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As filed with the Securities and Exchange Commission on December 5, 2016.

Registration No. 333-214591

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

travel B.V.1

(Exact Name of Registrant as Specified in its Charter)

 

 

Not Applicable

(Translation of Registrant’s Name into English)

 

 

 

The Netherlands   4700   Not Applicable
(State or other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification
Number)

Bennigsen-Platz 1

40474 Düsseldorf

Federal Republic of Germany

+49 211 54065110

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

National Corporate Research, Ltd.

10 East 40th Street, 10th floor

New York, NY 10016

(212) 947-7200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

David C. Boles

Latham & Watkins (London) LLP

99 Bishopsgate

London EC2M 3XF

United Kingdom

+44 (20) 7710-1000

 

Marc D. Jaffe

Marcus C. Funke

Latham & Watkins LLP

885 Third Avenue

New York, NY 10017

(212) 906-1200

 

Stuart M. Cable

Richard A. Kline

Joseph C. Theis

Goodwin Procter LLP

100 Northern Avenue

Boston, MA 02210

(617) 570-1000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

  Amount
to be
registered(1)
  Proposed
maximum
aggregate offering
price per share(2)
  Proposed
maximum
aggregate
offering price(2)
 

Amount of

registration fee(3)

Class A shares, nominal value of 0.06 per share(4)

  32,806,219   $15.00   $492,093,285   $57,034

 

 

 

(1)   Includes additional shares, represented by American Depositary Shares, or ADSs, that the underwriters have the option to purchase.
(2)   Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rules 457(a) under the Securities Act of 1933, as amended.
(3)   Registration fees totaling $46,360 were previously paid in connection with the initial filing of this registration statement. The amounts paid in connection with this filing for the aggregate registration fee of $57,034, which includes $46,360 previously paid and $10,674 for the additional amount of $92,093,285.00 of securities included in this amendment to the registration statement, is offset by the $46,360 previously paid.
(4)   American depositary shares issuable upon deposit of the Class A shares registered hereby will be registered under a separate registration statement on Form F-6. Each American depositary share represents one Class A share.

 

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

1    In connection with this offering, we intend to change our corporate form from a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) into a Dutch public limited company (naamloze vennootschap) and to change our corporate name from travel B.V. to trivago N.V. prior to the completion of this offering. Upon this change, the historical consolidated financial statements of trivago GmbH included in this Registration Statement will become the historical consolidated financial statements of trivago N.V.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED DECEMBER 5, 2016

 

 

LOGO

28,527,147 ADSs

travel B.V.

American Depositary Shares

Representing 28,527,147 Class A Shares

 

This is the initial public offering of American Depositary Shares, or ADSs, of travel B.V., a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid). Each ADS will represent one Class A share with a nominal value of 0.06 per share. We are offering 18,110,091 ADSs, and certain of our existing shareholders named in this prospectus (the “Selling Shareholders”) are offering 10,417,056 ADSs in this offering. We will not receive any proceeds from the sale of ADSs by the Selling Shareholders. No public market currently exists for our ADSs or our Class A shares. We currently expect the initial public offering price to be between $13.00 and $15.00 per ADS.

We have applied to have our ADSs listed on the NASDAQ Global Select Market under the symbol “TRVG.”

We will have two classes of shares outstanding after this offering, Class A shares and Class B shares. Each Class A share entitles its holder to one vote on all matters presented to our shareholders generally. Upon completion of this offering, Class B shares will be held solely by Expedia, Inc. and its affiliates, or Expedia. After completion of this offering, we and each of Messrs. Schrömgens, Vinnemeier and Siewert, whom we collectively refer to as the Founders, will submit requests for tax rulings from German tax authorities in connection with a plan to simplify our corporate structure, which we refer to as the post-IPO corporate reorganization. Although we expect to complete the post-IPO corporate reorganization as soon as practicable, Expedia and the Founders have agreed to determine within twelve months of the completion of this offering how to proceed with the post-IPO corporate reorganization, whether or not tax rulings are received, and expect to implement any decision within four months after making such determination. Whether we are able to implement the post-IPO corporate reorganization within four months after such determination depends on how quickly we are able to submit necessary filings to government authorities, have such filings registered by such authorities and, if applicable, conclude discussions with employees regarding their supervisory board participation rights in our German subsidiary under German law. See “Corporate structure—Post-IPO corporate reorganization.” Following the post-IPO merger as described herein, assuming it occurs as contemplated, Class B shares will also be held by the Selling Shareholders. Each Class B share entitles its holder to ten votes on all matters presented to our shareholders generally. Immediately following this offering, the holders of ADSs representing our Class A shares will collectively hold 12.0% of the economic interests and 1.3% of the voting power in us, and holders of our Class B shares will hold the remaining 88.0% of the economic interests and 98.7% of the voting power in us. Following the post-IPO merger, assuming it occurs as contemplated, the holders of ADSs representing our Class A shares will collectively hold 8.2% of the economic interests and 0.9% of the voting power in us, the Founders will hold 31.6% of the Class B shares and 34.1% of the voting power in us, and Expedia will hold 60.2% of the Class B shares and 65.0% of the voting power in us. In the event the post-IPO merger is not consummated, the Founders will hold their ownership interest in trivago SE, a subsidiary of trivago N.V., with the right to contribute such shares to trivago N.V. in exchange for Class A shares or Class B shares. See “Corporate structure—Post-IPO corporate reorganization.” As a result, both immediately following this offering and after the post-IPO corporate reorganization as described herein, we will be a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Global Select Market. See “Management—Controlled company exemption.”

We are both an “emerging growth company” and a “foreign private issuer” under applicable Securities and Exchange Commission rules and will be eligible for reduced public company disclosure requirements. See “Prospectus summary—Implications of being an ‘emerging growth company’ and a ‘foreign private issuer.’” Investing in our ADSs involves risks. See “Risk factors beginning on page 21.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

        Per ADS        Total  

Public Offering Price

     $                      $                

Underwriting Discount(1)

     $                      $                

Proceeds to us (before expenses)

     $                      $                

Proceeds to the Selling Shareholders (before expenses)

     $                      $                
(1)   We refer you to “Underwriting” for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to 2,721,622 additional ADSs from us and an additional 1,557,450 ADSs from the Selling Shareholders at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

The underwriters expect to deliver the ADSs to purchasers on or about                    , 2016 through the book-entry facilities of The Depository Trust Company.

 

J.P. Morgan   Goldman, Sachs & Co.   Morgan Stanley
Allen & Company LLC   BofA Merrill Lynch   Citigroup   Deutsche Bank Securities
Cowen and Company   Guggenheim Securities

The date of this prospectus is                     , 2016


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Prospectus summary

     1   

Risk factors

     21   

Presentation of financial and other information

     52   

Cautionary note regarding forward-looking statements

     53   

Market and industry data

     55   

Trademarks, service marks and trade names

     55   

Exchange rates

     56   

Corporate structure

     57   

Use of proceeds

     61   

Dividend policy

     61   

Capitalization

     63   

Dilution

     65   

Selected consolidated financial data

     67   

Management’s discussion and analysis of financial condition and results of operations

     70   

Business

     102   

Management

     117   

Principal and selling shareholders

     129   

Related party transactions

     131   

Description of share capital and articles of association

     138   

Shares and ADSs eligible for future sale

     160   

Description of American Depositary Shares

     162   

Material tax considerations

     173   

Underwriting

     201   

Expenses of the offering

     208   

Legal matters

     209   

Experts

     209   

Enforcement of civil liabilities

     210   

Where you can find more information

     211   

Index to financial statements

     F-1   

 

 

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction other than the United States where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our ADSs and the distribution of this prospectus outside the United States.

We are incorporated in the Netherlands, and many of our outstanding securities are owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or SEC, we are currently eligible for

 

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treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We are responsible for the information contained in this prospectus. Neither we nor the Selling Shareholders have authorized anyone to provide you with different information, and neither we nor the Selling Shareholders take responsibility for any other information others may give you. We, the Selling Shareholders, and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

 

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Prospectus summary

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk factors,” “Business” and “Management’s discussion and analysis of financial condition and results of operations” sections and our consolidated audited and condensed consolidated unaudited financial statements, including the notes thereto, included in this prospectus, before deciding to invest in our ADSs.

Overview

Our business

trivago is a global hotel search platform. Our mission is to “be the traveler’s first and independent source of information for finding the ideal hotel at the lowest rate.” We are focused on reshaping the way travelers search for and compare hotels, while enabling hotel advertisers to grow their businesses by providing access to a broad audience of travelers via our websites and apps. Our platform allows travelers to make informed decisions by personalizing their hotel search and providing access to a deep supply of hotel information and prices. In the twelve months ended September 30, 2016, we had 487 million qualified referrals and offered access to approximately 1.3 million hotels in over 190 countries. See “Management’s discussion and analysis of financial condition and results of operations—How we earn and monitor revenue” and “—Operating performance indicators for a discussion of qualified referrals.

Our brand positions us as a key starting point for travelers searching for their ideal hotel. Our fast and intuitive hotel search platform enables travelers to find their ideal hotel by matching individual traveler preferences with detailed hotel characteristics such as price, location, availability, amenities and ratings, across a vast supply of global hotels. In the twelve months ended September 30, 2016, comparing across all of our localized websites and apps, we provided a range of prices per hotel with the cheapest advertiser offering a price on average 19% lower than the most expensive advertiser.

We believe that the number of travelers accessing our websites and apps makes us an important and scalable marketing channel for our advertisers. Additionally, our ability to refine user intent through our search function allows us to provide advertisers with transaction-ready referrals. Hotel advertisers, which include online travel agencies, or OTAs, hotel chains and independent hotels, advertise their supply on our global marketplace on a “cost-per-click,” or CPC, basis, whereby an advertiser is charged when a user clicks on an advertised rate for a hotel and is referred to that advertiser’s website where the user can complete the booking. In the twelve months ended September 30, 2016, an average of ten advertisers per hotel across all our localized websites and apps placed CPC bids. Our CPC bidding function enables advertisers to influence their own return on investment and the volume of referral traffic we generate for them.

Rigorous analysis and application of data and technology are critical parts of our DNA. We capture a large amount of data on how users search on and engage with our site and our apps, enabling us to continually test new features and the effectiveness of existing ones, refine our search algorithms and thereby improve our product. We have built tools that capture data and calculate our return on many elements of our brand and performance marketing. 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.

Our hotel search platform can be accessed globally via 55 localized websites and apps in 33 languages. Users can search our platform on desktop and mobile devices, but benefit from a familiar user interface, resulting in a

 

 

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consistent user experience. In June 2016, our revenue from mobile websites and apps exceeded our revenue from our desktop websites for the first time, which is consistent with an expected longer term shift towards mobile.

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. Our Americas segment is currently comprised of Argentina, Brazil, Canada, Chile, Colombia, 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, Hong Kong, Japan, New Zealand and Poland. For the nine months ended September 30, 2016, we generated revenue of 223.5 million, 276.0 million and 79.8 million from the Americas, Developed Europe and the Rest of World, respectively, compared to 137.6 million, 209.1 million and 45.6 million for the nine months ended September 30, 2015, respectively. Our reportable segment revenue excludes other revenue of 1.5 million and 5.7 million for the nine months ended September 30, 2015 and 2016, respectively, which is included in corporate and eliminations.

We have grown significantly since our incorporation in 2005. In the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016, we generated revenue of 309.3 million, 493.1 million, 393.8 million and 585.0 million, respectively. During the same periods, we had net losses of 23.1 million, 39.4 million, 37.4 million and 51.5 million, respectively. In the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016, our adjusted EBITDA was 3.5 million, (1.1) million, (13.4) million and 16.3 million, respectively. See “Selected consolidated financial data” for a description of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

Our industry

The development of our industry is influenced by several key factors.

Large and growing travel market

According to Phocuswright Data, global travel spend grew to an estimated $1.1 trillion in 2015, excluding Canada, Latin America and Eastern Europe, representing a compound annual growth rate, or CAGR, of 4.1% since 2010, outpacing average global economic growth of 2.9% per year in the same period.

Growth in hotel spend

According to Phocuswright Data, global hotel spend grew to $375 billion in 2015, excluding Canada, Latin America and Eastern Europe, representing a CAGR of 3.9% since 2010, to become 35% of the total travel spend. Hotels have responded to rising demand by increasing capacity and investing in the overall attractiveness and quality of their hotels while increasing their marketing spend.

Offline to online shift in hotel distribution

Leisure and business travelers are increasingly moving their purchase activity online. According to the Global Online Travel Overview, in 2010, the total percentage of hotel bookings made through hotel websites and OTAs globally was 22%, with the United States having the highest penetration at 31%, followed by Western Europe at 21%, the Asia-Pacific region, or APAC, at 18% and the Middle East at 7%. According to Phocuswright Data, by 2015, these figures grew to 33% globally, to 36%, 35%, 29% and 25% in the United States, Europe, APAC and

 

 

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the Middle East, respectively. In addition, there is a portion of corporate travel being booked online, which is not included in the online penetration numbers above.

Against this backdrop, hotels are increasingly moving distribution and associated advertising spend to online channels. According to the Global Online Travel Overview and Phocuswright Data, hotels have increased their bookings made through their own respective hotel websites and OTAs from $69 billion in 2010 to $125 billion in 2015, representing a 12.4% CAGR.

Independent hotel search platforms as an increasingly important tool for consumers and advertisers

Consumers are increasingly looking for tools to enable them to navigate through multiple hotel booking options simultaneously and compare prices. Independent search platforms that provide metasearch capabilities aggregate fragmented travel data across the Internet into one place, resulting in transparency of price, availability, quality and other hotel attributes. These platforms can offer advertisers access to a large pool of transaction-ready consumers, which encourages OTAs, hotel chains and independent hotels to advertise on these platforms for the purpose of driving bookings. Based on our research, U.S. leisure travelers have increasingly favored metasearch services, with usage growing from 14% in 2011 to 28% in 2013. In the United States, travelers aged 18 to 34 are almost twice as likely to use metasearch services than those 35 and older, according to the Phocuswright Consumer Travel Report.

Increasing usage of mobile

Global mobile data traffic has grown substantially in recent years, achieving a 74% growth rate in 2015 over 2014, and is expected to grow at a 53% CAGR from 2015 to 2020, based on our research. This trend has also impacted the share of mobile travel bookings, which is expected to increase from 2015 to 2017, from 16% of total online travel bookings to 24% in the United States, 17% to 24% in Europe and 24% to 37% in APAC, according to the Global Online Travel Overview. Based on our research, it is estimated that in 2016, 73% of American travelers will use a mobile device to research a trip, of which 91% will use a smartphone as their mobile tool of choice. The shift towards mobile usage is especially strong among younger generations, as this demographic trends towards greater mobile-based travel purchases.

Evolving traveler behavior

Travelers are increasingly prioritizing “experiences,” with 71% of travelers globally willing to exceed their allocated travel budget if they discover interesting travel experiences, according to a 2015 Millward Brown study. We believe the choice of accommodation is becoming more meaningful to consumers as a means to customize travel experiences. In addition, barriers to travel are decreasing as new international low-fare airline options have made it more affordable to fly around the world. Based on our research, low cost carriers control approximately 25% of the market for air travel and are growing at above-industry-average rates. Younger generations are taking more trips on average, with millennials expected to take 7.2 trips per year, compared to Generation X, or persons aged approximately 35 to 52, and Baby Boomers, or persons aged approximately 52 to 70, each expected to take 6.6 trips per year in 2016, according to a 2015 AARP report.

The trivago hotel 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.

 

 

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Our search platform forms the core of our user experience. It captures and seeks to refine user intent and preferences and, as of September 30, 2016, it provided users with access to approximately 1.3 million hotels worldwide. It 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.

We enable hotel advertisers to advertise offers for each individual hotel. By placing bids in our CPC-based bidding system, each advertiser can influence the likelihood that traffic is driven to its own platform. Advertisers can reach a broad global audience while generating targeted, transaction-ready referrals.

Key benefits for users

Global aggregation of real-time hotel supply

We aggregate hotel availability from a range of advertisers globally. This supply is continually updated in or near real time, so users can view current availability from a broad range of advertisers. We believe travelers use our hotel search platform as their entry point for hotel research, confident that they receive comprehensive coverage of their options to book a hotel.

Tailored hotel search function

Our search function is designed to enable individual users to find their ideal hotel. We personalize results based on a user’s search terms, selected filters and other interactions with our sites and apps. In addition, we aggregate and analyze multiple sources of information to build a profile for each individual hotel. Our search algorithms, which are refined by millions of searches each day, create matches amongst the two sets of information.

Transparent price comparison

Our depth of advertisers means that users are able to choose from multiple advertisers and a range of prices for each hotel. Our algorithm selects the lowest available price for each hotel and displays room types with a broad range of pricing options available from our advertisers. This reduces the need for travelers to spend time searching across multiple sites and apps to confirm the lowest available rate. In the twelve months ended September 30, 2016, comparing across all of our localized websites and apps, we provided a range of prices per hotel with the cheapest advertiser offering a price on average 19% lower than the most expensive advertiser.

Deep content and easy-to-use information on hotels

We obtain hotel information from many sources, such as travel booking sites, hotel websites, review sites, directly from hotels and internal resources. This information includes pictures, descriptions, reviews, ratings, amenities and room types. We synthesize and enrich this information. For example, our rating score distills review information from multiple sources into a single easy-to-use score for the traveler.

