Matthias Tillmann - Head of Investor Relations Rolf Schrömgens - Managing Director & Chief Executive Officer Axel Hefer - Managing Director & Chief Financial Officer.

Naved Khan - SunTrust Mark May - Citi Heath Terry - Goldman Sachs Kevin Kopelman - Cowen and Company James Lee - Mizuho Tom Wise - D.A. Davidson.

Good day and welcome to the Q1 Earnings Release 2018 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Matthias Tillmann. Please go ahead..

we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements.

You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's IR website at ir.trivago.com. I encourage you to periodically visit our Investor Relations site for important content, including today's earnings release.

Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2017. With that, let me turn the call over to Rolf..

Welcome, everybody. Many thanks for joining our first quarterly earnings call for 2018.

Instead of four challenging quarters that we had expected in our guidance with us last year, just to remind everybody, we grew revenue nearly 70% in the beginning of 2017 and competing with these numbers with a very lower commercial basis this year was modern EBITDA.

A new challenge comes also with new experiences and learnings for the organization, the last quarter meant to show a lot of discipline to use our resources even more wisely than we did. Its impressive to see how fast everybody adapted to that mentality while the overall culture of the company did not change.

And we have seen a lot of ups and downs in the history of Trivago, but we believe value is created over longer timeframes. And so that is important to stay focus and to consequently execute on our mission. At the two-sided marketplace we have two customer groups that we want to make happy.

On one side, we have our travelers that we want to give the best overview and lead them to the ideal hotel. And despite the strong comp sets made difficult for us to ramp up our advertising spend like in the previous years, we were growing globally our brands recognition and significantly increasing our visitor base on a year-over-year basis.

Our tech team will try to rebuild the infrastructure of our search to make a real matching between user needs and hotel profiles as possible. And to build the basis for continuous improvement of [indiscernible]. We are proud that we were able to bring initial test of that new [indiscernible] on our web cloud platform during this quarter.

The second group of our customers are advertisers. We want to be a profitable channel for them to reach a target group. Looking at the last nine months, we have to conclude that our commercialization did suffer.

But this also have an upside because on the other side that means that our advertisers can average significantly more profitable on the lease volume that we provide to them. Looking forward, we will always stay committed to both, and be a great a value to our users and to our advertisers. So, let’s have a look at the overall numbers.

With EUR259.4 million, our total revenues stayed relative stable compared to a super strong quarter with 58% year-on-year growth beginning at 2017. We see this as a success, keeping in mind that we estimate a double-digit percent lower commercialization. Additionally, we have to save major headwinds in terms of euro exchange rate.

We estimate that strengthening of the euro at an approximately 15% negative impact on our revenues in the Americas and a 10% negative impact on the revenues in our rest of the world markets in Q1.

Against all these trends and although we have focused on improving our traffic quality, we were still able to grow our qualified referrals by 7% to EUR189.5 million compared to EUR177.2 million in the same quarter last year. Revenues per qualified referrals went over all down 9%.

The positive [indiscernible] of our traffic quality initiatives was unfortunately overcompensated by lower commercialization and the exchange rate effects. The trend to a more equal distribution of revenues between the three segments continues. In the first quarter the rest of the world segment contributed 1% of overall revenues.

To provide some color on what happened mid of 2017, we want to show you the quarter-over-quarter revenue growth rate development for the last two years. For 2015 and 2016 that’s the blue and the red line in the chart, you can see that the seasonal development of revenues was pretty comparable throughout the year.

For 2017 then you see a very weaker growth rate between Q2 and Q3 where most of the drop-in commercialization appeared. On the other side, you can also see that for the last two quarters, we are back to the normal seasonal pattern. Next slide, looking at the shared development of our advertisers. We’ve seen a lot of volatility in Q4.

For the current quarter, the development remains relatively stable and the share of more advertisers remains strong. So, let’s take a deeper dive into the development in brand marketing. We have to consider that we already established a very high brand awareness globally. This is not only but specifically true across our most established key markets.

