters:
Year ending December 31,
(in thousands)
2019
2020
2021
2022
2023
2024 and thereafter
Total
€
10,348
9,143
9,137
8,730
7,505
32,016
76,879
€
Minimum rental payments have not been reduced by minimum sublease rentals of €1.9 million due in the
future under non-cancelable subleases.
Legal proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out
of our operations. We also evaluate other potential contingent matters, including value-added tax, excise
tax, sales tax, transient occupancy or accommodation tax and similar matters.
On August 23, 2018, the Australian Competition and Consumer Commission, or ACCC, instituted proceedings
in the Australian Federal Court against us. The ACCC alleged breaches of Australian consumer law relating
to our advertisements in Australia concerning the hotel prices available on our Australian site and our strike-
through pricing practice, which is the display adjacent to the price quote in the top position in our search
results of a higher price that is crossed out. On November 27, 2018, we filed a response to the ACCC's
statement of claim. On December 19, 2018, the court issued an order setting a trial date for September 9,
2019 and requiring us to produce certain documents. We are in the process of producing these documents.
Management has established a provision in respect of this matter.
We and certain of our management board members are the subject of two putative class actions that were
filed in the United States District Court for the Southern District of New York. These two actions have since
been consolidated into a single action, and an amended complaint was filed in that action on March 30,
2018. The amended complaint asserts claims under the Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended, 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 25, 2017. The complaint also names underwriters of our initial public offering as
defendants. On May 14, 2018, we filed a motion to dismiss this matter. On February 26, 2019, the court
granted the motion to dismiss as to all defendants, without granting plaintiffs leave to further amend the
complaint. The plaintiffs may appeal the decision by March 29, 2019.
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 considers 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
F-36
undertakings provide for an implementation period of six months and resolved the CMA's investigation into
our practices in the United Kingdom without any admission or finding of liability.
The outcomes of these matters could have a material adverse effect on our business, financial condition or
results of operations.
17. Related party transactions
Relationship with Expedia Group, Inc.
We have commercial relationships with Expedia Group, Inc. and many of its affiliated brands, including Brand
Expedia, Hotels.com, Orbitz, Travelocity, Wotif, HomeAway 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 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. Related-party
revenue from Expedia Group of €268.2 million, €367.6 million and €331.4 million for the years ended
December 31, 2016, 2017 and 2018, respectively, primarily consists of click through fees and other
advertising services provided to Expedia Group and its subsidiaries. These amounts are recorded at contract
value, which we believe is a reasonable reflection of the value of the services provided. Related-party revenue
represented 36% of our total revenue for each of the years ended December 31, 2016, 2017 and 2018,
respectively.
For the years ended December 31, 2016, 2017 and 2018, our operating expenses include €4.2 million, €0.5
million and €0.8 million, respectively, of related-party shared services fees and amounts related to the services
and support agreements detailed below. During the years ended December 31, 2016 and 2017, Expedia
Group allocated certain legal, tax, treasury, audit and corporate development costs, including associated
employee compensation costs. These expenses were allocated based on a number of factors including
headcount, estimated time spent and operating expenses which trivago considers reasonable estimates.
These amounts may have been different had trivago operated as an unaffiliated entity. During 2017, trivago
started incurring these expenses directly.
The related party trade receivable balances with Expedia Group and its subsidiaries reflected in our
consolidated balance sheets as of December 31, 2017 and 2018 were €38.6 million and €39.7 million.
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 initial public offering, with a maximum principal amount of
€10.0 million. Advances under this facility bear 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 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. 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 years ended December 31, 2017 and 2018.
On July 23, 2015, we entered into an agreement to design and build our new headquarters in Düsseldorf,
Germany. As part of that agreement, Expedia Group had guaranteed certain payments due by trivago. The
guarantee by Expedia Group ended upon receipt of a bank guarantee by trivago, which we obtained in July
2017. As of December 31, 2017, there no longer is a guarantee by Expedia Group for certain payments
made by us related to our new headquarters.
Services agreement
On May 1, 2013, we entered into an Assets 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
F-37
we use that are located within the United States. Either party may terminate the Data Hosting Services
Agreement upon 30 days’ prior written notice. For each of the years ended December 31, 2016, 2017 and
2018, we paid Expedia Group €21 thousand, €68 thousand and €59 thousand, respectively, for these data
hosting services.
Services and support agreement
On September 1, 2016, we entered into a Services and Support Agreement, pursuant to which Expedia
Group 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. For each of the years ended December 31, 2016, 2017 and 2018, we incurred €0.1 million, €0.4
million and €0.7 million, respectively, for these services and support services.
18. Segment information
Beginning in the second quarter of 2016, management identified three reportable segments, which
correspond to our three operating segments: the Americas, Developed Europe and Rest of World. The
change from one to three reportable segments was the result of a shift in the Company’s focus on managing
the business to reflect unique market opportunities and competitive dynamics inherent in our business within
each of our operating segments. Our Americas segment is comprised of Argentina, Barbados, Brazil, Canada,
Chile, 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 represents all regions outside of the Americas and Developed
Europe. The top countries by revenue in the Rest of World segment include Australia, Japan, India, New
Zealand and Russia.
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
Return on Advertising Spend, or ROAS, for each of our segments, which compares referral revenue to
advertising spend. ROAS includes the allocation of revenue by segment which is based on the location of
the website, or domain name, regardless of where the consumer resides. This is consistent with how
management monitors and runs the business.
Corporate and Eliminations also includes all corporate functions and expenses except for direct advertising.
In addition, we record amortization of intangible assets and any related impairment, as well as share-based
compensation expense, restructuring and related reorganization charges, legal reserves, occupancy tax and
other taxes, and other items excluded from segment operating performance in Corporate and Eliminations.