Key benefits for advertisers

Broad traveler reach

We offer advertisers a highly scalable channel of travelers, given our broad presence across multiple geographies and languages. Additionally, for many travelers, we believe we are the entry point to their hotel search, enabling advertisers to engage with potential new customers.

 

 

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Delivery of transaction-ready referrals

We provide advertisers with motivated travelers who have proactively expressed their specific intent via our search platform. Due to the breadth of hotel information we provide and our personalized matching algorithms, travelers referred by trivago often already have a comprehensive understanding of the hotel and its value proposition for them, which we believe makes them more likely to complete a booking on the advertiser’s site.

Market-driven, referral-based pricing structure

We believe our advertisers value the flexibility to control the pricing and volume of referrals they generate from our marketplace. The transparency of our model makes it easy for advertisers to evaluate the performance of their spend and influence their own return on investment.

Improve advertisers’ competitiveness

Hotel advertisers have varying levels of experience, scale and resources to dedicate to their marketing efforts. We provide our advertisers with advice, actionable data insights and advertiser tools to help them optimize their investment on our marketplace by improving the quality of available content about their hotel.

Our strengths

We believe that our competitive advantages are based on the following key strengths:

Industry-leading product and user experience

We believe that we provide the most effective and intuitive hotel search platform for travelers. We have invested in our product over many years and continue to spend significant time and resources on further refining our websites and apps to provide the best possible user experience. We regularly test and refine multiple aspects of our websites and apps, believing that incremental enhancements over time add up to improvements in overall user experience. This approach benefits both our users and advertisers by enabling more satisfying and effective engagement with our platform.

Significant scale

We have achieved significant scale, with approximately 1.3 million hotels available on our platform as of September 30, 2016, supported by 55 localized versions of our website served in 33 languages. Additionally, we believe we work with almost all significant international, regional and local OTAs. Bringing together advertisers and users at this scale creates powerful network effects, improving the quality of the trivago experience for all parties.

Powerful data and analytics

We capture large amounts of data across our platform, including traveler data, advertiser data, publicly available content and data on how travelers and advertisers interact with our platform. 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.

 

 

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High brand recognition and user loyalty

We have continuously invested in our brand over many years and have achieved strong brand recognition globally. Our brand drives traffic to our site by underpinning the connection travelers make between trivago and hotel search. This directly supports our position as users’ entry point to hotel discovery, with more than 50% of our traffic coming from branded sources (such as TV marketing, video marketing (such as YouTube), radio and out-of-home advertising) in 2015 and the first nine months of 2016. Additionally, we believe that our brand traffic improves the effectiveness of our marketplace to advertisers, as our internal data indicates that the conversion rates of our referrals to bookings are higher from branded than non-branded traffic for the advertisers included in research we conducted. Such research shows that our aided brand awareness in August 2016 in Italy, Spain, Germany, the United Kingdom, France, Australia and the United States was 92%, 89%, 86%, 80%, 79%, 77% and 63%, respectively.

Scalable business model

We have a scalable business model that enables us to grow rapidly and efficiently. We can expand within current markets as well as into new markets, while incurring limited incremental investment in infrastructure, benefitting in part from our existing scale and a common global platform.

Employees and culture

We believe that our entrepreneurial culture and flat organizational structure are key ingredients in 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 act as entrepreneurs in their areas of responsibility, continuously striving for innovation and improvement. We encourage our employees to regularly take on new challenges within the company to broaden their perspectives, 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 continually seek to understand and learn, take risks and innovate. We regard failure as an opportunity to learn and inform improved approaches going forward.

Our strategy

Our strategy is shaped by our mission “to be the traveler’s first and independent source of information for finding the ideal hotel at the lowest rate.” We run our business and set our priorities and strategy according to our mission.

... traveler’s ...

We designed our hotel search platform to be useful for every traveler with every reason to travel. We focus on continuing to optimize our websites and apps, ensuring their intuitive navigation and high performance.

... first ...

We want to be the starting point for travelers seeking to discover their ideal hotel at the lowest rate. We believe we provide a valuable service to travelers, allowing them to quickly and effectively navigate a crowded hotel booking ecosystem. We intend to be each traveler’s first source of hotel information by growing our

 

 

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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.

... and independent ...

We believe we have created a hotel search platform that is fair and transparent for users, offering them a powerful tool to easily access information in the complex hotel market. We provide users the information so they can independently decide where to stay.

... source of information ...

We focus on providing information to our users rather than selling them products or services. We support travelers’ searches by aggregating hotel information from across the Internet and displaying it in a simple, easy to navigate format. We also intend to continue growing our number of direct relationships with hotels, thereby increasing the volume and quality of information we can provide to travelers. We believe that it is crucial to the success of our user experience that we provide comprehensive, relevant and easily accessible information.

... finding the ideal ...

We believe there is an ideal hotel for every traveler. We aim to continuously optimize our search algorithms to consistently deliver hotel suggestions to each of our users for each specific stay so they can find their ideal hotel. While we believe we offer a best-in-class hotel search experience, we acknowledge there is the opportunity for further innovation in the areas of search personalization and hotel categorization and rating. We are investing in new technologies like semantic search to continuously improve our users’ discovery experience and may explore additional technology-led acquisitions going forward.

... hotel ...

We are focused on the hotel sector. Our marketplace and algorithms are optimized to display and match users with specific hotel characteristics. As our technology is advancing and traveler preferences are shifting, we increasingly complement our traditional hotel offerings with other forms of accommodation, such as vacation rentals and private apartments that are relevant to our users.

... at the lowest rate.

Providing the lowest rate to our users is at the core of what we do. Our ability to provide pricing transparency by identifying the lowest available rates from our advertisers is driven in part by the large number of advertisers on our marketplace. As we continue building out our advertiser base globally and supporting advertisers in efficiently using our marketplace, this should help provide travelers with consistently low prices across our supply of available hotels.

Relationship with Expedia, Inc.

Expedia, Inc. and its affiliates, or Expedia, our controlling shareholder, owned 63.5% of our share capital as of September 30, 2016. Day to day, we operate our business as a stand-alone and independent member of the

 

 

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Expedia group of companies. We independently test and develop our technology and design and implement our marketing strategy and efforts to grow our user and advertiser base. We maintain commercial relationships on customary terms with brands within the Expedia group of companies in their capacities as advertisers on our marketplace. In the years ended December 31, 2014 and 2015 and for the nine months ended September 30, 2015 and 2016, Expedia accounted for 32%, 39%, 39% and 35% of our revenue, respectively.

As further discussed in “Related party transactions,” Expedia has historically provided (or augmented), and may continue to provide (or augment), certain of our corporate functions, including within the legal, tax, treasury, audit and corporate development areas, and hosts all of the servers we use that are located within the United States.

We have entered into various agreements with Expedia and the Founders regarding the management of our business and the implementation of the corporate reorganization (as defined herein). See “Related party transactions.”

Corporate reorganization

The actions described in this section relate to the pre-IPO corporate reorganization and the post-IPO corporate reorganization are referred to collectively herein as the corporate reorganization. Please see “Corporate structure—Corporate reorganization” for more information.

travel B.V. is a newly formed Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid). Prior to completion of this offering, travel B.V. will be converted under Dutch law into a public limited company (naamloze vennootschap) pursuant to a deed of amendment and conversion. The legal effect of the conversion on travel B.V. under Dutch law will be limited to the change in the legal form. travel B.V. will neither be dissolved nor wound up, but will continue its existence as the same legal entity with a new legal form. As of the moment of conversion, it will be renamed trivago N.V.

trivago N.V. will act as a holding company of trivago GmbH, the historical operating company of the trivago group. In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” “trivago” and the “company” refer to trivago GmbH, travel B.V. and trivago N.V., and their respective consolidated subsidiaries, as applicable.

Pre-IPO corporate reorganization

As of December 1, 2016, i.e., prior to the completion of this offering and the contributions described in this paragraph, Expedia owned 63.5% and the Founders owned 36.5%, in aggregate, of the share capital of trivago GmbH. Prior to the completion of this offering, Expedia will contribute all of its units of trivago GmbH to travel B.V. in a capital increase in exchange for newly issued Class B shares of travel B.V., to be converted into Class B shares of trivago N.V. The Founders will contribute 1,224 units of trivago GmbH, representing 8.7% of their aggregate unitholding in trivago GmbH, to travel B.V. in a capital increase in exchange for newly issued Class A shares of travel B.V., to be converted into Class A shares of trivago N.V. As a result of these contributions, 95.3% of the share capital and 99.5% of the voting power in travel B.V. will be held by Expedia and 4.7% of the share capital and 0.5% of the voting power in travel B.V. will be held by the Founders, whereas 66.7% of the units of trivago GmbH will be held by travel B.V. and 33.3% of the units in trivago GmbH will be held by the Founders. ADSs representing the Class A shares of the Founders will subsequently be sold in this offering. We refer to the foregoing transactions as the pre-IPO corporate reorganization.

 

 

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Immediately upon the closing of this offering, a substantial portion of the net proceeds to us from the offering will be transferred to trivago GmbH in exchange for new units issued by trivago GmbH, which we refer to as the capital increase. The number of new units of trivago GmbH to be subscribed for will be equivalent to the number of ADSs sold by us in the offering, divided by the exchange ratio of 8,510.66824, rounded down to the nearest whole unit. After the capital increase, 68.4% of the units of trivago GmbH will be held by trivago N.V. and 31.6% of the units of trivago GmbH will be held by the Founders. Upon completion of the pre-IPO corporate reorganization, this offering and the capital increase, trivago N.V. will be a holding company and its only material assets will be its ownership of the units of trivago GmbH. In connection with the pre-IPO corporate reorganization, we expect to implement certain related arrangements on customary commercial terms with trivago GmbH, including intercompany loan arrangements and management services arrangements.

The following chart depicts our corporate structure upon the conversion of travel B.V. into a public limited company (naamloze vennootschap), the completion of this offering, the contributions and the capital increase described in the above paragraph.

 

 

LOGO

Post-IPO corporate reorganization

As promptly as practicable, but in any event within three months of the date thereof, each of trivago GmbH and each of the Founders will submit a request for a tax ruling from the German tax authorities in connection with a plan to simplify our corporate structure after completion of this offering. The tax ruling request of the company will request a decision from the German tax authorities with respect to, inter alia, the: (i) application of the German Reorganization Tax Act (RTA – Umwandlungssteuergesetz) to the post-IPO merger and (ii) fulfilment of the specific requirements under sec. 11 par. 2 RTA, in particular, that the transferred assets will still be subject to German corporate income tax and that Germany is not precluded or limited in exercising its rights to tax any capital gains from the disposal of those assets at the level of trivago N.V. as a result of the post-IPO merger. The tax ruling request of each of the Founders will request a decision from the German tax authorities with respect to, inter alia, the: (i) application of the German Reorganization Tax Act (RTA – Umwandlungssteuergesetz) to the post-IPO merger (as defined below); and (ii) the fulfillment of the specific requirements under sec. 13 par. 2 RTA for a tax free exchange by the Founders of their shares; and (iii) certain other matters. We believe that the relevant governmental authorities typically issue rulings such as the one described above within two to four months after a request is submitted. There is no guarantee, however, that the rulings to be requested by trivago GmbH and the Founders will be issued within this time (or at all), and such a ruling may take considerably longer. If we and each of the Founders receive positive tax rulings (and/or certain other conditions are met, as described more fully in the IPO Structuring Agreement, see “Related party transactions—Relationship with Expedia—IPO Structuring Agreement”), we intend to consummate a transaction pursuant to which trivago GmbH will be merged with and into trivago N.V., which we refer to as the post-

 

 

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IPO merger, and the Founders will effectively exchange all of their units of trivago GmbH remaining after the pre-IPO corporate reorganization for Class B shares of trivago N.V. The following chart depicts our corporate structure if we are able to complete the post-IPO merger:

 

 

LOGO

If trivago GmbH or any of the Founders does not receive a favorable ruling from the German tax authorities with respect to the matters described above, or if trivago GmbH or any of the Founders does not receive a ruling within twelve months from the completion of the offering (and in each case certain other conditions are not met, as described more fully in the IPO Structuring Agreement, see “Related party transactions—Relationship with Expedia—IPO Structuring Agreement”), trivago GmbH will not consummate the post-IPO merger. After such time, the Founders will have a right to exchange their shares in trivago GmbH for our Class A shares or Class B shares at the exchange ratio of 8,510.66824, subject to certain adjustments for splits and similar transactions. If the post-IPO merger is not consummated, trivago GmbH will change its legal form first into a German stock corporation (Aktiengesellschaft) and then into a European public limited liability company (Societas Europaea), which we refer to as the SE structure. We refer to the company following implementation of the SE structure as trivago SE. Upon completion of the SE structure, the ownership of trivago GmbH/SE will be as follows:

 

LOGO

If the SE structure is implemented, we will remain a holding company, the Founders will own the remaining shares of trivago SE and will continue to have the right to exchange their shares of trivago SE for our Class A shares or Class B shares at the exchange ratio of 8,510.66824, subject to certain adjustments for splits and similar transactions. See “Related party transactions—IPO Structuring Agreement” and “Risk factors—Tax risks related to the corporate reorganization.” In connection with the pre-IPO corporate reorganization, we expect to implement certain related arrangements on customary commercial terms with trivago GmbH, including intercompany loan arrangements and management services arrangements. We refer to the post-IPO merger and the SE structure, collectively, as the post-IPO corporate reorganization. Although we expect to complete the post-IPO corporate reorganization as soon as practicable, Expedia and the Founders have agreed to determine within twelve months of the completion of this offering how to proceed with the post-IPO corporate

 

 

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reorganization, whether or not tax rulings are received, and expect to implement any decision within four months after making such determination. Whether we are able to implement the post-IPO corporate reorganization within four months after such determination depends on how quickly we are able to submit necessary filings to government authorities, have such filings registered by such authorities and, if applicable, conclude discussions with employees regarding their supervisory board participation rights in our German subsidiary under German law. Even if favorable tax rulings are received, Expedia and the Founders may choose to consummate the SE structure rather than the post-IPO merger. We will issue a press release as soon as practicable after the time of such determination to announce the finalization of our post-IPO corporate reorganization.

Our shareholders

Following (i) the completion of this offering and the pre-IPO corporate reorganization and (ii) assuming the completion of the post-IPO merger and an offer price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover of this prospectus, the ownership of trivago N.V. will be as follows:

 

      Following the completion of the
pre-IPO corporate reorganization
     Assuming the completion of the
post-IPO merger
 
     Assuming the
underwriters’ option
to purchase additional
ADSs is
not exercised:
     Assuming the
underwriters’ option
to purchase additional
ADSs is

exercised in full:
     Assuming the
underwriters’ option
to purchase additional
ADSs is

not exercised:
     Assuming the
underwriters’ option
to purchase additional
ADSs is

exercised in full:
 
      Class A
shares
     Class B
shares
     Class A
shares
     Class B
shares
     ADSs
representing
Class A
shares
     Class B
shares
    

ADSs
representing

Class A
shares

     Class B
shares
 

Expedia

             88.0%                 86.4%                 60.2%                 59.7%   

Rolf Schrömgens

     (1)          (1)          (1)          (1)                  16.5%                 16.3%   

Peter Vinnemeier

     (1)          (1)          (1)          (1)                  12.5%                 12.3%   

Malte Siewert

     (1)          (1)          (1)          (1)                  2.6%                 2.5%   

Free float

     12.0%                 13.6%                 8.2%                 9.4%           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12.0%         88.0%         13.6%         86.4%         8.2%         91.8%         9.4%         90.6%   

 

(1)   Following the completion of this offering and the capital increase, Messrs. Schrömgens, Vinnemeier and Siewert will own 16.5%, 12.5% and 2.6%, respectively, of noncontrolling interests in trivago GmbH, assuming the underwriters’ option to purchase additional ADSs is not exercised, and 16.3%, 12.3% and 2.5%, respectively, of noncontrolling interests in trivago GmbH, assuming the underwriters’ option to purchase additional ADSs is exercised in full. Assuming the completion of the post-IPO merger, the Founders’ noncontrolling interests will be converted into Class A shares or Class B shares of trivago N.V.

If the SE structure is implemented, the Founders will hold shares of trivago SE and not trivago N.V. and thus Messrs. Schrömgens, Vinnemeier and Siewert will own 16.5%, 12.5% and 2.6% of noncontrolling interests in trivago SE, respectively, assuming the underwriters’ option to purchase additional shares is not exercised.

Corporate information

Our principal executive offices are located at Bennigsen-Platz 1, 40474 Düsseldorf, Federal Republic of Germany. Our telephone number at this address is +49 211 5406 5110.

Our website address is www.trivago.com. We also maintain localized versions of our website. The information contained on, or that can be accessed through, our websites is not a part of, and shall not be incorporated by reference into, this prospectus. We have included our website address as an inactive textual reference only.

Risks associated with our business

Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular,

 

 

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should evaluate the specific factors set forth under the “Risk factors” section of this prospectus in deciding whether to invest in our securities. Among these important risks are the following:

 

 

our ability to effectively manage our growth;

 

 

we may not be able to maintain our historical growth rates;

 

 

global political and economic instability and other events beyond our control;

 

 

increasing competition and consolidation in our industry;

 

 

our advertiser and geographic concentration;

 

 

our counterparties may default on their performance obligations;

 

 

our ability to maintain and increase our brand awareness and brand strength;

 

 

our ability to maintain and/or expand relationships with, and develop new relationships with, hotel chains and independent hotels as well as OTAs;

 

 

our material weakness in our internal control over financial reporting and our ability to establish and maintain an effective system of internal control over financial reporting;

 

 

our reliance on search engines, which may change their algorithms;

 

 

our reliance on third-party technology;

 

 

our ability to attract, train and retain executives and other qualified employees;

 

 

our brand reputational risk;

 

 

our entrepreneurial culture and decentralized decision making; and

 

 

our status as a “controlled company” and our relationship with Expedia.