Our new ad creators are now more focused on advancing the user understanding of our product features in order to further increase usage. In nearly all European markets we are the second strongest brand in terms of regular usage. We aim to even continuously improve our position in the European market and the KPI over time.

In newer markets like the US, there’s still a lot of headroom to grow. To illustrate this, we want to show you here the development of the unaided brand awareness and top of mind share. For unaided brand awareness the independent panelists opt to actively magnify vacant research or book a hotel.

The trivago brand as we call them 28% of all [indiscernible] good value for any brand. And 15% of all [indiscernible]. This represents a strong increase to the previous year with 22% aided brand awareness and 11% top of mind share in March 2017.

Nearly doubling our numbers over the last two years in one of the most established and competitive markets represent a substantial increase of our brand value. Thanks for listening. I will now hand over to Axel for a more detailed look on the financials. .

Yes. Thanks, Rolf. Our overall total revenue was broadly stable as Rolf mentioned at €259.4 million down from €267.6 million, facing significant headwinds through the strong year and the drop of commercialization.

As our key focus for the quarter has been our top-line development, we do not expand to absorb the negative effect of the drop-in commercialization resulting in a drop-in profitability. Our adjusted EBITDA came down from a positive €19.3 million in the first quarter 2017 to a loss of €21.9 million in 2018.

Net income turning from a €5.2 million in gain to a €21.8 million loss. As a percent of revenue our adjusted EBITDA margin came down from 7.2% to a negative 8.4% while the net income as a percent of total revenue came down from 1.9% positive to minus 8.4% negative.

Our return on advertisement spend reduced from 121% to 108% on a global basis driven by the lower commercialization. So, if you look at our KPIs on a global level, we managed to grow our qualified referrals by 7% while at the same time we improved our traffic quality through our marketing and product initiatives.

The RPQR in euros came down from €1.49 to 1.35 which represents a 9% drop. Key drivers of this drop have been the significant currency effects, the significant drop in commercialization while on the positive side the traffic quality has improved and partially offset those negative effects.

The [indiscernible] drop from 121% to 108%, again driven by lower commercialization. If we look at Developed Europe, qualified referrals came down from €73.6 million to €70.1 million, while at the same time traffic quality improved.

And the RPQR in euros was slightly down from €1.54 to €1.49, driven by lower commercialization and positively impacted by the improved traffic quality, that did not really compensate the drop-in commercialization. On return on advertising spends, we saw a change from 139% to 128% again driven by the lower commercialization.

In Americas we managed to grow our qualified referrals against a very strong first quarter in 2017 by 8%, up from €55.5 million to €59.9 million. The revenue per qualified referral in euros was down 12%, negatively impacted by the currency and the commercialization and partially compensated through a positive traffic quality development.

Translated into U.S. dollars, the RPQR was up by 2% from $1.96 to $1.99. Looking at the return on advertisement spend, we saw a decline from 118% to 104% through the significant drop in commercialization compared to the first quarter in 2017.

Rest of the world experienced healthy growth in qualified referrals of 23%, coming up from €48.2 million to €59.5 million. The RPQR in euros decreased by 10% again driven by strong currency movements and the drop-in commercialization and partially offset by the improved traffic quality. Looking at the RPQR translated into U.S.

dollars, also in rest of the world, we saw a positive development up 4% from $1.08 to $1.12. The [indiscernible] came down from 96% to 87% again driven by the significant drop in commercialization compared to the first quarter of 2017. Looking our overhead costs.

We had our total cost and expenses increased from €30.9 million in the first quarter 2017 to €46.3 million in the first quarter of 2018, or 50% increase. The biggest driver of this increase has been the increase in the overall headcount which has increased by 338.

This happen across the board, as we invested into our hotel relations team, our technological expertise and our G&A function. At the same time successfully mitigating our material weakness and becoming stock compliant within the first year as a public company.