Such amounts are detailed in our segment reconciliation below.
The following tables present our segment information for the years ended December 31, 2016, 2017 and
2018. As a significant portion of our property and equipment is not allocated to our operating segments and
depreciation is not included in our segment measure, we do not report the assets by segment as it would
not be meaningful. We do not regularly provide such information to our chief operating decision makers.
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(in thousands)
Referral revenue
Subscription revenue
Other revenue
Total revenue
Advertising spend
ROAS contribution
Costs and expenses:
Cost of revenue, including
related party, excluding
amortization
Other selling and marketing(1)
Technology and content
General and administrative,
including related party
Amortization of intangible
assets
Operating loss
Other income (expense)
Interest expense
Other, net
Total other income (expense),
net
Loss before income taxes
Provision for income taxes
Net loss
Year Ended December 31, 2016
Developed
Europe
Americas
Rest of
World
Corporate &
Eliminations
Total
€
€
€
348,909 €
—
—
348,909 €
257,471
286,398 €
—
—
286,398 €
243,176
91,438 €
43,222 €
110,517 €
—
—
110,517 €
122,805
(12,288) €
— €
5,511
2,834
8,345 €
—
8,345 €
745,824
5,511
2,834
754,169
623,452
130,717
4,273
49,772
51,658
55,602
13,857
€
(44,445)
(137)
(139)
(276)
(44,721)
6,670
(51,391)
€
€
€
(1) Represents all other sales and marketing, excluding advertising spend, as advertising spend is tracked by reporting segment.
F-39
Developed
Europe
€
€
€
424,993 €
—
—
424,993 €
324,487
100,506 €
(in thousands)
Referral revenue
Subscription revenue
Other revenue
Total revenue
Advertising spend
ROAS contribution
Costs and expenses:
Cost of revenue, including
related party, excluding
amortization
Other selling and marketing(1)
Technology and content
General and administrative,
including related party
Amortization of intangible
assets
Operating loss
Other income (expense)
Interest expense
Gain on deconsolidation of
subsidiaries
Other, net
Total other income (expense),
net
Loss before income taxes
Provision for income taxes
Net loss
Year Ended December 31, 2017
Rest of
World
Corporate &
Eliminations
Americas
391,667 €
—
—
391,667 €
338,072
53,595 €
203,673 €
—
—
203,673 €
222,126
(18,453) €
— €
11,511
3,539
15,050 €
—
15,050 €
Total
1,020,333
11,511
3,539
1,035,383
884,685
150,698
5,930
62,240
52,232
47,444
3,220
€
(20,368)
(44)
2,007
592
2,555
(17,813)
(4,764)
(13,049)
€
€
€
(1) Represents all other sales and marketing, excluding advertising spend, as advertising spend is tracked by reporting segment.
F-40
Developed
Europe
€
€
€
378,919 €
—
—
378,919 €
265,004
113,915 €
(in thousands)
Referral revenue
Subscription revenue
Other revenue
Total revenue
Advertising spend
ROAS contribution
Costs and expenses:
Cost of revenue, including
related party, excluding
amortization
Other selling and marketing(1)
Technology and content
General and administrative,
including related party
Amortization of intangible
assets
Operating loss
Other income (expense)
Interest expense
Gain on deconsolidation of
subsidiaries
Other, net
Total other income (expense),
net
Loss before income taxes
Provision for income taxes
Net loss before equity method
investment
Income (loss) from equity
method investment
Net loss
Year Ended December 31, 2018
Rest of
World
Corporate &
Eliminations
Americas
315,966 €
—
—
315,966 €
261,620
54,346 €
204,937 €
—
—
204,937 €
205,834
(897) €
— €
13,863
1,131
14,994 €
—
14,994 €
Total
899,822
13,863
1,131
914,816
732,458
182,358
5,435
73,175
66,904
54,326
1,684
€
(19,166)
(1,839)
—
539
(1,300)
(20,466)
1,086
(21,552)
63
(21,489)
€
€
€
€
(1) Represents all other sales and marketing, excluding advertising spend, as advertising spend is tracked by reporting segment.
F-41
Geographic information
The following table presents revenue by geographic area for the years ended December 31, 2016, 2017
and 2018. Referral revenue was allocated by country using the same methodology as the allocation of
segment revenue, while non-referral revenue was allocated based upon the location of the customer using
the service.
(in thousands)
Total Revenues
United States
United Kingdom
Germany
Australia
Spain
All other countries
Year ended December 31,
2016
2017
2018
€
€
199,423 €
86,745
76,599
30,820
37,715
322,867
754,169 €
255,501 €
108,080
85,308
50,623
36,757
499,114
1,035,383 €
194,416
95,893
73,143
47,737
34,059
469,568
914,816
The following table presents property and equipment, net for Germany and all other countries, as of
December 31, 2017 and 2018:
(in thousands)
Property and equipment, net:
Germany
All other countries
Years ended December 31,
2017
2018
€
€
112,707 €
159,071
1,764
2,930
114,471 €
162,001
19. Valuation and qualifying accounts
The following table presents the changes in our valuation and qualifying accounts not disclosed elsewhere
in these financial statements.
(in thousands)
2016
Balance at
Beginning of
Period
Charges to
Earnings
Deductions
Balance at
End of Period
Allowance for doubtful accounts
€
251 €
1,749 €
(1,848) €
2017
Allowance for doubtful accounts
2018
Allowance for doubtful accounts
152
231
2,275
(2,196)
580
(561)
152
231
250
F-42
20. Subsequent events
After the date of the balance sheet through the date of issuance of these consolidated financial statements,
1,000,000 Class B shares were converted into 1,000,000 Class A shares consistent with the conversion ratio
discussed in Note 13. Furthermore, options exercised resulted in additional share issuance of 530,646 Class
A shares.
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