Implications of being an “emerging growth company” and a “foreign private issuer”

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. As such, we are eligible, for up to five years, to take advantage of certain exemptions from various reporting requirements that are applicable to other publicly traded entities that are not emerging growth companies. These exemptions include:

 

 

the ability to present more limited financial data, including presenting only two years of audited financial statements and only two years of selected financial data in the registration statement on Form F-1 of which this prospectus is a part;

 

 

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

 

 

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

 

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not being required to submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes;” and

 

 

not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. As a result, we do not know if some investors will find our ADSs less attractive. The result may be a less active trading market for our ADSs, and the price of our ADSs may become more volatile.

Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to irrevocably opt out of this extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Under federal securities laws, our decision to opt out of the extended transition period is irrevocable.

We will remain an emerging growth company until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion; (ii) the last day of the fiscal year following the fifth anniversary of the date of this offering; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ADSs that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt securities during any three-year period.

Upon completion of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

 

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

 

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

 

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specific information, or current reports on Form 8-K, upon the occurrence of specified significant events.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer and will instead be permitted to follow our home country practice on such matters.

 

 

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Status as a “controlled company”

Upon the completion of this offering and the post-IPO merger, assuming it is completed, Expedia will own 209,008,088 Class B shares, representing 65.0% of the voting power of our issued and outstanding shares. In the alternative, if the SE structure is implemented, Expedia will own 209,008,088 Class B shares, representing 98.7% of the voting power of our issued and outstanding shares. See “Corporate structure—Post IPO corporate reorganization.” As a result, following the post-IPO corporate reorganization, under either scenario, we will remain a “controlled company” within the meaning of the listing rules and therefore we are eligible for, and, in the event we no longer qualify as a foreign private issuer, we intend to rely on, certain exemptions from the corporate governance listing requirements, of NASDAQ. See “Management—Controlled company exemption.”

 

 

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The offering

 

ADSs offered by us

18,110,091 ADSs, each representing one Class A share.

 

ADSs offered by the Selling Shareholders

10,417,056 ADSs, each representing one Class A share.

 

Class A shares to be outstanding after this offering

28,527,147 Class A shares (32,806,219 Class A shares if the underwriters exercise their option in full to purchase additional ADSs from us and the Selling Shareholders).

 

Class B shares to be outstanding after this offering

209,008,088 Class B shares.

 

Total Class A and Class B shares to be outstanding after this offering

237,535,235 shares (241,814,307 shares if the underwriters exercise their option in full to purchase additional ADSs from us and the Selling Shareholders).

 

Total Class A and Class B shares to be outstanding assuming the completion of the post-IPO merger

347,110,087 shares (349,831,709 shares if the underwriters exercise their option in full to purchase additional ADSs from us and the Selling Shareholders).

 

Option to purchase additional ADSs

We have granted the underwriters the option to purchase up to 2,721,622 additional ADSs representing 2,721,622 Class A shares, and the Selling Shareholders have granted the underwriters the option to purchase up to 1,557,450 additional ADSs representing 1,557,450 Class A shares within 30 days of the date of this prospectus.

 

Selling Shareholders

Expedia will not sell any ADSs in this offering. Rolf Schrömgens, Peter Vinnemeier and Malte Siewert will sell ADSs in this offering. See “Principal and selling shareholders.”

 

American Depositary Shares

The underwriters will deliver our Class A shares in the form of ADSs. Each ADS, which may be evidenced by an American Depositary Receipt, or ADR, represents an ownership interest in one of our Class A shares. As an ADS holder, we will not treat you as one of our shareholders. The depositary, Deutsche Bank Trust Company Americas, will be the holder of the Class A shares underlying your ADSs. You will have ADS holder rights as provided in the deposit agreement. Under the deposit agreement, you may only vote the Class A shares underlying your ADSs if we ask the depositary to request voting instructions from you. The depositary will pay you the cash dividends or other distributions, if any, it receives on our Class A

 

 

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shares after deducting its fees and expenses and applicable withholding taxes. You may need to pay a fee for certain services, as provided in the deposit agreement. You are entitled to the delivery of the Class A shares underlying your ADSs upon the surrender of such ADSs, the payment of applicable fees and expenses and the satisfaction of applicable conditions set forth in the deposit agreement.

 

  To better understand the terms of the ADSs, you should carefully read “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, the form of which is attached as an exhibit to the registration statement of which this prospectus forms a part. We are offering ADSs so that our company can be quoted on the NASDAQ Global Select Market and investors will be able to trade our securities and receive dividends on them in U.S. dollars.

 

Depositary

Deutsche Bank Trust Company Americas

 

Custodian

Deutsche Bank AG

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $235.4 million, assuming an initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses. We will not receive any proceeds from the sale of ADSs by the Selling Shareholders.

 

  The principal reasons for this offering are to increase our financial flexibility, increase our public profile and awareness, create a public market for our ADSs and to facilitate our future access to public equity markets. We have not quantified or allocated any specific portion of the net proceeds to us or range of the net proceeds to us for any particular purpose. See “Use of proceeds.”

 

Voting rights

Following this offering, we will have two classes of shares, Class A shares and Class B shares. Class A shares are entitled to one vote per share and Class B shares are entitled to ten votes per share.

 

  Holders of our Class A shares and Class B shares will generally vote together as a single class, unless otherwise required by law or our articles of association. The holders of our outstanding Class B shares will hold 98.7% of the voting power of our outstanding shares following this offering (and 99.1% of the voting power subsequent to the post-IPO merger) and will have the ability to control the outcome of matters submitted to our shareholders for approval, including the appointment of our management board members and supervisory board members and the approval of any change of control transaction. See “Principal and selling shareholders” and “Description of share capital and articles of association” for additional information.

 

Dividend policy

The amount of any distributions will depend on many factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our

 

 

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management board and supervisory board deems relevant. We do not anticipate paying any dividends in the foreseeable future.

 

  After the completion of this offering, but prior to the consummation of the post-IPO merger, the Founders and Expedia have agreed, pursuant to the IPO Structuring Agreement, to effect a one-time dividend payment in respect of fiscal year 2016 in the amount of 0.5 million, which shall be paid to the shareholders of record of trivago GmbH prior to the consummation of the post-IPO merger but not before January 1, 2017.

 

Lock-up agreements

We have agreed with J.P. Morgan Securities LLC, Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, as representatives of the several underwriters, subject to certain exceptions, not to sell or dispose of any of our ADSs or securities convertible into or exchangeable or exercisable for our ADSs or Class A shares until 180 days after the date of this prospectus. Our Selling Shareholders, Expedia and our management board, supervisory board members and certain employees have agreed to similar lock-up restrictions for a period of 180 days. See “Underwriting.”

 

Controlled company

We are a “controlled company” under the corporate governance rules of the NASDAQ Global Select Market. Following the completion of the post-IPO merger, assuming it occurs as contemplated, Expedia, Inc. and its affiliates will hold 209,008,088 Class B shares and 65.0% of the voting power in us. As a result, we will remain a “controlled company” within the meaning of the NASDAQ corporate governance rules. See “Management—Controlled company exemption.”

 

Listing

We have applied to list our ADSs on the NASDAQ Global Select Market, or NASDAQ, under the symbol “TRVG.”

The number of our Class A shares to be outstanding upon completion of this offering is based on shares outstanding as of December 1, 2016 and excludes Class A shares issuable upon (i) the exercise of 7,700,603 share options outstanding as of December 1, 2016 at a weighted average exercise price of 2.83 per share and (ii) the conversion of Class B shares held by Expedia, Inc. and its affiliates and the conversion of 109,574,852 Class B shares to be held by the Founders following the post-IPO merger, if implemented, or the exchange of shares of trivago SE, if the SE structure is implemented.

Unless otherwise indicated, all information contained in this prospectus assumes or gives effect to:

 

 

no exercise of the outstanding options described above after December 1, 2016;

 

 

an initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

 

no exercise by the underwriters of their option to purchase additional ADSs in this offering;

 

 

the pre-IPO corporate reorganization; and

 

 

the share capital adjustment described in “Corporate structure—Corporate reorganizationPre-IPO corporate reorganization.”

 

 

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Summary consolidated financial data

The following summary consolidated statement of operations and balance sheet data for the fiscal years ended December 31, 2014 and 2015 have been derived from the audited consolidated financial statements of trivago GmbH included elsewhere in this prospectus. The unaudited financial data for the nine months ended September 30, 2015 and 2016 has been derived from the condensed consolidated financial statements of trivago GmbH included elsewhere in this prospectus. See “Presentation of financial and other information.”

The following table also contains translations of euro amounts into U.S. dollars as of and for the fiscal year ended December 31, 2015 and the nine months ended September 30, 2016. These translations are solely for the convenience of the reader and were calculated at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York on the period-end date for the applicable period, which as of December 31, 2015 was 1.00 = $1.0859 and as of September 30, 2016 was 1.00 = $1.1238. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this or any other exchange rate.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. Our historical results do not necessarily indicate results expected for any future period.

 

     Year ended December 31,     Nine months ended
September 30,
 
(in millions)  

2014

   

2015

   

2015

   

2015

    2016     2016  
                (unaudited)    

(unaudited)

 

Consolidated statement of operations:

           

Revenue

  209.1      298.9      $ 324.6      239.4      378.7      $ 425.6   

Revenue from related party

    100.2        194.2        210.9        154.4        206.3        231.8   
 

 

 

 

Total revenue

    309.3        493.1        535.5        393.8        585.0        657.4   

Costs and expenses:

           

Cost of revenue, including related party, excluding amortization (1)(2)

    1.4        2.9        3.1        2.0        3.1        3.5   

Selling and marketing(1)

    286.3        461.3        501.0        383.5        538.1        604.7   

Technology and content(1)

    15.4        28.7        31.2        20.9        40.6        45.6   

General and administrative, including related party(1)(3)

    6.5        18.1        19.7        12.4        42.2        47.4   

Amortization of intangible assets

    30.0        30.0        32.6        22.5        11.3        12.7   
 

 

 

 

Operating income (loss)

    (30.3     (47.9     (52.1     (47.5     (50.3     (56.5

Other income (expense):

           

Interest expense

    (0.0     (0.1     (0.1     (0.1     (0.1     (0.1

Other, net

    (1.4     (2.7     (2.9     (0.7     0.5        0.6   
 

 

 

 

Total other income (expense), net

    (1.4     (2.8     (3.0     (0.8     0.4        0.5   

Income (loss) before income taxes

    (31.7     (50.7     (55.1     (48.3     (49.9     (56.0

Expense (benefit) for income taxes

    (8.6     (11.3     (12.3     (10.9     1.6        1.8   
 

 

 

 

Net loss

    (23.1     (39.4     (42.8     (37.4     (51.5     (57.8

Net loss attributable to noncontrolling interests

           0.3        0.3        0.1        0.5        0.6   
 

 

 

 

Net loss attributable to trivago GmbH

  (23.1   (39.1   $ (42.5   (37.3   (51.0   $ (57.2
 

 

 

 

Pro forma basic and diluted earnings (loss) per share(4)

    (0.12   $ (0.13     (0.16   $ (0.18
 

 

 

 

Key performance indicator

           

Adjusted EBITDA(5)

  3.5      (1.1   $ (1.2   (13.4   16.3      $ 18.3   

 

 

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(1)   Includes share-based compensation expense as follows:

 

      Year ended December 31,      Nine months ended
September 30,
 
(in millions)   

2014

    

2015(a)

    

2015(a)

     2015      2016(a)      2016(a)  
                   (unaudited)     

(unaudited)

 

Cost of revenue, including related party

          0.2       $  0.2       0.2       0.7       $ 0.8   

Selling and marketing

     1.1         3.4         3.7         2.4         10.4         11.7   

Technology and content

     1.2         4.5         4.9         3.3         15.3         17.2   

General and administrative

     0.1         6.0         6.5         3.9         25.6         28.8   

 

  (a)   Share-based compensation expense is primarily attributable to liability award accounting treatment for share-based awards granted in prior periods, see Note 6 – Share-based awards and other equity instruments in the notes to our consolidated financial statements.

 

(2)   Excluding:

 

      Year ended December 31,      Nine months ended
September 30,
 
(in millions)   

2014

    

2015

    

2015

     2015      2016      2016  
                   (unaudited)     

(unaudited)

 

Amortization of acquired technology included in Amortization of intangible assets

   19.9       19.9      $  21.6       14.9       3.7       $ 4.2   

Amortization of internal use software and website development costs included in Technology and content

     0.2      

 
0.5         0.5         0.3         0.7         0.8   

 

(3)   Includes:

 

      Year ended December 31,      Nine months ended
September 30,
 
(in millions)   

2014

    

2015

    

2015

     2015      2016      2016  
                   (unaudited)     

(unaudited)

 

Related party shared services fee

   1.5       2.8      $  3.0       2.3       2.9       $ 3.3   

 

(4)   Pro forma basic and diluted earnings (loss) per share is computed by dividing (A) net income (loss) attributable to trivago GmbH, after adjusting for noncontrolling interest as a result of the pre-IPO corporate reorganization, by (B) basic weighted average shares outstanding (controlling interest Class B shares assuming Expedia contributed its ownership in trivago GmbH units to travel B.V. and Class A shares assuming the Founders contributed the 1,224 units to travel B.V.). The potential dilutive securities of travel B.V., which include options, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, on a pro forma basis giving effect to the pre-IPO corporate reorganization, the weighted average number of combined Class A and Class B shares outstanding of 216,401,919 and 219,102,400 for the year ended December 31, 2015 and the nine months ended September 30, 2016, respectively, was used to calculate both pro forma basic and diluted net loss per share attributable to shareholders. The historical weighted average number of shares outstanding excludes all shares being sold by us in this offering. See “Capitalization.”

 

(5)   We define adjusted EBITDA as net loss plus: (1) benefit (provision) for income taxes; (2) total other income (expense), net; (3) depreciation of property and equipment, including amortization of internal use software and website development; (4) amortization of intangible assets; and (5) 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;

 

   

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.

 

 

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     We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

 

      Year ended December 31,     Nine months ended September 30,  
(in millions) (unaudited)   

2014

    2015     2015           2015           2016           2016  

Net loss

   (23.1   (39.4   $ (42.8   (37.4   (51.5   $ (57.8
  

 

 

 

Expense (benefit) for income taxes

     (8.6     (11.3     (12.3     (10.9     1.6        1.8   
  

 

 

 

Income (loss) before income taxes

     (31.7     (50.7     (55.1     (48.3     (49.9     (56.0
  

 

 

 

Add/(less):

            

Interest expense

     0.0        0.1        0.1        0.1        0.1        0.1   

Other, net(i)

     1.4        2.7        2.9        0.7        (0.5     (0.6
  

 

 

 

Operating income (loss)

     (30.3     (47.9     (52.1     (47.5     (50.3     (56.5
  

 

 

 

Add:

            

Depreciation

     1.4        2.7        2.8        1.8        3.3        3.7   

Amortization of intangible assets

     30.0        30.0        32.6        22.5        11.3        12.7   
  

 

 

 

EBITDA

     1.1        (15.2     (16.6     (23.2     (35.7     (40.1
  

 

 

 

Add:

            

Share-based compensation

     2.4        14.1        15.3        9.8        52.0        58.4   
  

 

 

 

Adjusted EBITDA

   3.5      (1.1   $ (1.3   (13.4   16.3      $ 18.3   

 

 

 

  (i)   Consists primarily of foreign exchange gain/loss in the years ended December 31, 2014 and 2015, and the nine months ended September 30, 2015 and 2016 and the non-recurring reversal of a 1.6 million indemnification asset in 2015 related to the 2013 acquisition by Expedia.

Balance sheet data:

 

      As of December 31,     As of September 30,  
(in millions)   

2014

   

2015

   

2015

    2016     2016  
                 (unaudited)     (unaudited)  

Cash

   6.1      17.6      $ 19.1      4.2      $ 4.7   

Total assets

     750.8        760.3        825.6        808.4        908.5   

Total current liabilities

     16.0        72.0        78.2        84.6        95.1   

Retained earnings (accumulated deficit)

     (90.0     (129.2     (140.3     (180.1     (202.4

Total members’ equity

   664.6      622.3      $ 675.8      637.7      $ 716.6   

 

 

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Risk factors

You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition, results of operations or prospects could be materially and adversely affected by any of these risks. The trading price and value of our ADSs could decline due to any of these risks, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus.

Risks related to our industry and business

Our failure to manage our growth effectively could negatively affect our corporate culture, harm our ability to attract and retain key personnel and adversely impact our results of operations and future growth.

Our entrepreneurial and collaborative culture is important to us, and we believe it has been a major contributor to our success. We may have difficulties maintaining our culture or adapting it sufficiently to meet the needs of our future and evolving operations as we continue to grow. In addition, our ability to maintain our culture as a public company, with the attendant changes in policies, practices, corporate governance and management requirements, and as a result of the corporate reorganization, may be challenged. Failure to maintain our culture could have a material adverse effect on our business, results of operations, financial condition and prospects.