Addition to the increase in headcount, we had significant increases in our investments in [indiscernible] spot production, which are part of the other selling and marketing expenses. In Q1 2018 our headcount only grew slightly by 11 [talent] and we do not expect a significant increase in the course of 2018. Coming to guidance.

Despite the positive revenue development considering the difficult comps in the first quarter, we expect the overall year to show stable revenues. We expect to continue to experience negative currency effects and lower commercialization in the first half of the year, as we already mentioned on our last earnings call.

We believe that since then our larger advertisers may have increased their profitability on our platform even further, the development that would have a direct negative impact on our commercialization. Although this development may or may not change in the course of the year we have assumed in our guidance that this change will persist.

As a consequence, we expect the revenue per qualified referrals to decline significantly in the first half of 2018 and to remain slightly negative in the second half of 2018. However, we continue to expect a return to our growth trajectory in the second half of the year.

In addition, we believe that [indiscernible] will improve compared to the second half of 2017 and the second half of 2018, and that the adjusted EBITDA in the second half of 2018 will be positive. For the full year, we continue to expect a negative adjusted EBITDA ranging between 25 million loss and a 50 million loss. .

And with that we are ready to take your questions now. .

[Operator Instructions]. We’ll take our first question from Douglas Anmuth from JPMorgan. Please go ahead..

Hello, this is [indiscernible] for Doug, I just have two questions.

First one could you, you mentioned [indiscernible] advertisers have changed their profitability target, is this a 2Q development that’s not being shown in your I guess Q1 number and in addition to that it seems like your RPQR outlook was lower versus what you had in 4Q earnings, could you explain what changed there? And secondly, could you give us more color on the change in the leadership structure that you guys announced during the quarter, while in housing what’s changed from that? Thank you.

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So, on the timing of the change in profitability targets, that is correct. So, the first quarter has only to a very limited extent being affected by that and we expect a significantly stronger effect in the second quarter. .

[Guidance we did structure].

So, Peter and [indiscernible] with the company for 13 years, they are super loyal with the company they want to stay onboard, but on the other side they also want to take a step back and we used that opportunity to simplify the structure of the [indiscernible] structure of Trivago to keep only three indeed, but it doesn’t mean that’s the leadership team as a whole changes.

We want just to be more flexible in the future to also promote new members in the leadership team and to be able to -- it has more flexibility there. But Peter and [indiscernible] will remain with the company, they will just go into other roles and not stay with the leadership team. .

We will now take our next question from Lloyd Walmsley from Deutsche Bank. Please go ahead..

Thanks for the question, this is actually [Set] on for Lloyd. I just wondering if you could talk about what’s happening into profitability in your oldest markets and how this might affect any geographical expansion going forward.

And then also question on short-term rental supply, I realized it’s early days, but I was wondering if you could talk about bringing on the short-term rental supply to the platform and how is the advertiser and customer feedback been for the 350,000 units now on the platform and also the final thing is just would you be open to additional short-term rental platforms or will that dilute the value of the current advertisers on the platform? Thank you..

Okay. So, on the development of the profitability of individual markets, I mean we do not comment on individual countries. Broadly speaking, I mean, the drop-in commercialization has not been in certain markets, but across the whole platform. So, the drop-in profitability was widely across most of the markets, all of the markets.

To come to your second question in terms of alternative accommodation, I mean as we said in the past, we think it is a very big opportunity, but what is also very important is to be disciplined and not make radical changes to the overall mix on our platform.

So we are exactly on track and in terms of testing and gradually increasing the visibility of alternative accommodation and that does also answers your third question, at the right point in time, we will obviously onboard more and more advertisers, but we think that it is important that you don’t rush into it, but that you gradually make the changes on the platform that you need to make in terms of marketing, in terms of marketplace algorithms because there is a significant difference, in terms of inventory between alternative accommodation and hotel inventory..

Let me just also comment on that because we really see there is a great chance for us in this segment. But what you have to also keep in mind is that there is of course difference in the commercialization of alternatives accommodations and hotels, just because of the structure of the offering. And that’s why you have to be careful.

What we did basically during the last year is that we revamped our whole backend infrastructure to make it possible that we have very personalized search results and these personalized live search results give us a chance to show to users we are more likely to book alternative accommodation and to show them more offers and have -- and commercial well and then, while we have [indiscernible] book alternative accommodations.

So, I think that is something that is important. So basically, the exposure on trivago alternative accommodations both hands-on-hands with the personalization approaches that we have done..

We will now take our next question from Naved Khan from SunTrust. Please go ahead..

Yeah, thank you very much.

Can you comment on the impact of changes you are making to the marketing execution model? Any changes that you’ve seen in terms of your mix between TV and other channels? And then in terms of just the traffic quality, I think you talked about how the quality has improved, are you seeing any increased usage, repeat usage by the consumer base and also are you seeing higher conversions? And then I had a question on GDPR, are you baking an any kind of impact on your second quarter performance from addressable GDPR rollout.

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Okay so on the attribution model we are progressing as planned the majority of the -- on the DA channel we rolled out a new attribution in July last year so that has been on the new attribution for a long-time and that is part of the effect when we say we improved our traffic quality and we see an significant increased improved traffic quality in that channel for quite some time already.

And at the end, we see the majority off the effect of the new attribution in Q1 but to have it 100% or a rolled out will take some time so we are gradually working on that. And also, there you see an improved traffic quality and obviously a negative effect on the overall volume, compensated by the higher quality.

In terms of repeat usage, we have limited of this ability because we don’t have a high share of locked in users like any search business and that's why it's difficult to comment on that. And on your last question GPR, we don’t expect a significant impact on the business and we are obviously working on being compliant in time. .

We will now take our next question from Brian Nowak from Morgan Stanley. Please go ahead..

Hi this is [indiscernible] on for Brian. I think have two so what are the biggest changes that you pointed in the business has led to the decrease in the guidance you mentioned lower commercialization and positive traffic quality on the positive side. I'm wondering if you can give some more color on that.

And then how do you think about the long-term scalability of the model, what drivers do you think are needed to get the long-term margins that with the IPO..

So when you look at our current guidance versus the guidance last quarter the obvious impact is obviously the development of the first quarter and also the recent developments of the second quarter so we see that the first half would come out more negative than we originates it's all and we assume that the more recent change in appetite of profitability target will persist for the second half so we also see the growth in the second half slightly lower than we originally would have seen it.

Those are basically the main update and in terms of guidance so as I've said we continue to be positive on the growth momentum in the second half but to a slightly lower level than we originate thought through a lower revenue per qualified prefer assumption. .

I think also want to be cautious for the second half of the year and looking as a long-term margin development I think that the question is like several questions. First question is like how much is the current level of commercialization sustainable will go up or will go down.

And so but there it's not about short-term strength and short-term kind of like reactions of our asset types but it's rather long-term market structure and there we see actually some very positives signs, so they are global asset types going into the market, we see that the difference that an accommodation types will probably melt into each other, so there will be more players in the marketplace and will be introduce alternative accommodation.

In our marketplace that will play hopefully play a more important role. So, I think in the long-term development I think it's quite hard to see where we will be in two or three years, but there are some positive signs about that.

In addition, I think when you are looking at long-term profitability I think that we showed in the past and I think we also showed this year in this quarter, we showed that we are able to improve our profitability and we improve our mechanism to improve our marketing to improve our products.

The problem is that it currently very hardly visible and I can totally understand that looking at the total numbers because basically you are looking because its significant and diluted by effect and by this one-time drop, but it's an underlying model where we have been improving and we have been improving over the last years and also during the current year and I think that is a question like how much of this even if it was today on this level, how much would be again be able to over compensate or compensate over the next year.