We have rapidly and significantly expanded our operations and anticipate expanding further as we pursue our growth strategy. Our workforce worldwide has grown from fewer than 300 employees as of December 31, 2012 to more than 1,000 employees as of September 30, 2016. Such expansion increases the complexity of our business and places a significant strain on our management, operations, technical systems, financial resources and internal controls over financial reporting functions. As a result, we may not be able to manage our expansion effectively. Our current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in several geographic locations. We may not be able to hire, train, retain, motivate and manage required personnel, which may limit our growth, damage our reputation and may have a material adverse effect on our business, results of operations, financial condition and prospects. These pressures and challenges may be enhanced by our becoming a public company and the corporate reorganization.

We may not be able to maintain our historical growth rates in future periods.

Our 2015 revenue grew by 59% compared to 2014, and our revenue for the first nine months of 2016 grew by 49% compared to the first nine months of 2015. While we expect our business to continue to grow, we may not be able to maintain our historical growth rates in future periods. Revenue growth may slow or revenues may decline for any number of reasons, including our inability to attract and retain users, decreased user spending, increased competition, slowing growth of the overall online hotel search market, the emergence of alternative business models, changes in government policies and general economic conditions. As the size of our user base continues to increase, we anticipate that the growth rate of our user base may decline over time. We may also lose users for other reasons, such as a failure to deliver satisfactory search results or transaction experiences or high quality services. In addition, even if our user base continues to grow, our revenues may not grow at the same rate or at all. If our growth rates decline, investors’ perceptions of our business and business prospects may be adversely affected.

 

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We are dependent on 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 travelers using 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 discretionary spending levels. Travel services tend to decline, along with the advertising budgets spent by hotels and other accommodation aggregators, during general economic downturns and recessions. 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. For example, in mid-2016, certain hotel chains cut their growth forecasts for the remainder of the year due to global economic uncertainty, and some analysts suggested that the U.S. hotel industry may have reached a cyclical peak.

Any significant decline in travel, consumer discretionary spending or the occurrence of any of the foregoing conditions may reduce demand for our services, cause advertisers to become 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.

Many events beyond our control may adversely affect the travel industry.

Certain events beyond our control may 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. The occurrence of any of the foregoing events 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 information we display, the value of our services to users and a loss of users, which would adversely affect our business, financial performance and prospects.

General competition

We operate in the highly and increasingly competitive travel industry. Many of our current and potential competitors, including hotels themselves (both hotel chains and independent hotels), global metasearch and review websites, such as Kayak and TripAdvisor, locally focused metasearch engines such as Qunar, Online Travel Agents, or OTAs, such as Booking.com, Ctrip and Brand Expedia, alternative accommodation websites, such as Airbnb and HomeAway, and other hotel websites, may have existed longer, may have larger user bases, may have a wider range products and services, 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. Metasearch websites are also expanding globally and are becoming increasingly competitive. In addition, many

 

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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. Many of these competitors may also offer user incentives, such as loyalty points or priority access to services, which may not be available if travelers book through third-party sites or services.

Advertiser competition

We compete for hotel advertising revenue with search engines, such as Baidu, Bing, Google and Yahoo!, which offer pay-per-click or pay-per-impression advertising services. These competitors may have significantly greater financial, technical, marketing and other resources than we do and large established user bases. In addition, we compete with newspapers, magazines and other traditional media companies that provide offline and online advertising opportunities for hotels. We expect to face additional competition as other established and emerging companies enter the hotel advertising market. Competition could result in higher traffic acquisition costs, lower “cost-per-click,” or CPC, pricing 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.

Advertiser consolidation

In addition, consolidation among advertisers, or a change to more coordinated or centralized marketing activities within OTA groups and hotel chains, could reduce the number of offers we have available in our marketplace for each hotel, which could cause our services to become less valuable and popular for users and could result in advertisers bidding less for offers or even terminating their relationships with us.

As a result, competition and consolidation, individually or in the aggregate, could result in higher traffic acquisition costs, reduced operating margins, loss of market share, reduced customer traffic to our websites and reduced advertising by OTAs and hotels on our websites. Furthermore, our CPC pricing for click-based advertising depends, in part, on competition among advertisers, with those paying higher CPCs generally receiving better advertising placement and more referrals from us. If our large customers become less competitive with each other, merge with each other, focus more on profit than on traffic volume, or are able to reduce CPCs, this would have an adverse impact on our CPCs which, in turn, may have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, competition and consolidation among our advertisers may cause some of them to have financial difficulties, default on or materially delay their obligations to pay us for services we have already provided or become insolvent. As a result, we may not be able to compete successfully against current and future competitors, and competition and/or consolidation among advertisers may have a material adverse effect on our business, results of operations, financial condition and prospects.

We could be adversely affected by our advertiser concentration and the geographic concentration of our user base.

Our advertiser base consists of OTAs, hotel chains and independent hotels, and we generate the large majority of our revenue from OTAs. Certain brands affiliated as of the date hereof with our majority shareholder, Expedia, including Brand Expedia, Hotels.com, Orbitz, Travelocity, Hotwire, Wotif, ebookers and Venere, in the aggregate, accounted for 39% and 35% of our total revenue for the nine months ended September 30, 2015 and 2016, respectively. The Priceline Group and its affiliated brands, Booking.com and, through 2015, Agoda, accounted for 27% and 43% of our total revenue for the nine months ended September 30, 2015 and 2016, respectively.

 

 

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In addition, our user base is geographically concentrated. A significant portion of our revenue comes from points of sale in a few markets, such as the United States, Germany, the United Kingdom, Spain and Italy. These markets accounted for 17.6%, 18.7%, 15.1%, 8.3% and 7.5% of our revenue for the year ended December 31, 2014, respectively, and 26.1%, 13.7%, 12.5%, 5.9% and 5.4% of our revenue for the year ended December 31, 2015, respectively.

This concentration of key customers and geographic concentration of our user base may impact our overall exposure to changes in economic and industry conditions, either positively or negatively, as these key customers and markets may be similarly affected by such conditions. The loss of any major customer, or a significant weakening in the business conditions and/or the financial conditions of OTAs and hotels generally or in the markets in which our revenue is concentrated, could result in significant decreases in revenue, as well as an increase in credit losses, and 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 not 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 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. 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. In the event of such default, we could incur significant losses, which could adversely impact our business, results of operations, financial condition and prospects.

We may be unable to maintain and increase brand awareness, which could limit our ability to maintain our current financial performance or achieve additional growth.

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 travelers using 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 and grow our business. 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 2009, we began a successful broad-reach TV marketing campaign. We expect to continue to invest in TV marketing campaigns in light of increased spending from competitors, our expansion into geographies where our brand is less well known, increasing prices and the increasing traffic share growth of search engines as destination sites for users. Such efforts may not maintain or enhance consumer awareness of our brand and, even if we are successful in our branding efforts, such efforts may not be cost-effective or as efficient as they have been historically. We intend to continue expanding our operations globally, including in countries where we have limited operating experience, that may have different competitive conditions and where travelers may

 

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have different travel preferences. Users in other countries may not be familiar with our brand, or may be less familiar with our brand than that of a competitor, and we may need to build brand awareness in such countries through greater investments in advertising and promotional activities. In addition, significant increases in the pricing of one or more of our marketing and advertising channels could increase our advertising expense or cause us to choose less effective marketing and advertising channels. TV advertising comprises a large percentage of our advertising expense and may have higher costs than other channels and which could have a material adverse effect on our profitability. 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. 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 have registered domain names for websites that we use in our business, such as www.trivago.com, www.trivago.de and www.trivago.co.uk. If we lose the ability to use a domain name, we would be forced to incur significant expenses to market our services under a new domain name, which could substantially harm our business. In addition, 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 could result in substantial costs and diversion of management attention.

Our brands are 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. 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.

If we are unable to maintain or establish relationships with advertisers, or if advertisers choose to reduce or even eliminate the fees they pay us, our financial performance could be materially adversely affected.

Our ability to attract users to our services depends in large part on providing a comprehensive set of search results and transparent pricing information. To do so, we maintain relationships with OTAs, hotel chains and independent hotels to include their data in our search results. The loss of existing relationships with advertisers, or our inability to continue to add new ones, may cause our search results to provide incomplete pricing, availability and other information important to users of our services. This deficiency could reduce user confidence in the search results we provide, making us less popular.

In addition, nearly 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. We cannot guarantee that our advertisers will

 

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continue to work with us. We may also be unable to negotiate access, pricing or other terms that are consistent or more favorable than our current terms. A failure to retain current terms or obtain more favorable terms with, or increase or maintain our relationships with, our advertisers may have a material adverse effect on our business, results of operations, financial condition and prospects.

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate our material weakness or if we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our business and adversely impact the trading price of our securities.

Our management is responsible for establishing and maintaining internal controls over financial reporting, disclosure controls, and complying 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. generally accepted accounting principles. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In addition, we have historically prepared our books and records in accordance with the German Commercial Code (Handelsgesetzbuch), or German GAAP. Our books and records were then converted to U.S. GAAP, for purposes of this offering, by accounting personnel who have limited experience in maintaining books and records and preparing financial statements in U.S. GAAP.

In connection with the audit of our 2015 financial statements, we identified a material weakness, primarily related to the lack of sufficient accounting and supervisory personnel with the appropriate level of technical accounting experience and training necessary or processes and procedures, particularly in the areas of share-based compensation, build-to-suit lease accounting and internal use software and capitalization of website development costs and other complex, judgmental areas and consequently must rely on the assistance of outside advisors with expertise in these matters to assist us in our preparation of U.S. GAAP financial statements and our compliance with SEC reporting obligations. These deficiencies represent a material weakness in our internal control over financial reporting in both design and operation. During 2016, we appointed a chief financial officer who is responsible for identifying the staffing and resource needs of our company required to remediate the material weakness. These individuals will be required to have sufficient experience in maintaining books and records and preparing financial statements in U.S. GAAP. We have initiated the hiring of additional staff that have begun to address these needs. Additionally, we will expand our accounting policies and procedures as well as provide additional training to our accounting and finance staff. While we are working to remediate the material weakness as quickly and efficiently as possible and expect to have remediated the material weakness during the year ended December 31, 2017, at this time we cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan. These remediation measures may be time consuming, costly, and might place significant demands on our financial and operational resources. If we are unable to successfully remediate this material weakness, and if we are unable to produce accurate and timely financial statements, our financial statements could contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our ADSs to decline.

 

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Until the end of the fiscal year for which we will file our second annual report on Form 20-F after becoming a public company, we will not be required to make a formal assessment of the effectiveness of our internal controls over financial reporting. Even from the time such requirement applies, our management cannot guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud. For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal controls over financial reporting depending on our market capitalization. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not.

If we are not able to establish and maintain an effective system of internal controls and otherwise implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result of misstatements or restatements in our financial statements or an adverse assessment by management or auditors about the effectiveness of our internal controls, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal controls system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flow, harm our reputation and adversely affect the trading price of our ADSs.

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 Baidu, Bing, Google, 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. These changes could negatively affect the purchased or algorithmic placement of links to our websites. In addition, a significant amount of traffic is directed to our websites through our participation in display advertising campaigns on search engines, advertising networks, affiliate websites and social networking sites. Pricing and operating dynamics for these traffic sources can experience rapid change, both technically and competitively. Moreover, any of these providers could, for competitive or other purposes, alter their search algorithms or results, causing our websites to place lower in search results. 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.

We rely on information technology to operate our businesses and maintain our competitiveness, and any failure to invest in and adapt to technological developments and industry trends could harm our business.

We depend on the use of sophisticated information technologies and systems, including technology and systems used for websites and apps, customer service, supplier connectivity, communications, fraud detection and administration. As our operations grow in size, scope and complexity, we need to continuously improve and

 

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upgrade our systems and infrastructure to offer an increasing number of user-enhanced services, features and functionalities, while maintaining or improving the reliability and integrity of our systems and infrastructure.

Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our service in response to competitive service offerings. The emergence of alternative platforms such as smartphone and tablet computing devices and the emergence of niche competitors who may be able to optimize services or strategies such platforms have required, and will continue to require, new and costly investments in technology. We may not be successful, or we may be less successful than our current or new competitors, in developing technologies that operate effectively across multiple devices and platforms and that are appealing to users, either of which would negatively impact our business and financial performance. New developments in other areas, such as cloud computing and software-as-a-service providers, could also make it easier for competitors to enter our markets due to lower up-front technology costs. In addition, we may not be able to maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a cost-effective manner. Failure to invest in and adapt to technological developments and industry trends may have a material adverse effect on our business, results of operations, financial condition and prospects.

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 revenues 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 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 revenues may not increase. 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.

Changes in Internet browser functionality could result in a decrease in our overall revenues.

We generate revenues, in part, by redirecting users to our advertisers’ websites. Changes in browser functionality may either prevent or limit our ability to redirect users to our advertisers. As a result, our revenue could decline if we are no longer able to offer this feature to our users.

The introduction of certain technologies may reduce the effectiveness of our services. For example, some of our services and marketing activities rely on cookies, which are placed on individual browsers when users visit websites. We use these cookies to optimize our marketing campaigns and our advertisers’ campaigns, to better understand our users’ preferences and to detect and prevent fraudulent activity. Users can block or delete cookies through their browsers or “ad-blocking” software or apps. The most common Internet browsers allow users to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. Increased use of methods, software or apps that block cookies, or the disaffection of users resulting from our use of such marketing activities, may have an adverse effect on our business, results of operations, financial condition and prospects.

 

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One of our product features depends in part on our relationship with third parties to provide us with consumer reviews.

Third parties provide us with consumer reviews that we provide 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 users’ perception of the value of our product and our reputation.

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, and 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 the United States, Germany, Hong Kong and China. 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 by 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. 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.

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

 

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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 steal user information or proprietary information or cause significant disruptions to our operations. In the past, we have experienced “denial-of-service” type attacks on our system that 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 and apps could cause a loss of substantial business volume during the occurrence of any such incident and could result in reputational harm and impact negatively our ability to attract new customers and/or retain existing ones. The risk of security breaches, intrusions and other attacks is likely to increase as we expand the number of markets in which we operate and as the tools and techniques used in these types of attacks become more advanced. 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 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 penalties and sanctions as well as civil litigation.

We currently provide users with the option to complete certain hotel bookings by transferring users’ details 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 European Commission Directive 95/46/EC and implementing legislation in effect in member states of the European Union. 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. 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 could be adversely affected if we fail to comply fully with all of these requirements. 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.

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 and price display, consumer protection, anti-corruption, anti-trust and competition, economic and trade sanctions, tax, banking, data security and privacy. As a result, regulatory authorities could

 

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prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our practices were found not to comply with applicable regulatory or licensing requirements or any binding interpretation of such requirements. Unfavorable changes or interpretations could decrease demand for our services, limit marketing methods and capabilities, affect our margins, increase costs or subject us to additional liabilities.

For example, there 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 or transmitted over the Internet, display of certain taxes and fees, online editorial and user-generated content, user 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 more stringent consumer protection laws and more aggressive enforcement efforts, which may impose additional burdens on online businesses generally.

Likewise, the SEC, U.S. Department of Justice and U.S. Office of Foreign Assets Controls, 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 relate to transactions with designated foreign countries, including Cuba, Iran, Sudan and Syria, and nationals and others of those countries, as well as certain specifically targeted individuals and entities. We believe that our activities comply with OFAC trade regulations and anti-corruption regulations, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act. As regulations continue to evolve and regulatory oversight continues to increase, we cannot guarantee that our programs and policies will be deemed compliant by all applicable regulatory authorities. In the event our controls should fail or are found to be not in compliance for other reasons, we could be subject to monetary damages, civil and criminal monetary penalties, litigation and damage to our reputation and the value of our brand.

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 hotel search 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 revenues, increase costs or subject the company to additional liabilities.

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 revenues. This has contributed to an increase in audit activity and harsher stances 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 judgment and estimation is 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

 

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liabilities, possibly including interest and penalties, which could have a material adverse effect on our cash flows, results of operations, financial condition and prospects.

Amendments to existing tax laws, rules or regulations or enactment of new unfavorable tax laws, rules or regulations could have an adverse effect on our business and financial performance.

Many of the underlying laws, rules or regulations imposing taxes and other obligations were established before the growth of the Internet and e-commerce. If the tax or other laws, rules or regulations were amended, or if new unfavorable laws, rules or regulations were enacted, the results could increase our tax payments or other obligations, prospectively or retrospectively, subject us to interest and penalties, decrease the demand for our services if we pass on such costs to the user, result in increased costs to update or expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we decided not to conduct business in particular jurisdictions. As a result, these changes may have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition, in the past, Germany and foreign governments have introduced proposals for tax legislation, or have adopted tax laws, that could have a significant adverse effect on our tax rate, or increase our tax liabilities, the carrying value of deferred tax assets, or our deferred tax liabilities. For example, in October 2015, the Organization for Economic Co-Operation and Development 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” 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. Additional multilateral changes are anticipated in upcoming years. Any changes to national or international tax laws could impact the tax treatment of our 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.

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 September 30, 2016, we derived 38% of our total revenue from our operations in the Americas, 47% of our revenue from our operations in Developed Europe and 14% of our revenue from our operations in the Rest of World. See “Management’s discussion and analysis of financial condition and results of operations” for a further description of our geographical operating segments. In addition, our user base is geographically concentrated. A significant portion of our revenue comes from points of sale in a few markets, such as the United States, Germany, the United Kingdom, Spain and Italy. These markets accounted for 17.6%, 18.7%, 15.1%, 8.3% and 7.5% of our revenue for the year ended December 31, 2014, respectively, and 26.1%, 13.7%, 12.5%, 5.9% and 5.4% of our revenue for the year ended December 31, 2015, respectively. We face complex, dynamic and varied risk landscapes in the jurisdictions in which we operate. As we enter countries and markets that are new to us, we must tailor our services and business models to the unique circumstances of such countries and markets, which can be complex, difficult, costly and divert management and personnel resources. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with global operations in general. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses or our failure to adapt our practices, systems, processes and business models effectively to the user and supplier preferences of each country into

 

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which we expand, could slow our growth. Certain markets in which we operate have lower margins than more mature markets, which could have a negative impact on our overall margins as our revenues from these markets grow over time.