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We will now take our next question from Mark May from Citi. Please go ahead..

Okay, hopefully you can hear me, sorry about that.

Can you speak as you question around new attribution model and may that you saw early in this process, but what impact, we haven’t seen a big impact on qualified referrals you had to speak to kind of timing and magnitude of when you would expect attribution model really to get rolling and what sort of impact we should expect on QRS? Thanks. .

Nice, I think what Axel said was right. So, we have two channels mainly effected by that, it’s a display channel and that the [indiscernible] channel and the display area it was like last year already where we have seen the full effect of that.

And we have seen the majority effect on the [indiscernible] channel already so it's always like you going firm like high traffic keyways, the lower traffic keyways but the majority of the effect is already in the numbers.

That [indiscernible] the qualified referrals is that we over compensated it, so what you would expect is with the change of the attribution model, you would expect revenue for qualified referrals going up and the qualified referrals going down. This effect is happening.

So when looking at our numbers, you would always have to really like factor that in, so the qualified referrals effect is going down and they are not growing as strong as basically our user base, our visitor base growth and on the other side you are having the qualified -- revenue for per qualified referrals also the – moving -- sorry, revenue of qualified referrals going up, you don’t see because of the commercialization dip and because of the [indiscernible] effect.

So that is basically the [indiscernible] that you should think again. .

We will now take our next question from Heath Terry from Goldman Sachs. Please go ahead... .

Great, thanks. Couple of question. Rolf on the last earnings call you talked about a tendency among hotels or some hotels developing around under cutting OTAs on price or using that as a strategy of pricing below OTAs in the meta search to generate clicks.

Curious if you're still seeing out to what degree that has evolved? And then Axel as we look at the increase in advertising as a percentage of sales this quarter, is there a level where you feel like that that begins to flatten out and how much of that would you attribute to like for like increases in advertising or ad unit costs whether in search or other performance-based channels?.

So, I think it’s on a quarter-by-quarter level, it’s really, really hard to comment on your first question regarding like how hotels do undercut, it’s more or less. I think that is the development that usually like takes years rather than quarters. So, looking at it from a quarter-on-quarter level, yes, I think there’s no like significant change.

I think the tendency is to hope to be true..

So, on your second question on the increasing advertising expense as a percent of revenues, by deciding to not adjust the bidding in a way and fully absorb the drop-in commercialization that is something that we had expected. So, for qualified referrals, obviously we generate a lot less revenues.

And that is definitely the main effect that you see on the advertisement side. On the increase of costs on the spot or [indiscernible] et cetera that in the first quarter is not a big driver..

Rolf, just to follow-up on that, is there a -- the way you look at the hotel direct opportunity, what you are seeing with these direct booking initiatives from the hotels in terms of an opportunity for Trivago both to the diversified revenue and your revenue sources and then also potentially create some opportunities for the company within that meta search model to use those direct booking prices?.

We see that as a big opportunity, it's a really big opportunity, but it’s a long-term opportunity. I think that issue is here. So, it’s definitely a big opportunity, I mean if you’re looking at like the time horizon for the next couple of years, there will be -- definitely there will be a change coming, but that’s just a base, it’s too quiet low.

And so, the majority of the effect will not happen in the next couple of months, but it will have a significant effect in the long-term view. And that is basically also kicking in when I speak about like a long-term commercialization whereas the long-term margin of this business. I think these are all long-term effects that will kick in.

But it's take time, I think we have been very early in like approaching hotels directly. We’re also very consequent now in exploring this opportunity. So, we also we shifted a lot of resources that we have in our hotel relations team from our product that you know from a pro product where we -- this is basically we get monthly revenue.

Two, onboarding hotels and directly into our price comparison so that was also significant change that we did probably against that no one want to go for the long-term opportunity so we are working on it and we definitely make progress on it and it's a very significant progress but the base is still quite low and we are growing continuously and I think the effect that you will see an impact on the marketplace there will be an effect this year but the majority of those effects, they will kick in and that's over the next couple of years.

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We will take our Kevin Kopelman from Cowen and Company. Please go ahead..

So, I just have some follow-ups on the RPQR decline, the recent development, did you say if that -- can you see if that was one major advertiser or both major advertisers and then can you quantify the size of the impact on revenue growth from those recent developments for the immediate impact so how it's going to impact the second quarter. .

So I think that we are currently in a situation of very limited visibility and also because at the end of the quarter there was the Easter break and it's was also the end of the quarter and also at the time of adjusted [indiscernible] reason to adjust the profitability target so the visibility on our side is quite low right now that's why we rather assumed a rather conservative approach for the rest of the year.

And I think that is something that we have to do cautiously right now and I think it's really hard for us to really quantify the effect but we would rather like saying okay with just a few whatever happens it will stay in our end and we think that is rather conservative but that's our assumption that's why we adapted our guidance. .

Just to add to that so underlying our guidance we have assumed significantly retail revenue development in the second quarter compared to the first quarter driven by a significantly lower year-over-year RPQR trend in Q2 over Q2 '17 compared to the Q1 that we just reported. .

It was both major advertisers?.

So, I guess if you have a significant impact on the overall marketplace then that I guess answers your question. There was a significant impact on the overall performance. .

Okay and then on TV commitments do you feel that like you overcommitted on your TV buys for the year given the recent RPQR developments?.

No, I mean I guess we are at the end of the year but somewhat we are currently planning for we don’t see an over commitment, even in the markets where you need to commit for the full-year we always leave some buffering there.

So, I guess what you are referring to is what we are facing end of last year as of today we don't expect that Q4 situation to come back in Q4 2018. .

Just one clarification on the guidance slide.

For the second half of 2018 on EBITDA, are you expecting that to be positive EBITDA in the second half of the year or are you expecting it to be better year-over-year than the second half of 2017?.

Both, positive and then by being positive better than last year. .

Okay, so not EBITDA losses but EBITDA profits in the second half of 2018?.

That is correct, yeah, greater than zero. .

We will now take our next question from James Lee, Mizuho. Please go ahead..

Thanks for taking my questions. My first question is a follow-up on the new attribution model on search specifically.

Can you just explain maybe conceptually, how you target keywords differently than before, and what have you learned so far and which regions specifically do you expect the most improvement and why? And my second question is about landing page assessment, you guys have done before a year already and just curious what kind of improvement in the conversion are you seeing here, is it worthwhile for you to continue to make that initiative specifically? Thanks.

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So, the first question was on the attribution model. So, first of all looking at the market, we don’t distinguish between markets so far, so I think there is no expectation that through the change and the attribution model it will be a change in the profile of the market, that will not being happen.

Not in overall volume or profitability that is not what we’re expecting. And conceptually what we are doing there is that in the past you have to assume that -- we looked at our revenue that we generated, so we are looking at profitability of campaigns, we looked at the revenue that we will generate to measure profitability of those campaigns.

And with us getting more and more visibility on the overall value that is created, through a booking at the end of it of the time at the advertiser side, we are able not to optimize for our revenue, but we are able to optimize for the value that we generate to our advertisers and that gives us potential to optimize.

And this is revising to better traffic quality because traffic quality at the time by value that we generate to our advertisers that means that we generate usually we generate, or we would expect to generate less qualified referral with the high quality. Now that’s conceptually what we changed there.

So, in total we have potential to optimize our marketing and to create more value with the same budget, basically that’s what we did over the last year. .

To come to your second question, on the experience so far with the relevant assessment. So overall, we think that it was positive to -- use rather than assessment and of 2016 and we are continuously optimizing the algorithm, I mean we went to an automated version end of 2017 and they are really focused on making it better and better.