In addition to the risks outlined elsewhere in this section, our global operations are subject to a number of other risks, including:

 

 

currency exchange restrictions or costs and exchange rate fluctuations;

 

 

exposure to local economic or political instability, threatened or actual acts of terrorism and security concerns in general;

 

 

compliance with various regulatory laws and requirements relating to anti-corruption, antitrust or competition, economic sanctions, data content and privacy, consumer protection, employment and labor laws, health and safety, and advertising and promotions;

 

 

differences, inconsistent interpretations and changes in various laws and regulations, including international, national and local tax laws;

 

 

weaker or uncertain enforcement of our contractual and intellectual property rights;

 

 

preferences by local populations for local providers;

 

 

slower adoption of the Internet as an advertising, broadcast and commerce medium and the lack of appropriate infrastructure to support widespread Internet usage in those markets;

 

 

our ability to support new technologies, including mobile devices, that may be more prevalent in certain global markets;

 

 

difficulties in attracting and retaining qualified employees in certain international markets, as well as managing staffing and operations due to increased complexity, distance, time zones, language and cultural differences; and

 

 

uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of precedent.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our ADSs.

We are a multinational company with worldwide operations, including significant business operations in Europe. In June 2016, a majority of voters in the United Kingdom in a national referendum elected to withdraw from the European Union. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, and has given rise to calls for the governments of other European Union member states to consider withdrawal.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the

 

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United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal could depress economic activity and restrict our access to capital. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European Economic Area overall could be diminished or eliminated. Any of these factors may have a material adverse effect on our business, results of operations, financial condition and prospects and reduce the price of our ADSs.

Our global operations expose us to risks associated with currency fluctuations, which may adversely affect our business.

We conduct a significant and growing portion of our business outside the Eurozone. As a result, we face exposure to movements in currency exchange rates around the world. These exposures 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 euros upon consolidation; fluctuations in hotel revenue and planning risk related to changes in exchange rates between the time we prepare our annual and quarterly forecasts and when actual results occur.

We do not currently hedge our foreign exchange exposure. Depending on the size of the exposures and the relative movements of exchange rates, if we choose not to hedge or fail to hedge effectively our exposure, we could experience a material adverse effect on our financial statements and financial condition. As we have seen in some recent periods, in the event of severe volatility in foreign exchange rates, these exposures can increase, and the impact on our results of operations can be more pronounced. In addition, the current environment and the increasingly global nature of our business have made hedging these exposures more complex.

We 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. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees.

The Amended and Restated Shareholders’ Agreement contains certain provisions that could result in the departure of certain of our senior management. If the Founders, collectively, hold less than 15% of our outstanding Class A shares and Class B shares (calculated as if all securities convertible, exercisable or exchangeable for Class A shares or Class B shares had been converted, exercised or exchanged), they lose certain contractual rights to nominate members of our management board. In such case, our supervisory board may also request from the Founders, the resignation of members of the supervisory board who have been nominated by the Founders. In addition, the general meeting of shareholders, which is controlled by Expedia, has broad discretion to remove members of our management board with and without cause, irrespective of the Founders’ holdings. If the general meeting of shareholders has reasonable cause, as defined in the Amended and Restated Shareholders’ Agreement, for such removal, Expedia has the unilateral right, subject to certain exceptions, to purchase all of such member’s shares. If the Founders and other members of our management board are removed, such removal could materially adversely affect our ability to build on the efforts they have undertaken and to execute our business plan, and we may not be able to find adequate replacements. In particular, the contributions of certain key senior management are critical to our overall success.

 

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Competition for well-qualified employees in all aspects of our business, including software engineers and other technology professionals, is intense globally. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate existing employees. Our software engineers and technology professionals are key to designing code and algorithms necessary to our business. If we do not succeed in attracting well-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.

We are subject to risks associated with a corporate culture that promotes entrepreneurialism among its employees, decentralized decision making and continuous learning.

We have delegated considerable operational autonomy and responsibility to our employees, including allowing certain employees flexible working hours that allow employees 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.

As a consequence, we may have less experienced people in key positions, and we rotate experienced employees to other jobs within the company. As our employees have significant autonomy, this could result in poor decision making, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our dual-class share structure with different voting rights, and certain provisions in the Amended and Restated Shareholders’ Agreement, will 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.

Prior to the completion of this offering and subject to the approval of our existing shareholders, we expect to create a dual-class share structure such that our share capital will consist of Class A shares and Class B shares. In respect of matters requiring the votes of shareholders, based on our proposed dual-class share structure, holders of Class A shares will be entitled to one vote per share, while holders of Class B shares will be entitled to ten votes per share. We and the Selling Shareholders will sell ADSs (representing Class A shares) in this offering. 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.

After completion of the post-IPO merger, assuming it occurs as contemplated, it is expected that Expedia will beneficially own approximately 65.0%, and the Founders will own approximately 34.1%, of the aggregate voting power of our issued and outstanding shares due to the disparate voting powers associated with our dual-class share structure, assuming the underwriters do not exercise the over-allotment option. See “Principal and selling 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 and the Founders will 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 will limit your ability to influence corporate matters that holders of Class A shares may view as beneficial.

 

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The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”

As a public company with ADSs traded on an exchange located in the United States, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the Sarbanes-Oxley Act, the listing requirements of NASDAQ, the Dutch Corporate Governance Code and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” 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, the need to establish the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, we have previously relied on experts and the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, results of operations and cash flow could be adversely affected.

For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years. Furthermore, after the date we are no longer an “emerging growth company,” our independent registered public accounting firm will only be required to attest to the effectiveness of our internal controls over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of

 

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the necessary procedures and practices related to internal controls over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to grow our revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

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 shares 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 “Description of share capital and articles of association—Comparison of Dutch corporate law and our articles of association and U.S. corporate law” for more information on the significant differences between our corporate governance practices and those followed by U.S. companies under NASDAQ rules. As a result of our reliance on the corporate governance exemptions available to foreign private issuers, you will not have the same protection afforded to shareholders of companies that are subject to all of NASDAQ’s corporate governance requirements.

In the event we no longer qualify as a foreign private issuer, we intend to 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, controls, and following this offering will continue to control, 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 are eligible to, and, in the event we no longer qualify as a foreign private issuer, we intend to, elect not to comply with certain of corporate governance standards, including the requirement that a majority of our supervisory board members are independent and the requirement that our compensation committee consist entirely of independent directors.

Furthermore, because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. As a result, you may not be provided with the same benefits as a holder of shares of a U.S. issuer.

 

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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, 2017.

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 compensation information on an aggregate basis. We will also have to mandatorily 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 may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. Such conversion and modifications will involve additional costs and may divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Litigation could distract management, increase our expenses or subject us to material money damages and other remedies.

Although we are not currently a party to any material legal proceedings, we may be involved from time to time in various legal proceedings, including, but not limited to, actions relating to breach of contract and intellectual property infringement that might necessitate changes to our business or operations. Regardless of whether any claims against us have merit, or whether we are ultimately held liable or subject to payment of damages, claims may be expensive to defend and may divert management’s time away from our operations. If any legal proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations. Any adverse publicity resulting from actual or potential litigation may also materially and adversely affect our reputation, which in turn could adversely affect our results.

Companies in the Internet, technology and media industries are frequently subject to allegations of infringement or other violations of intellectual property rights. We are currently subject to several claims and may be subject to future claims relating to intellectual property rights. As we grow our business and expand our operations we may be subject to intellectual property claims by third parties. We plan 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

 

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business. Resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Many of our agreements with hotels, OTAs and other partners require us to indemnify these entities against third-party intellectual property infringement claims, which would increase our defense costs and may require that we pay damages if there were an adverse ruling in any such claims. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.

Integration of acquired assets and businesses could result in operating difficulties and other harmful consequences.

We have acquired businesses in the past, comprising myhotelshop GmbH, or myhotelshop, base7booking.com S.à r.l., or base7, and B264 GmbH, or Rheinfabrik. 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 integrations include:

 

 

diversion of management time and focus from operating our business to acquisition diligence, negotiation and closing processes, as well as post-closing integration challenges;

 

 

implementation or remediation of controls, procedures and policies at the acquired company;

 

 

coordination of product, engineering and sales and marketing functions;

 

 

retention of employees from the businesses we acquire;

 

 

responsibility for liabilities or obligations associated with activities of the acquired company before the acquisition;

 

 

litigation or other claims in connection with the acquired company; and

 

 

in the case of foreign acquisitions, the need to integrate operations across different geographies, cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries.

Furthermore, companies that we have acquired, and that we may acquire in the future, may employ security and networking standards at levels we find unsatisfactory. The process of enhancing infrastructure to improve security and network standards may be time 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.

 

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Risks related to our ongoing relationship with our shareholders

Expedia controls our company and has the ability to control the direction of our business.

Expedia owned 63.5% of the economic and voting rights attributable to the shares of trivago as of September 30, 2016. Following the completion of this offering and post-IPO merger, assuming it occurs as contemplated, we expect Expedia to own 60.2% of our Class B shares and 65.0% of the voting power in us. As long as Expedia owns a majority of the voting power in us, and pursuant to certain rights it will be granted under the Amended and Restated Shareholders’ Agreement, Expedia will be able to control many corporate actions that require a shareholder vote.

This voting control will limit the ability of other shareholders to influence corporate matters and, as a result, we may take actions that shareholders other than Expedia 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 generally has the right at any time to sell or otherwise dispose of any Class A shares and Class B shares that it owns, including the ability to transfer a controlling interest in us to a third party, without the approval of the holders of our Class A shares and without providing for the purchase of Class A shares.

The Founders have contractual rights to exert control over certain aspects of our business.

Pursuant to the Amended and Restated Shareholder’s Agreement, as long as the Founders collectively maintain at least 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), the Founders will have certain rights to veto decisions about certain corporate matters. These contractual rights will limit the ability of Expedia 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 at least 15% of our outstanding Class A 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), 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 chief executive officer for a period of three years, so long as a Founder is serving as chief executive officer and there is no set of circumstances that would constitute a reasonable cause, such Founder has the right to nominate a successor in its function of chief executive officer, subject to the approval of Expedia and thereafter, the supervisory board.

Expedia’s interests may conflict with our interests, the interests of the Founders and the interests of our shareholders, and conflicts of interest between Expedia, the Founders and us could be resolved in a manner unfavorable to us and our shareholders.

Various conflicts of interest between us, the Founders and Expedia could arise. Ownership interests of directors or officers of Expedia in our shares and ownership interests of members of our management board and supervisory board in the stock of Expedia, or a person’s service as either a director or officer of both companies, could create or appear to create potential conflicts of interest when those directors and officers are faced with decisions relating to our company. In the years ended December 31, 2014 and 2015 and for the nine

 

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months ended September 30, 2015 and 2016, Expedia accounted for 32%, 39%, 39% and 35% of our revenue, respectively.

Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with Expedia’s businesses in the future or in connection with Expedia’s desire to enter into new commercial arrangements with third parties.

Expedia has the right to pursue acquisitions of businesses that trivago may also be interested in acquiring and the right to acquire companies that may directly compete with us. Expedia may choose to pursue these corporate opportunities other than through trivago.

Furthermore, disputes may arise between Expedia and us relating to our past and ongoing relationships, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:

 

 

tax, employee benefit, indemnification and other matters arising from this offering;

 

the nature, quality and pricing of services Expedia agrees to provide to us;

 

sales or other disposal by Expedia of all or a portion of its ownership interest in us; 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, we may not have the leverage to negotiate amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party. In addition, should Expedia choose not to guarantee any future indebtedness we may incur, the cost of such financing may increase or financing may not be available at all.

The services that Expedia will provide to us following this offering may not be sufficient to meet our needs, which may result in increased costs and otherwise adversely affect our business.

Prior to completion of this offering, Expedia has provided us with support for shared services related to corporate functions such as legal, tax, treasury, audit and corporate development and certain server hosting and other services. Following this offering, we expect Expedia to continue to provide certain services for a fee under formal and informal arrangements described in “Related party transactions.” However, Expedia will not be obligated to provide these services in a manner that differs from the nature of the service today, and thus we may not be able to modify these services in a manner desirable to us as a stand-alone public company. Further, if we no longer receive these services from Expedia, we may not be able to perform these services ourselves, or find appropriate third-party arrangements at a reasonable cost, and the cost may be higher than that charged by Expedia.

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 and financial condition.

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

 

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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.

Claims by third parties that we infringe their intellectual property rights could result in significant costs and have a material adverse effect on our business, results of operations or financial condition.

We are currently subject to various patent and trademark infringement claims. These claims 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 money damages, which could have an adverse effect on our results of operations. In addition, the costs associated with the defense of these claims could have an adverse effect on our results of operations. As we grow our business and expand our operations, we expect that we will continue to be subject to intellectual property claims. Resolving intellectual property claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or we may be required to cease using intellectual property of third parties altogether. Any of these events may have a material adverse effect on our business, results of operations, financial condition and prospects.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

A substantial amount of our processes and technologies is protected by trade secrecy laws. In order to protect these technologies and processes, we rely in part on confidentiality agreements with our employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secrecy rights against such parties. To the extent that our employees, contractors or other third parties with which we do business may use intellectual property owned by others in their work for us without our authorization, disputes may arise as to the rights in related or resulting know-how and inventions. Laws regarding trade secrecy rights in certain markets in which we operate may afford little or no protection to our trade secrets. The loss of trade secret protection could make it easier for third parties to compete with our services by copying functionality. 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

 

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license terms. We could be subject to suits by 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 is likely to be volatile, in part because our ADSs have no history of being publicly traded. In addition, the market price of our ADSs may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

 

 

actual or anticipated fluctuations in our results of operations;

 

 

variance in our financial performance from the expectations of market analysts;

 

 

announcements by us or our competitors of significant business developments, acquisitions or expansion plans;

 

 

changes in the prices paid to us by our customers or of our competitors;

 

 

our involvement in litigation;

 

 

our sale of ADSs or other securities in the future;

 

 

market conditions in our industry;

 

 

changes in key personnel;

 

 

the trading volume of our ADSs;

 

 

changes in the estimation of the future size and growth rate of our markets; and

 

 

general economic and market conditions.

The stock markets, including NASDAQ, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many Internet companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

Seasonality may cause fluctuations in our results of operations.

Our revenues and results of operations have varied significantly from quarter to quarter because our business experiences seasonal fluctuations in the demand for our services as a result of seasonal patterns in travel. For example, hotel searches and consequently our revenue are generally the highest in the first three quarters as

 

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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 fourth quarter of the year as we typically elect to advertise less in the fourth quarter due to the relatively higher cost of advertising in the period. The current state of the global economic environment, combined with the seasonal nature of our business, makes forecasting future results of operations difficult. Because our business is changing and evolving, our historical results of operations may not be useful to you in predicting our future results of operations. In addition, discretionary advertising spending has historically been cyclical in nature, reflecting overall economic conditions as well as individual patterns. Our rapid growth has tended to mask the cyclicality and seasonality of our business. In the future, as our growth rate slows, we expect the cyclicality and seasonality in our business will become more pronounced and could result in material fluctuations of our revenues, cash flows, results of operations and other key performance measures from period to period and may affect the volatility of the price of our ADSs.

There has been no prior public market for our Class A shares or ADSs, and an active trading market may not develop.

Prior to this offering, there has been no public market for our Class A shares or our ADSs. An active trading market may not develop following completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your ADSs at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your ADSs. An inactive market may also impair our ability to raise capital by selling our ADSs and may impair our ability to acquire other companies by using our ADSs as consideration.

Future sales and/or issues of our ADSs, or the perception in the public markets that these 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. Upon completion of this offering, we will have ADSs representing 28,527,147 Class A shares outstanding, 209,008,088 Class B shares outstanding and the Founders will have the right to exchange their units in trivago GmbH for 109,574,852 Class A shares or Class B shares. The ADSs offered in this offering will be 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 Selling Shareholders, Expedia, members of our supervisory board and members of our management board have agreed, subject to specified exceptions, with the underwriters not to directly or indirectly sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Exchange Act; or otherwise dispose of any ADSs, options or warrants to acquire ADSs, or securities exchangeable or exercisable for or convertible into shares or ADSs currently or hereafter owned either of record or beneficially; or publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of J.P. Morgan Securities LLC. See “Underwriting.”

All our ADSs outstanding as of the date of this prospectus may be sold in the public market by existing shareholders 180 days after the date of this prospectus, subject to applicable limitations imposed under federal securities laws. Our Class B shares are convertible into Class A shares, which may be sold subject to certain

 

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restrictions. See “Shares and ADSs eligible for future sale” for a more detailed description of the restrictions on selling our ADSs after this offering.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of ADSs issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ADSs. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our ADS price and trading volume could decline.

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analyst coverage results in downgrades of our ADSs or publishes inaccurate or unfavorable research about our business, our ADS price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease, which could cause our ADS price and trading volume to decline.

We have broad discretion over the use of proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.