So, overall, we think we have a very positive experience.

On your question, how much the relevant assessment has improved conversion, as we said we think its overall positive but it is not possible to quantify the exact effect, because it is basically live on the overall platform and as we said we had significant improvement in traffic quality and to isolate the effect coming from the relevant assessment is not possible..

If I could ask the follow-up question OpEx specifically, it looks like G&A and tech and content is little bit higher than expected. Is that the kind of new base we should model going forward, number one. And number two was, when can we start seeing leverage of these two items, specifically? Thanks..

Yes. I mean, so, in G&A, I would say, broadly speaking, the level that we are having right now is the level that -- I mean that shouldn’t significantly change during the year. There’s obviously always some seasonality in it, particularly in the TV creative expenses. But broadly speaking the level I think is a good level.

There are -- in the G&A, there are expenses in there that we would hope over time to get rid of, I mean, I commented on the stocks implementation and generally, our first year as a public company and the mitigation of all material weakness and that incurred significant expenses that I would hope over time we can internalize and reduce.

But broadly speaking for this year the level of that that you’re seeing right now is more or less what you would need..

Let me give some comments on the overall overhead development there because I think what you can see there is that we’ve showed you on slide where we’ve showed the development of headcounts. And basically, the headcounts are a major driver for our overhead costs.

Yeah, so we are looking at our overhead cost, basically the headcount, it’s little bit the creators in for brand marketing. But that are basically the main drivers, while, other costs are somehow related to that.

And what you can see there that during the last year, we still grew our headcount because of course, we were going into the year with 70% growth, second quarter 70% growth, and so on, close to 70% growth.

So, we were going through this quarter and so basically, we’ve grown the headcounts, but now you can see that from Q4 to Q1 there is also no headcount development anymore. So, it’s basically prudent and perfectly stable. So, we were also able to bring that down.

Now that we also didn’t expect to the [indiscernible] commercialization we expect not that strong growth in the first quarter, negative growth in the first half of the year.

So we expect the overhead to be -- the overhead cost to be relatively stable over the year beside the seasonal effect that we have in there and I think the leverage that you can see then is probably then in the second half of the year when we’re going back to growth and you can see leverage of this cost and then in 2019, you’ll automatically see that because it will not directly ramp up our overhead cost there.

So, you’ll see it leverage in 2019..

I also noticed that you’re currently doing a cloud migration.

Can you help us to understand what the OpEx cost is, maybe for this year? And is that a headwind that we should model into our financial forecast at this point in time and when should we expect any some sort of synergies in the future?.

So we already priced our infrastructure into the cloud and we did add over the years we don’t know how to deal with our core application and we don’t think that there will be a significant cost involved that we will really like we are significant for the overall business, we don’t expect that we also we see on one hand and off course cloud is more expensive on the other hand it's way more efficient, so we don’t expect that we see like a significant and cost factor coming in there.

'.

[Operator Instructions] We will now take our next question Tom Wise from D.A. Davidson. Please go ahead..

A follow up on revenue diversification, last couple of quarters you guys have talked about trying to reengage kind of the hotel direct advertiser and some of the smaller OTAs globally, it didn’t look like your other advertiser as a percentage of revenue I think it take down in 1Q.

I guess just long-term how should we think about the ability of those other partners to monetize relative to the large global OTA, so, for a given property on your site how does those two-different kind of groups monetize obviously the hotel direct has kind of more margin to work with but maybe suffers on kind of the conversion rate side.

I'm just trying to understand how to think about how that plays out. Thanks. .

So I guess when you look at the comparison in Q1 versus Q4 you need to be a bit careful because the Q4 as I have said very different trends in the first half of Q4 and the second half and one interim data point we disclose when we disclose the quarter to date numbers in October on our earnings call, so that gives you more detail and more granularity on the trends, but generally speaking they are there was lot of room to improve and increasing the share of all others and the competitiveness of all others and I think we talked about on the last earnings calls as well.