We will have broad discretion in the application of the net proceeds from this offering and, as a result, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds in ways that not all shareholders approve of or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business and have an adverse effect on the market price of our ADSs.

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 requested.

 

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Under the deposit agreement for the ADSs, we may choose to appoint a proxy bank. In this event, the depositary will be deemed to have been instructed to give a proxy to the proxy bank to vote the Class A shares underlying your ADSs at shareholders’ meetings if you do not vote in a timely fashion and in the manner specified by the depositary.

The effect of this proxy is that you cannot prevent the Class A shares representing your ADSs from being voted, and it may make it more difficult for shareholders to exercise influence over our company, which could adversely affect your interests. Holders of our Class A shares are not subject to this proxy.

You may not receive distributions on the Class A shares represented by our ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A shares after deducting its fees and expenses. You will receive these distributions in proportion to the number of our Class A shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution to any holders of our ADSs or Class A shares. This means that you may not receive the distributions we make on our Class A shares or any value from them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may be subject to limitations on the transfer of your ADSs.

Your ADSs, which may be evidenced by ADRs, 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 are an “emerging growth company” and we cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make our ADSs less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our ADSs less attractive if we rely on these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.

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.

 

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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 will be 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). We will approach Dutch Revenue to apply for a tax ruling confirming that no withholding of any Dutch dividend tax is applicable at all (as the dividend withholding tax can generally be credited against a Dutch resident shareholder’s income tax anyway). Should we not obtain the tax ruling, 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.

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 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. The company is listing ADSs 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 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), which we refer to as the 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 the specific ADSs offered in this offering. 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

 

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on the dividends under German tax law. See “Material tax considerationsGerman taxationGerman taxation of ADS holders.

Tax risks related to the corporate reorganization

As part of the pre-IPO corporate reorganization, Expedia will contribute all of its shares of trivago GmbH to travel B.V., and the Founders will contribute a portion of their shares of trivago GmbH to travel B.V., each in a capital increase in exchange for newly issued shares of travel B.V. Such contribution in kind will cause a change of control from a tax perspective and may have adverse tax impacts at the level of the subsidiaries of travel B.V. See “Corporate structure—Corporate reorganization—Pre-IPO corporate reorganization.

As promptly as practicable, we will request a tax ruling from the German tax authorities to confirm the tax neutrality of the post-IPO merger from a corporate income tax perspective. If such ruling does not confirm the tax neutrality to trivago GmbH, the post-IPO merger will most likely not be consummated, and the two-tier corporate structure would remain in place.

Dividends distributed by trivago GmbH/AG/SE to trivago N.V. (and to the Founders) would be subject to German withholding tax of 26.375% (including solidarity surcharge) at the level of trivago GmbH/AG/SE. At the level of the German tax resident trivago N.V., only 5% of the dividends distributed by and received from trivago GmbH/AG/SE after January 2017 would be included as taxable income subject to German corporate income tax at a tax rate of 15.825% (including solidarity surcharge) currently and trade tax (Gewerbesteuer) at the applicable local tax rate of around 16% currently. However, the German withholding tax deducted by trivago GmbH/AG/SE would be credited against the German corporate income tax liability of trivago N.V. and, to the extent that the German withholding tax (26.375%) exceeds the German corporate income tax liability of trivago N.V. refunded with a potential time lag of up to two years. The effective tax rate on dividends received by trivago N.V. from trivago GmbH/AG/SE would thus amount to approximately 1.6% as a result of the two-tier corporate structure. This additional tax of approximately 1.6% also applies on constructive dividends in case of any transactions which are not at arm’s length between trivago GmbH/AG/SE and trivago N.V. In the opposite direction there is a risk that any non-arm’s length transactions in the two-tier corporate structure would be subject to German gift tax.

The company, trivago N.V., intends to provide management and legal advice to its subsidiaries in return for payment. The company should, according to our German tax counsel’s view, be seen as an entrepreneur under the German Value Added Tax Act (Umsatzsteuergesetz). If the company does not qualify as an entrepreneur it cannot reclaim any input value added tax.

In the event that the post-IPO merger is not carried out and the Founders are unable to place all of their shares of trivago N.V. received in return for the contribution of their shares of trivago GmbH into trivago N.V. in the secondary offering, a portion of the shares in trivago GmbH received by trivago N.V. as beneficial owner would be subject to a seven-year review period, during which time the Founders would have to comply with certain notification obligations under the RTA. These notification obligations include, among others, annual filings evidencing ownership of the contributed shares on each of the first seven anniversaries of the contribution. The notification obligations end at the earlier of: (i) the end of the seven-year term and (ii) the time the Founders have sold all their remaining shares in trivago N.V. Failure by the Founders to comply with these notification obligations may result in a taxable gain for trivago N.V., 5% of such capital gain would be subject to German corporate income tax at a tax rate of 15.825% (including solidarity surcharge) currently and trade tax at the applicable local tax rate of around 16% currently on the level of trivago N.V.

Also, in case a Founder exercises its put option granted under the IPO Structuring Agreement to exchange at book value all or parts of the shares of trivago GmbH/AG/SE for Class A shares or Class B shares of trivago N.V.,

 

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the shares received by trivago N.V. as legal and/or beneficial owner in such share exchange by the respective Founder would be subject to a seven-year review period, during which the respective Founder will have to comply with the same notification obligations as described above. Accordingly, failure by the respective Founder to comply with these notification obligations may result in a taxable gain for trivago N.V. 5% of such capital gain would be subject to German corporate income tax at a tax rate of 15.825% (including solidarity surcharge) currently and trade tax at the applicable local tax rate of around 16% currently at the level of trivago N.V. However, no notification obligation needs to be fulfilled (and no related tax risk for trivago N.V. arises) in case the respective Founder immediately sells all of its trivago N.V. shares or ADSs, as applicable, received in the share exchange.

Furthermore, expenses incurred by trivago GmbH and trivago N.V. relating to the measures described herein may be regarded as incurred for the benefit of the shareholders. In such case, tax authorities may take the view to treat such expenses as not deductible for tax purposes and assess withholding tax at a rate of up to 26.375% on respective amounts.

We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.

Since incorporation we intend to have, on a continuous basis, our place of effective management in Germany. We will therefore be a tax resident of Germany under German national tax law. By reason of our incorporation under Dutch law, we are also deemed tax resident in the Netherlands under Dutch national tax law. 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 should be tax resident solely in Germany for the purposes of 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.

The applicable tax laws, tax treaties or interpretations thereof may change. Furthermore, whether we have our place of effective management in Germany and are as such 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.

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.

Upon the completion of this offering, we will be 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 shareholder. See “Description of share capital and articles of association—Comparison of Dutch corporate law and our articles of association and U.S. corporate law.”

 

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We are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.

Upon the completion of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap) and will be subject to the Dutch Corporate Governance Code, or the DCGC. The DCGC contains both principles and best practice provisions for management boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including NASDAQ.

The Dutch Corporate Governance Code 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 Dutch Corporate Governance Code. 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 Dutch Corporate Governance Code.

See “Description of share capital and articles of association—Dutch Corporate Governance Code.” 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 Dutch Corporate Governance Code.

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 Netherlands 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

 

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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. See “Enforcement of civil liabilities.”

German and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws.

As a company with its registered office in Germany, we are subject to German insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Council Regulation (EC) No. 1346/2000 of May 29, 2000 on insolvency proceedings (which will be replaced by Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings as of June 2017). Should courts in another European country determine that the insolvency laws of that country 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 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 and our Founders, the binding nomination structure for the appointment of our management board members and supervisory board members, and the provision in our articles of association which provides that certain shareholder decisions can only be passed if proposed by our management board.

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 anticipated market price of our ADSs in this offering, the expected market price of our ADSs following this offering 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 tax consequences could apply to a U.S. Holder (as defined in “Material tax considerations—Material U.S. federal income tax considerations”) if we are treated as a PFIC for any taxable year during which such U.S. Holder holds ADSs.

 

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About this prospectus

In this prospectus, 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. See “Corporate structure—Corporate reorganization.”

Presentation of financial and other information

Our financial statements included in this prospectus are presented in euros and, unless otherwise specified, all monetary amounts are in euros. All references in this prospectus 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. The exchange rate calculated at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York on the period-end date for the applicable period, which as of December 31, 2015 was 1.00 = $1.0859 and as of September 30, 2016 was 1.00 = $1.1238. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this or any other exchange rate.

We have historically conducted our business through trivago GmbH, and therefore our historical financial statements present the results of operations and financial condition of trivago GmbH and its controlled subsidiaries. Prior to the completion of this offering, we will effect the pre-IPO corporate reorganization and transactions described in “Corporate structure—Corporate reorganization—pre-IPO corporate reorganization,” pursuant to which travel B.V. will be converted from a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) into a public limited company (naamloze vennootschap) under Dutch law, pursuant to a deed of amendment and conversion, and our corporate name will be changed to trivago N.V. Following the pre-IPO corporate reorganization, trivago N.V. will be the holding company of trivago GmbH and the historical consolidated financial statements of trivago GmbH included in this Registration Statement will become the historical consolidated financial statements of trivago N.V.

The historical financial statements of trivago GmbH and its controlled subsidiaries make 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 of a trivago GmbH Class A unit.

 

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Cautionary note regarding forward-looking statements

This prospectus contains forward-looking statements that relate to our current expectations and views of future events. These forward-looking statements are contained principally in the sections entitled “Prospectus summary,” “Risk factors,” “Use of proceeds,” “Management’s discussion and analysis of financial condition and results of operations” and “Business.” These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

 

our future financial performance, including our revenue, cost of revenue, operating expenses and our ability to achieve and maintain profitability;

 

 

our ability to generate positive cash flow and the sufficiency of our operating cash flow to meet our liquidity needs;

 

 

our use of the net proceeds from the sale of ADSs by us in this offering;

 

 

our expectations regarding the development of our industry and the competitive environment in which we operate;

 

 

our development of new products and services;

 

 

our ability to increase the number of visits to our hotel search platform and referrals to our advertisers;

 

 

our ability to attract and maintain relationships with advertisers and increase the number of hotels on our marketplace;

 

 

the growth in the usage of our mobile devices and our ability to successfully monetize this usage;

 

 

our ability to receive a positive tax ruling and complete the post-IPO merger; and

 

 

the effect of the corporate reorganization.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Risk factors” and the following:

 

 

our ability to effectively manage our growth;

 

 

global political and economic instability and other events beyond our control;

 

 

increasing competition and consolidation in our industry;

 

 

our advertiser concentration;

 

 

our ability to maintain and increase our brand awareness;

 

 

our ability to maintain and/or expand relationships with, and develop new relationships with, hotel chains and independent hotels as well as OTAs;

 

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our reliance on search engines, which may change their algorithms;

 

 

our reliance on technology;

 

 

the effect of the corporate reorganization;

 

 

our material weakness in our internal control over financial reporting and our ability to establish and maintain an effective system of internal control over financial reporting;

 

 

our ability to attract, train and retain executives and other qualified employees; and

 

 

our entrepreneurial culture and decentralized decision making.

We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect.

 

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Market and industry data

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties such as Phocuswright Inc., or Phocuswright. We have estimated the size of our global market utilizing data derived from publicly available Phocuswright data. We define our global market as comprising the United States, Western Europe, APAC and the Middle East. We have included data from the following Phocuswright reports: the Asia Pacific Online Travel Overview Ninth Edition, October 2016, or the APAC Phocuswright Report; the European Online Travel Overview Eleventh Edition, January 2016, or the European Phocuswright Report; the Middle East Online Travel Overview Second Edition, August 2015, or the Middle East Phocuswright Report; the U.S. Online Travel Overview Fifteenth Edition, January 2016, or the U.S. Phocuswright Report; the U.S. Online Travel Overview Eleventh Edition Market Data Sheet, January 2012; the Asia Pacific Online Travel Overview Fifth Edition, August 2012; the Middle East Online Travel Overview First Edition, March 2013; and the European Online Travel Overview Seventh Edition Market Data Sheet, January 2012. We collectively refer to these reports as the Phocuswright Data. We have also included global online hotel market data from Phocuswright’s Global Online Travel Overview Fourth Edition, November 2016 and related data separately provided by Phocuswright in August 2016, which we collectively call the Global Online Travel Overview, as well as data from the Phocuswright U.S. Consumer Travel Report Eighth Edition June 2016, which we call the Phocuswright Consumer Travel Report, and the Phocuswright U.S. Travel Advertising Marketplace: Industry Sizing and Trends 2015, June 2014, which we call the Phocuswright U.S. Travel Advertising Marketplace Report. References to “our research” are references to publicly available information except as otherwise indicated.

Although neither we nor the underwriters have independently verified the accuracy or completeness of any third-party information, we believe the industry, market and competitive information included in this prospectus is reliable. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus as well as risk due to a variety of factors, including those described under “Risk factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the third parties and by us.

Trademarks, service marks and trade names

We have proprietary rights to trademarks used in this prospectus which are important to our business, many of which are registered under applicable intellectual property laws.

Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

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Exchange rates

We maintain our books and records in euros, and our reporting currency is in euros. In this prospectus, translations of euro amounts into U.S. dollars are solely for the convenience of the reader and were calculated at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York on the period-end date for the applicable period, which as of December 31, 2015 was 1.00 = $1.0859 and as of September 30, 2016 was 1.00 = $1.1238. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this or any other exchange rate.

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of our ADSs on conversion of dividends, if any, paid in euro on the ADSs. The following table presents information on the exchange rates between the euro and the U.S. dollar for the periods indicated:

 

(U.S. dollar per €)    Period-end      Average for
period
     Low      High  

Year ended December 31:

           

2010

     1.3269         1.3262         1.1959         1.4536   

2011

     1.2973         1.3931         1.2926         1.4875   

2012

     1.3186         1.2859         1.2062         1.3463   

2013

     1.3779         1.3281         1.2774         1.3816   

2014

     1.2101         1.3297         1.2101         1.3927   

2015

     1.0859         1.1096         1.0524         1.2015   

Month ended:

           

January 31, 2016

     1.0832         1.0855         1.0743         1.0964   

February 29, 2016

     1.0868         1.1092         1.0868         1.1362   

March 31, 2016

     1.1390         1.1134         1.0845         1.1390   

April 30, 2016

     1.1441         1.1346         1.1239         1.1441   

May 31, 2016

     1.1135         1.1312         1.1135         1.1516   

June 30, 2016

     1.1032         1.1232         1.1024         1.1400   

July 31, 2016

     1.1168         1.1055         1.0968         1.1168   

August 31, 2016

     1.1146         1.1207         1.1078         1.1334   

September 30, 2016

     1.1238         1.1218         1.1158         1.1271   

October 31, 2016

     1.0962         1.1014         1.0866         1.1212   

November 2016 (through November 25, 2016)

     1.0595         1.0827         1.0560         1.1121   

 

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Corporate structure

Corporate reorganization

travel B.V. is a newly formed Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid). Prior to completion of this offering, travel B.V. will be converted under Dutch law into a public limited company (naamloze vennootschap) pursuant to a deed of amendment and conversion. The legal effect of the conversion on travel B.V. under Dutch law will be limited to the change in the legal form. travel B.V. will neither be dissolved nor wound up, but will continue its existence as the same legal entity with a new legal form. As of the moment of conversion, it will be renamed trivago N.V.

trivago N.V. will act as a holding company of trivago GmbH, the historical operating company of the trivago group. In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” “trivago” and the “company” refer to trivago GmbH, travel B.V. and trivago N.V., and their respective consolidated subsidiaries, as applicable.

Pre-IPO corporate reorganization

As of September 30, 2016, i.e., prior to the completion of this offering and the contributions described in this paragraph, Expedia owned 63.5% and the Founders owned 36.5%, in aggregate, of the share capital of trivago GmbH. Prior to the completion of this offering, Expedia will contribute all of its units of trivago GmbH to travel B.V. in a capital increase in exchange for newly issued Class B shares of travel B.V., to be converted into Class B shares of trivago N.V. The Founders will contribute 1,224 units of trivago GmbH, representing 8.7% of their aggregate unitholding in trivago GmbH, to travel B.V. in a capital increase in exchange for newly issued Class A shares of travel B.V., to be converted into Class A shares of trivago N.V. As a result of these contributions, 95.3% of the share capital and 99.5% of the voting power in travel B.V. will be held by Expedia and 4.7% of the share capital and 0.5% of the voting power in travel B.V. will be held by the Founders, whereas 66.7% of the units of trivago GmbH will be held by travel B.V. and 33.3% of the units in trivago GmbH will be held by the Founders. ADSs representing the Class A shares of the Founders will subsequently be sold in this offering. We refer to the foregoing transactions as the pre-IPO corporate reorganization.

Immediately upon the closing of this offering, a substantial portion of the net proceeds to us from the offering will be transferred to trivago GmbH in exchange for new units issued by trivago GmbH, which we refer to as the capital increase. The number of new units of trivago GmbH to be subscribed for will be equivalent to the number of ADSs sold by us in the offering, divided by the exchange ratio of 8,510.66824, rounded down to the nearest whole unit. After the capital increase, 68.4% of the units of trivago GmbH will be held by trivago N.V. and 31.6% of the units of trivago GmbH will be held by the Founders. Upon completion of the pre-IPO corporate reorganization, this offering and the capital increase, trivago N.V. will be a holding company and its only material assets will be its ownership of the units of trivago GmbH. In connection with the pre-IPO corporate reorganization, we expect to implement certain related arrangements on customary commercial terms with trivago GmbH, including intercompany loan arrangements and management services arrangements.

 

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The following chart depicts our corporate structure upon the conversion of travel B.V. into a public limited company (naamloze vennootschap), the completion of this offering, the contributions and the capital increases described in the paragraph above.

 

 

LOGO

Post-IPO corporate reorganization

As promptly as practicable, each of trivago GmbH and each of the Founders will submit a request for a tax ruling from the German tax authorities in connection with a plan to simplify our corporate structure after completion of this offering. The tax ruling request of the company will request a decision from the German tax authorities with respect to, inter alia, the: (i) application of the German Reorganization Tax Act (RTA – Umwandlungssteuergesetz) to the post-IPO merger and (ii) fulfilment of the specific requirements under sec. 11 par. 2 RTA, in particular, that the transferred assets will still be subject to German corporate income tax and that Germany is not precluded or limited in exercising its rights to tax any capital gains from the disposal of those assets at the level of trivago N.V. as a result of the post-IPO merger. The tax ruling request of each of the Founders will request a decision from the German tax authorities with respect to, inter alia, the: (i) application of the German Reorganization Tax Act (RTA - Umwandlungssteuergesetz) to the post-IPO merger (as defined below); and (ii) the fulfillment of the specific requirements under sec. 13 par. 2 RTA for a tax free exchange by the Founders of their shares; and (iii) certain other matters. We believe that the relevant governmental authorities typically issue rulings such as the one described above within two to four months after a request is submitted. There is no guarantee, however, that the rulings to be requested by trivago GmbH and the Founders will be issued within this time (or at all), and such a ruling may take considerably longer. If we and each of the Founders receive positive tax rulings (and/or certain other conditions are met, as described more fully in the IPO Structuring Agreement, see “Related party transactionsRelationship with Expedia—IPO Structuring Agreement”), we intend to consummate a transaction pursuant to which trivago GmbH will be merged with and into trivago N.V., which we refer to as the post-IPO merger, and the Founders will effectively exchange all of their units of trivago GmbH remaining after the pre-IPO corporate reorganization for Class B shares of trivago N.V. The following chart depicts our corporate structure if we are able to complete the post-IPO merger:

 

 

LOGO

 

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If trivago GmbH or any of the Founders does not receive a favorable ruling from the German tax authorities with respect to the matters described above, or if trivago GmbH or any of the Founders does not receive a ruling within twelve months from the completion of the offering (and in each case certain other conditions are not met, as described more fully in the IPO Structuring Agreement, see “Related party transactions—Relationship with Expedia—IPO Structuring Agreement”), trivago GmbH will not consummate the post-IPO merger. After such time, the Founders will have a right to exchange their shares in trivago GmbH for our Class A shares or Class B shares at the exchange ratio of 8,510.66824, subject to certain adjustments for splits and similar transactions. If the post-IPO merger is not consummated, trivago GmbH will change its legal form first into a German stock corporation (Aktiengesellschaft) and then into a European public limited liability company (Societas Europaea), which we refer to as the SE structure. We refer to the company following implementation of the SE structure as trivago SE. Upon completion of the SE structure, the ownership of trivago GmbH/SE will be as follows:

 

 

LOGO

If the SE structure is implemented, we will remain a holding company, the Founders will own the remaining shares of trivago SE and will continue to have the right to exchange their shares of trivago SE for our Class A shares or Class B shares at the exchange ratio of 8,510.66824, subject to certain adjustments for splits and similar transactions. See “Related party transactions—IPO Structuring Agreement” and “Risk factors—Tax risks related to the corporate reorganization.” In connection with the pre-IPO corporate reorganization, we expect to implement certain related arrangements on customary commercial terms with trivago GmbH, including intercompany loan arrangements and management services arrangements. We refer to the post-IPO merger and the SE structure, collectively, as the post-IPO corporate reorganization. Although we expect to complete the post-IPO corporate reorganization as soon as practicable, Expedia and the Founders have agreed to determine within twelve months of the completion of this offering how to proceed with the post-IPO corporate reorganization, whether or not tax rulings are received, and expect to implement any decision within four months after making such determination. Whether we are able to implement the post-IPO corporate reorganization within four months after such determination depends on how quickly we are able to submit necessary filings to government authorities, have such filings registered by such authorities and, if applicable, conclude discussions with employees regarding their supervisory board participation rights in our German subsidiary under German law. Even if favorable tax rulings are received, Expedia and the Founders may choose to consummate the SE structure rather than the post-IPO merger. We will issue a press release as soon as practicable after the time of such determination to announce the finalization of our post-IPO corporate reorganization.

 

 

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The offering

Only ADSs representing trivago N.V. Class A shares will be sold to investors pursuant to this offering. Immediately following the completion of this offering, there will be 237,535,235 shares in our share capital issued and outstanding, which consist of 28,527,147 Class A shares issued and outstanding (or 32,806,219 Class A shares if the underwriters exercise in full their option to purchase additional ADSs from us and the Selling Shareholders) and 209,008,088 Class B shares issued and outstanding. We estimate that our net proceeds from this offering, after deducting estimated underwriting discounts and commissions and other offering related expenses, will be approximately $235.4 million (or $271.6 million if the underwriters exercise in full their option to purchase additional ADSs from us).

Following (i) the completion of the pre-IPO reorganization and the completion of this offering and (ii) assuming the completion of the post-IPO merger and an offer price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover of this prospectus, the ownership of trivago N.V. will be as follows:

 

      Following the completion of the
pre-IPO corporate reorganization
    

Assuming the completion of the

post-IPO merger

 
      Assuming the
underwriters’ option
to purchase additional
ADSs is
not exercised:
     Assuming the
underwriters’ option
to purchase  additional
ADSs is

exercised in full:
     Assuming the
underwriters’ option
to purchase additional
ADSs is

not exercised:
     Assuming the
underwriters’ option
to purchase  additional
ADSs is

exercised in full:
 
      Class A
shares
     Class B
shares
     Class A
shares
     Class B
shares
     ADSs
representing
Class A
shares
     Class B
shares
    

ADSs
representing

Class A
shares

     Class B
shares
 

Expedia

             88.0%                 86.4%                 60.2%                 59.7%   

Rolf Schrömgens

     (1)          (1)          (1)          (1)                  16.5%                 16.3%   

Peter Vinnemeier

     (1)          (1)          (1)          (1)                  12.5%                 12.3%   

Malte Siewert

     (1)          (1)          (1)          (1)                  2.6%                 2.5%   

Free float

     12.0%                 13.6%                 8.2%                 9.4%           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12.0%         88.0%         13.6%         86.4%         8.2%         91.8%         9.4%         90.6%   

 

(1)   Following the completion of this offering and the capital increase, Messrs. Schrömgens, Vinnemeier and Siewert will own 16.5%, 12.5% and 2.6%, respectively, of noncontrolling interests in trivago GmbH, assuming the underwriters’ option to purchase additional ADSs is not exercised, and 16.3%, 12.3% and 2.5%, respectively, of noncontrolling interests in trivago GmbH, assuming the underwriters’ option to purchase additional ADSs is exercised in full. Assuming the completion of the post-IPO merger, the Founders’ noncontrolling interests will be converted into Class A or Class B shares of trivago N.V.

If the SE structure is implemented in lieu of the post-IPO merger, the founders will hold shares of trivago SE and not trivago N.V. and thus Messrs. Schrömgens, Vinnemeier and Siewert will own 16.5%, 12.5% and 2.6% of noncontrolling interests in trivago SE, respectively, assuming the underwriters’ option to purchase additional shares is not exercised.

 

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Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $235.4 million, assuming an initial public offering price per ADS of $14.00, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated expenses of this offering that are payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price per ADS would increase (decrease) our net proceeds, after deducting the underwriting discounts and commissions and estimated expenses, by $17.2 million, assuming that the number of ADSs offered by us, as set forth on the cover of this prospectus, remains the same. Each increase (decrease) of 1,000,000 ADSs in the number of ADSs offered by us would increase (decrease) our net proceeds, after deducting the estimated underwriting discounts and commissions and expenses, by approximately $13.3 million, assuming no change in the assumed initial public offering price per ADS.

We will not receive any proceeds from the sale of ADSs by the Selling Shareholders. The Selling Shareholders will receive all of the proceeds from their sales of their ADSs in this offering, after commissions payable to the underwriters. Expenses of this offering will be paid by us.

The principal reasons for this offering are to increase our financial flexibility, increase our public profile and awareness, create a public market for the ADSs and to facilitate our future access to public equity markets. We have not quantified or allocated any specific portion of the net proceeds to us or range of the net proceeds to us for any particular purpose. We anticipate that we will use the net proceeds we receive from this offering, including any net proceeds we receive from the exercise of the underwriters’ option to acquire additional ADSs in this offering, for general corporate purposes, including to fund investments in technology, for working capital to fund our growth strategies described elsewhere in this prospectus and to pursue strategic acquisitions, although we have no agreements, commitments or understandings with respect to any such transaction. Immediately upon the closing of this offering, a substantial portion of the proceeds to us from this offering will be transferred to trivago GmbH in exchange for new units issued by trivago GmbH.

The amount of what, and timing of when, we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in “Risk factors.” Accordingly, our management board and supervisory board will have broad discretion in deploying the net proceeds of this offering.

Pending their use, we plan to hold the net proceeds from this offering in cash and cash equivalents.

Dividend policy

We do not anticipate paying any dividends on our Class A shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

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.

Assuming such restrictions, as described, above were already applicable to the historical financial statements of trivago GmbH for the years ended December 31, 2014 and 2015, our reserves available for dividend distribution would have been at least 52.7 million and 55.5 million, respectively, representing our Contribution from parent less our Subscribed capital.

 

 

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After the completion of this offering, but prior to the consummation of the post-IPO merger, the Founders and Expedia have agreed, pursuant to the IPO Structuring Agreement, to effect a one-time dividend payment in respect of fiscal year 2016 in the amount of 0.5 million, which shall be paid to the unit holders of record of trivago GmbH prior to the consummation of the post-IPO merger but not before January 1, 2017.

For information regarding the German withholding tax applicable to dividends and related U.S. refund procedures, see “Material tax considerations—German taxation—German taxation of ADS holders.” and “Risk factors—Risks related to ownership of our Class A shares and ADSs—Any dividends paid by us may be subject to German withholding tax.”

 

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Capitalization

The table below sets forth our cash, redeemable non-controlling interest and capitalization as of September 30, 2016, which is derived from our audited financial statements included elsewhere in this prospectus:

 

 

on an actual basis;

 

 

on a pro forma basis to give effect to the pre-IPO corporate reorganization, assuming the underwriters’ option to purchase additional ADSs is not exercised;

 

 

on a pro forma adjusted basis to give further effect to the issuance and sale by us of 18,110,091 ADSs in this offering at the assumed initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us; and

 

 

on a post-IPO merger pro forma adjusted basis to give further effect to the post-IPO merger. In the event the post-IPO merger is not consummated, the Founders will hold shares of trivago SE in an aggregate amount, representing a noncontrolling interest of 31.6%. Accordingly, our capitalization after the implementation of the SE structure would be equivalent to our pro forma adjusted capitalization upon completion of this offering. The Founders will have the right, pursuant to the IPO Structuring Agreement, to contribute shares of trivago SE to trivago N.V. in exchange for our Class A shares or Class B shares, which would reduce the related noncontrolling interest, and can thereafter sell such shares from time to time. See “Related party transactions—IPO Structuring Agreement.”

Investors should read this table in conjunction with our audited financial statements included in this prospectus as well as “Use of proceeds,” “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations.” There have been no significant adjustments to our capitalization since September 30, 2016.

 

 

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     As of September 30, 2016  
(in millions)   Actual     Pro Forma     Pro Forma
Adjusted(1)(2)(3)
    Post-IPO merger
Pro Forma
Adjusted
 

Cash

  4.2      4.2      214.1      214.1   
 

 

 

   

 

 

 

Total debt

                           

Equity:

       

Subscribed capital:(4)(5)

    0.0        126.0        127.1        192.8   

Class A shares, 0.06 nominal value: no shares authorized, no shares issued and outstanding, actual; 700,000,000 shares authorized, 10,417,056 shares issued and outstanding, pro forma; 28,527,147 shares pro forma as adjusted; and 28,527,147 shares post-IPO merger pro forma as adjusted

           0.6        1.7        1.7   

Class B shares, 0.60 nominal value: no shares authorized, no shares issued and outstanding, actual; 320,000,000 shares authorized, 209,008,088 shares issued and outstanding, pro forma; 209,008,088 shares pro forma as adjusted; and 318,582,940 shares post-IPO merger pro forma as adjusted

           125.4        125.4        191.1   

Reserves

    696.9        358.5        578.0        713.6   

Contribution from parent

    120.9        120.9        120.9        120.9   

Accumulated other comprehensive income (loss)

    (0.0                     

Retained earnings (accumulated deficit)

    (180.1     (180.1     (180.3     (180.3
 

 

 

 

Total equity attributable to trivago GmbH

    637.7        425.3        645.7        847.0   
 

 

 

   

 

 

 

Noncontrolling interests(6)(7)

           212.4        201.3          
 

 

 

   

 

 

 

Total equity

    637.7        637.7        847.0        847.0   

Total capitalization

  637.7      637.7      847.0      847.0   

 

(1)   A $1.00 increase or decrease in the assumed initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash and cash equivalents, share premium, total shareholders’ equity and total capitalization by approximately 15.3 million ($17.2 million), assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 shares in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash and cash equivalents, share premium, total shareholders’ equity and total capitalization by approximately 11.8 million ($13.3 million), assuming no change in the assumed initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions.
(2)   This reflects the impact of the one time, 0.5 million trivago GmbH dividend to its unit holders, of which 68.4% is contributed to trivago N.V. and 31.6% is paid to the noncontrolling interest, thus resulting in a 0.2 million cash outflow to trivago N.V. on a consolidated basis. See “Dividend policy.”
(3)   In the event the post-IPO merger is not consummated, the Founders will hold shares of trivago SE, in an aggregate amount representing a noncontrolling interest of 31.6%. Accordingly, our capitalization after the implementation of the SE structure would be equivalent to our pro forma adjusted capitalization upon completion of this offering. The Founders will have the right, pursuant to the IPO Structuring Agreement, to contribute shares of trivago SE to trivago N.V. in exchange for our Class A shares or Class B shares, which would reduce the related noncontrolling interest, and can thereafter sell such shares from time to time. See “Related party transactions—IPO Structuring Agreement.”
(4)   The Selling Shareholders will sell ADSs representing all of the Class A shares held by them following the pre-IPO corporate reorganization in this offering. Following the pre-IPO corporate reorganization and the capital increase, Messrs. Schrömgens, Vinnemeier and Siewert will own 16.5%, 12.5% and 2.6% of trivago GmbH, respectively, which will be a subsidiary of trivago N.V. In connection with the post-IPO merger, the Founders’ interests in trivago GmbH will be exchanged for newly issued Class B shares of trivago N.V. See “Corporate structure—Corporate reorganization.”
(5)   There will be 237,535,235 Class A shares and Class B shares issued and outstanding upon completion of this offering. In addition to the Class A shares and Class B shares to be reserved for issuance to the Founders in connection with issuances in connection with the post-IPO merger, 10% of our total issued and outstanding capital, calculated as if the post-IPO merger had occurred, will be reserved for issuance as Class A shares in connection with awards under the 2016 Omnibus Incentive Plan, which is expected to be 34,710,699 Class A shares. The number of our Class A shares shown as outstanding in the table above excludes, after giving effect to the pre-IPO corporate reorganization described in “Corporate structure—Corporate reorganization,” 6,408,533 Class A shares issuable upon the exercise of share options outstanding as of September 30, 2016. As of December 1, 2016, after giving effect to the pre-IPO corporate reorganization, there were 7,700,603 options outstanding for Class A shares at a weighted average exercise price of 2.83 per ADS. Such share options will be exercisable on a cashless, net exercise basis, after deducting shares to cover the exercise price and withholding taxes.
(6)   The pre-IPO corporate reorganization will result in 33.3% of noncontrolling interest in trivago GmbH for shareholders of trivago N.V. (the direct holding company of trivago GmbH). The post-IPO merger will result in the conversion of the Founders’ trivago GmbH Class A units to Class B shares of trivago N.V., which will result in the elimination of the noncontrolling interest.
(7)   The capital increase following completion of the offering will result in 31.6% of noncontrolling interest in trivago GmbH for shareholders of trivago N.V. (the direct holding company of trivago GmbH). If implemented, the post-IPO merger will result in the conversion of the Founders’ trivago GmbH Class A units to Class A or Class B shares of trivago N.V., which will result in the elimination of the noncontrolling interest.

 

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Dilution

Offering-related dilution

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the net tangible book value per ADS after this offering.

Our pro forma net tangible book value at September 30, 2016 was $(34.4) million ((30.6) million), corresponding to a net tangible book value of $(0.16) per ADS ((0.14) per ADS). Our pro forma net tangible book value per ADS represents the amount of our total assets less our total liabilities, excluding goodwill and intangible assets, net, divided by the total number of our shares outstanding at September 30, 2016, after giving effect to the pre-IPO corporate reorganization.

After giving effect to the sale by us of 18,110,091 ADSs in this offering at the assumed initial public offering price of $14.00 per ADS (12.46 per ADS), which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at September 30, 2016 would have been $201.5 million (179.3 million), representing $0.84 per ADS (0.75 per ADS). This represents an immediate increase in pro forma net tangible book value of $1.00 per ADS (0.89 per ADS) to existing shareholders and an immediate dilution in net tangible book value of $13.16 per ADS (11.71 per ADS) to new investors purchasing ADSs in this offering at the assumed initial public offering. Dilution per ADS to new investors is determined by subtracting pro forma as adjusted net tangible book value per ADS after this offering from the assumed initial public offering price per ADSs paid by new investors.