I mean we've got various tools that and power our advertisers to become competitive on out of the marketplace we have automated bidding which mitigate the different size in terms of bidding, we've got express booking which offers an optimized checkout process to the end of deeply smaller advertisers and we are continuously working with them to really improve on the platform.

Having said that, there are a lot of advertisers obviously and it has worked with each one of them. And so, it is really something that you will see a Rolf said earlier that you will see over years and not over months. .

And the problem is also this one not the problem it's [Indiscernible] because basically it always sounds like you power small advertisers but we want to empower all the advertisers at the same time and when we introduce a new tool and we introduce like in new way to use our traffic and so on so we usually we open it up to everyone and the adaption rate of the large advertisers is higher than what the small ones.

The effect for the last advertisers is smaller. So, and that is all that you have to keep in mind.

So adaption rates faster, effect is smaller and that’s why it's always hard to basically see the overall effect, because we’d be growing into the long-term of averters, these initiatives have a quite large effect, but the adaption rate is lower and also, I think that is how you have to think about it, and that is also why you cannot like -- if you don’t want to make all the advertisers [indiscernible] the large ones and the small ones.

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We will now take our next question from [indiscernible] from Wells Fargo Securities. Please go ahead..

This is [indiscernible] on the call for Peter, thanks for taking my questions.

I think last quarter we asked about the strength in the commercialization headwind, I think you said it was high-singles, maybe low double-digits down by roughly equal talent from conversion, it sounds like the headwinds from commercialization became stronger, just wanted to ask if you have any sense of scale there and also the trending conversion was it consistent versus last quarter better or worse.

And then I also wanted to just follow-up on the hotel direct opportunities had a couple questions there.

In general, we think about as being positive for commercialization in terms of improving [indiscernible] just wanted to ask is that always the case, as you think like hotels could gain share, [indiscernible] champions position with the lower price versus a higher bid.

Just wondering if you could talk through some of that dynamics there as well? Thank you. .

Yes. First, I take your first question on commercialization.

So Q1 versus Q4, we based on -- I mean just to recap we have approximately 50% visibility and coverage of the overall conversion of our traffic, so the rest we do estimate, but from the data that we see and that’s the way we estimate the overall impact we think that Q1 drop in commercialization was Q1 2017 has been greater than Q4 over Q4, which was expected because the relevant assessment and the positive impact last year was particularly in Q1 and Q2 and to a very limited extent in Q4.

In Q2 we see a further drop in the year-over-year trend but then as I said in Q3 and Q4 we are lapping the relevant assessment impact in 2017 and have a smaller drop in commercialization factored in to our guidance. .

And so, I think as I will repeat the question, I think it was about like what do you see when like small at or like hotels put in lower rates even that also attracts for commercialization.

Actually that that’s not what we see, so when a hotel put in really a lower rate and advertise with that rate and rents up in algorithm it goes up which means basically all commercialization also better and what we see there is that users just appreciate that you have with a cheaper rate and they have a higher conversion, because they see, it’s a hotel offer cheaper rate than the OTAs, so what we see right now with the data that we have that its contemplating the effect that we might see in the bidding.

So usually while we see there is [indiscernible]. .

As there are no further questions in the queue. That will conclude today’s question-and-answer session. I will now turn the call back to our host for any additional or closing remarks..

Thank you.

Rolf, any closing remarks?.

Yeah. So, first of all, many thanks for joining the call.

So, we knew from last year already that we would have four challenging quarters ahead of us, this was the third of them, the last nine months, but specifically the last quarter we had very difficult comps, negative impact of exchange rate and a significant drop in commercialization to compensate.

We still were able to grow our user base to improving our product and our marketing continuously. So, we know that there will be another difficult quarter, but we are also very confident about the second half of the year. So, thanks a lot everybody for joining the call and see you next time..

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..