Because the Class A shares and Class B shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding shares, including Class A shares and Class B shares.

The following table illustrates this dilution to new investors purchasing ADSs in this offering.

 

Assumed initial public offering price

   $ 14.00       12.46   

Pro forma net tangible book value per ADS

     (0.16)         (0.14)   

Increase in net tangible book value per ADS attributable to this offering

     1.00         0.89   
  

 

 

    

 

 

 

Pro forma as adjusted net tangible book value per ADS

     0.84         0.75   
  

 

 

    

 

 

 

Dilution per ADS to new investors

   $ 13.16       11.71   

If the underwriters exercise their option to purchase additional ADSs from us in full, our pro forma as adjusted net tangible book value per ADS after this offering would be $0.98 per ADS (0.87 per ADS), representing an immediate increase in pro forma as adjusted net tangible book value per ADS of $1.14 per ADS (1.01 per ADS) to existing shareholders and immediate dilution of $13.02 per ADS (11.59 per ADS) in pro forma as adjusted net tangible book value per ADS to new investors purchasing ADSs in this offering, based on an assumed initial public offering price of $14.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per ADS (12.46 per ADS), which is the midpoint of the price range set forth on the cover page of this prospectus, respectively, would increase (decrease) the pro forma as adjusted net tangible book value after this offering by $0.08 per ADS (0.07 per ADS) and the dilution per ADS to new investors in the offering by $0.92 per ADS (0.82 per ADS), assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same.

 

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Sales by the Selling Shareholders in this offering will reduce the number of Class A shares held by such shareholders to zero.

If the underwriters exercise their option to purchase additional ADSs from us in full, the following will occur:

• the percentage of our Class A shares held by existing shareholders will decrease to approximately 0% of the total number of our Class A shares outstanding after this offering; and

• the percentage of our Class A shares held by new investors will increase to approximately 100% of the total number of our Class A shares outstanding after this offering.

Post-IPO merger related-dilution

Upon completion of the post-IPO merger, there will be an immediate dilution in pro forma as adjusted net tangible book value of $13.42 per ADS (11.94 per ADS) to investors holding Class A shares purchased in connection with this initial public offering, which results in a pro forma as adjusted net tangible book value of $0.58 per ADS (0.52 per ADS). Pro forma as adjusted net tangible book value represents the amount of our as adjusted pro forma total tangible assets less our as adjusted pro forma total liabilities after giving further effect to (i) the exchange of all shares in trivago GmbH held by the Founders to trivago N.V. for newly issued Class B shares in connection with the post-IPO merger or (ii) the contribution of all shares in trivago GmbH held by the Founders to trivago N.V. in exchange for newly issued Class B shares.

In the event that the post-IPO merger cannot be consummated and the SE structure is consummated, there will be no immediate dilutive effect to investors in trivago N.V., however, if and when the Founders exercise their put rights, there may be dilutive effects to net tangible book value per ADS. See “Corporate structure” and “Related party transactions—Relationship with Expedia—IPO Structuring Agreement.”

 

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Selected consolidated financial data

The following consolidated statement of operations and balance sheet data for the fiscal years ended December 31, 2014 and 2015 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The unaudited financial data for the nine months ended September 30, 2015 and 2016 has been derived from our condensed consolidated financial statements included elsewhere in this prospectus. See “Presentation of financial and other information.”

The following table also contains translations of euro amounts into U.S. dollars as of and for the fiscal year ended December 31, 2015 and the nine months ended September 30, 2016. These translations are solely for the convenience of the reader and were calculated at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York on the period-end date for the applicable period, which as of December 31, 2015 was 1.00 = $1.0859 and as of September 30, 2016 was 1.00 = $1.1238. You should not assume that, on that or any other date, one could have converted these amounts of euro into U.S. dollars at this or any other exchange rate.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. Our historical results do not necessarily indicate results expected for any future period.

 

     Year ended December 31,     Nine months ended September 30,  
(in millions, except share and per share data)   2014     2015     2015     2015     2016     2016  
    (unaudited)    

(unaudited)

 

Consolidated statement of operations:

           

Revenue

  209.1      298.9      $ 324.6      239.4      378.7      $ 425.6   

Revenue from related party

    100.2        194.2        210.9        154.4        206.3        231.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    309.3        493.1        535.5        393.8        585.0        657.4   

Costs and expenses:

           

Cost of revenue, including related party(1)

    1.4        2.9        3.1        2.0        3.1        3.5   

Selling and marketing(1)

    286.3        461.3        501.0        383.5        538.1        604.7   

Technology and content(1)

    15.4        28.7        31.2        20.9        40.6        45.6   

General and administrative(1)

    6.5        18.1        19.7        12.4        42.2        47.4   

Amortization of intangible assets

    30.0        30.0        32.6        22.5        11.3        12.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (30.3     (47.9     (52.1     (47.5     (50.3     (56.5

Other income (expense):

           

Interest expense

    (0.0     (0.1     (0.1     (0.1     (0.1     (0.1

Other, net

    (1.4     (2.7     (2.9     (0.7     0.5        0.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    (1.4     (2.8     (3.0     (0.8     0.4        0.5   

Income (loss) before income taxes

    (31.7     (50.7     (55.1     (48.3     (49.9     (56.0

Expense (benefit) for income taxes

    (8.6     (11.3     (12.3     (10.9     1.6        1.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (23.1     (39.4     (42.8     (37.4     (51.5     (57.8

Net income attributable to noncontrolling interests

           0.3        0.3        0.1        0.5        0.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to trivago GmbH

  (23.1   (39.1   $ (42.5   (37.3   (51.0   $ (57.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma basic and diluted earnings per share(2)

    (0.12   $ (0.13     (0.16   $ (0.18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key performance indicator

           

Adjusted EBITDA(3)

  3.5      (1.1   $ (1.2   (13.4   16.3      $ 18.3   

 

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(1)   Includes share-based compensation expense as follows:

 

      Year ended December 31,      Nine months ended September 30,  
(in millions)   

2014

    

2015

    

2015

     2015      2016      2016  
                   (unaudited)      (unaudited)  

Cost of revenue, including related party

         0.2       $ 0.2       0.2         0.7         $0.8   

Selling and marketing

     1.1         3.4         3.7         2.4         10.4         11.7   

Technology and content

     1.2         4.5         4.9         3.3         15.3         17.2   

General and administrative

   0.1       6.0       $ 6.5       3.9       25.6       $ 28.8   

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)   Pro forma basic and diluted earnings (loss) per share is computed by dividing (A) net income (loss) attributable to trivago GmbH, after adjusting for noncontrolling interest as a result of the pre-IPO corporate reorganization, by (B) basic weighted average shares outstanding (controlling interest Class B shares assuming Expedia contributed its ownership in trivago GmbH units to travel B.V. and Class A shares assuming the Founders contributed the 1,224 units to travel B.V.). The potential dilutive securities of travel B.V., which include options, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, on a pro forma basis giving effect to the pre-IPO corporate reorganization, the weighted average number of combined Class A and Class B shares outstanding of 216,401,919 and 219,102,400 for the year ended December 31, 2015 and the nine months ended September 30, 2016, respectively, was used to calculate both pro forma basic and diluted net loss per share attributable to shareholders. The historical weighted average number of shares outstanding excludes all shares being sold by us in this offering. See “Capitalization.”

 

(3)   We define adjusted EBITDA as net loss plus: (1) benefit (provision) for income taxes; (2) total other income (expense), net; (3) depreciation of property and equipment, including amortization of internal use software and website development; (4) amortization of intangible assets; and (5) 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;

 

   

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.

 

     We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

 

      Year ended December 31,     Nine months ended September 30,  
(in millions) (unaudited)   

2014

    2015     2015           2015           2016           2016  

Net loss

   (23.1   (39.4   $ (42.8   (37.4   (51.5   $ (57.8
  

 

 

 

Expense (benefit) for income taxes

     (8.6     (11.3     (12.3     (10.9     1.6        1.8   
  

 

 

 

Income (loss) before income taxes

     (31.7     (50.7     (55.1     (48.3     (49.9     (56.0
  

 

 

 

Add/(less):

            

Interest expense

     0.0        0.1        0.1        0.1        0.1        0.1   

Other, net(i)

     1.4        2.7        2.9        0.7        (0.5     (0.6
  

 

 

 

Operating income (loss)

     (30.3     (47.9     (52.1     (47.5     (50.3     (56.5
  

 

 

 

Add:

            

Depreciation

     1.4        2.7        2.8        1.8        3.3        3.7   

Amortization of intangible assets

     30.0        30.0        32.6        22.5        11.3        12.7   
  

 

 

 

EBITDA

     1.1        (15.2     (16.6     (23.2     (35.7     (40.1
  

 

 

 

Add:

            

Share-based compensation

     2.4        14.1        15.3        9.8        52.0        58.4   
  

 

 

 

Adjusted EBITDA

   3.5      (1.1   $ (1.3   (13.4   16.3      $ 18.3   

 

 

 

  (i)   Consists primarily of foreign exchange gain/loss in the years ended December 31, 2014 and 2015, and for the nine months ended September 30, 2015 and 2016 and the non-recurring reversal of a 1.6 million indemnification asset in 2015 related to the 2013 acquisition by Expedia.

 

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Balance sheet data:

 

      As of December 31,     As of September 30,  
(in millions)   

2014

   

2015

   

2015

    2016     2016  
                 (unaudited)     (unaudited)  

Cash

   6.1      17.6      $ 19.1      4.2      $ 4.7   

Total assets

     750.8        760.3        825.6        808.4        908.5   

Total current liabilities

     16.0        72.0        78.2        84.6        95.1   

Retained earnings (accumulated deficit)

     (90.0     (129.2     (140.3     (180.1     (202.4

Total members’ equity

   664.6      622.3      $ 675.8      637.7      $ 716.6   

 

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Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected consolidated financial data,” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk factors” section of this prospectus. Actual results could differ materially from those contained in any forward-looking statements.

In November 2016, travel B.V. was organized under the laws of the Netherlands to become the holding company of trivago GmbH in connection with this offering. Prior to the completion of this offering, we will change our corporate form from a Dutch private company with limited liability (besloten venootschap met beperkte aansprakelijkheid) into a Dutch public limited company (naamloze vennootschap) and change our corporate name from travel B.V. to trivago N.V. Please see “Corporate structure—Corporate reorganization—pre-IPO corporate reorganization.” travel B.V. has engaged in activities incidental to its formation, the corporate reorganization and this offering of our ADSs. Accordingly, financial information for travel B.V. and a discussion and analysis of its results of operations and financial condition for the period of its operations prior to the pre-IPO corporate reorganization would not be meaningful and are not presented. Following the pre-IPO corporate reorganization, trivago N.V. will be the holding company of trivago GmbH and the historical financial statements of trivago GmbH included in this Registration Statement will become the historical consolidated financial statements of trivago N.V.

Overview

trivago is a global hotel search platform. Our mission is to “be the traveler’s first and independent source of information for finding the ideal hotel at the lowest rate.” We are focused on reshaping the way travelers search for and compare hotels, while enabling hotel advertisers to grow their businesses by providing access to a broad audience of travelers. In the twelve months ended September 30, 2016, we had 487 million qualified referrals and offered access to approximately 1.3 million hotels in over 190 countries.

Our brand positions us as a key starting point for travelers searching for their ideal hotel. Our fast and intuitive hotel search platform enables travelers to find their ideal hotel by matching individual traveler preferences with detailed hotel characteristics such as price, location, availability, amenities and ratings, across a vast supply of global hotels.

Our hotel search platform can be accessed globally via 55 localized websites and apps in 33 languages. Users search our platform on desktop and mobile devices using a familiar user interface for a consistent user experience.

trivago was conceived by graduate school friends Rolf Schrömgens, Peter Vinnemeier and Stephan Stubner and incorporated in 2005. 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 acquired 63.0% of the equity ownership in trivago in 2013, purchasing all outstanding equity not held by founders or employees of trivago for 477 million and subscribing for a certain number of newly issued shares. Expedia subsequently increased its shareholdings slightly in the second quarter of 2016 through the purchase of shares held by certain employees who had previously exercised stock options. 

 

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Although most of our growth has been organic, we have made the following small strategic acquisitions:

 

 

In December 2014, we acquired Rheinfabrik, an Android and iOS app development business, for a total purchase consideration of 1.0 million in cash;

 

 

In July 2015, we acquired 61.3% of the interest in myhotelshop, an online marketing manager for hotels, for total purchase consideration of 0.6 million consisting of cash and the settlement of pre-existing debt at the closing of the acquisition; and

 

 

In August 2015, we acquired 52.3% of the equity of base7, a cloud-based property management service provider, for total purchase consideration of 2.1 million in cash.

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 currently 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, Hong Kong, Japan, New Zealand and Poland. 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 for each of our segments, which compares cost per click revenues to advertising spend.

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 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, although such subscription fees do not represent a significant portion of our revenue.

Key metrics we use to monitor our revenue include return on advertising spend, or ROAS, the number of qualified referrals we make and the revenue we earn for each qualified referral, or RPQR. Our total revenue for the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016 was 309.3 million, 493.1 million, 393.8 million and 585.0 million, respectively. Our referral revenue for the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016 was 309.2 million, 490.2 million, 392.3 million and 579.3 million, respectively.

Return on advertising spend

We track the ratio of our referral revenue to our advertising expenses, or return on advertising spend. We believe that ROAS is an indicator of the effectiveness of our advertising. Our ROAS was 113.9% and 113.4% for the years ended December 31, 2014 and 2015, respectively, and 108.1% and 116.1% for the nine months ended September 30, 2015 and 2016, respectively. Our ROAS in the Americas, Developed Europe and the Rest of World was 90.4%, 129.5% and 91.7% for the year ended December 31, 2014, respectively, as compared to 101.5%,

 

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133.2% and 86.6% for the year ended December 31, 2015, respectively. Our ROAS in the Americas, Developed Europe and the Rest of World was 96.2%, 125.8% and 85.2% for the nine months ended September 30, 2015, respectively, as compared to 113.6%, 130.6% and 87.7% for the nine months ended September 30, 2016, 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 experienced the highest average ROAS. Our ROAS in the Rest of World segment, where we have the lowest average ROAS, is also impacted significantly by the number of markets in the segment, including markets that we have recently entered and thus require significant advertising spend to reach scale. Over time, as our markets continue to develop, we believe that we will experience further increases in the efficiency of our advertising spend and thus improvements in our average ROAS. Given that advertising expenses are the significant majority of our operating expenses, we believe this will have a direct impact on our adjusted EBITDA and operating margins.

Historically, we believe that our advertising has been successful in generating additional revenue. We invest in many kinds of marketing channels, such as TV, out-of-home advertising, radio, search engine marketing, display and affiliate marketing, email marketing, social media, online video, mobile app marketing and content marketing.

Our ROAS by reportable segment for the years ended December 31, 2014 and 2015 and for the nine months ended September 30, 2015 and 2016 was as follows:

 

      Year ended
December 31,
     Nine months ended 
September 30,
 
(unaudited)    2014      2015      2015      2016  

Americas

     90.4%         101.5%         96.2%         113.6%   

Developed Europe

     129.5%         133.2%         125.8%         130.6%   

Rest of World

     91.7%         86.6%         85.2%         87.7%   

 

 

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 in a 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 the type of visitor our advertisers are interested in and which we believe supports bidding levels in our marketplace. We had 215.5 million, 334.6 million, 260.5 million and 413.1 million qualified referrals for the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016, respectively.

 

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We believe the primary factors that drive our qualified referral development are the number of visits to our websites and apps, the booking intent of our visitors, the number of available hotels on our hotel search platform, content (the quality and availability of general information, reviews and pictures about the hotels), hotel room prices (the price of accommodation as well as the number of price sources for each accommodation), hotel ratings, the usability of our websites and apps and the degree of customization of our search results for each visitor. Ultimately, we aim to increase the number of qualified referrals we generate by focusing on making incremental improvements to each of these parameters. In addition to continuously seeking to expand our number of relationships with hotel advertisers, we partner with such hotels 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:

 

      Year ended
December 31,
     Nine months ended
September 30,
 
(in millions) (unaudited)            2014              2015              2015              2016  

Americas

     41.6         87.1         64.5         112.5   

Developed Europe

     150.0         183.7         147.8         204.2   

Rest of World

     23.9         63.8         48.2         96.4   
  

 

 

 

Total

     215.5         334.6         260.5         413.1   

 

 

Revenue per qualified referral (RPQR)

We use average revenue per qualified referral, or RPQR, to measure how effectively we convert qualified referrals to revenue. RPQR is calculated as referral revenue divided by the total number of qualified referrals in a given period. Alternatively, RPQR can be separated into its price and volume components and calculated as follows:

RPQR = RPR x click-out rate

where

RPR = revenue per referral

click-out rate = referrals / qualified referrals

RPR is determined by the bids our advertisers submit on our marketplace. The bidding behavior of our advertisers is influenced by the rate at which our referrals result in bookings on the advertisers’ sites, or booking conversion, and the amount our advertisers obtain from referrals as a result of hotels booked on their sites, or booking value, and the degree to which advertisers are willing to share the overall booking value, or revenue share. We estimate booking conversion and booking value from data voluntarily provided to us by certain advertisers to better understand the drivers in our marketplace. Advertisers can analyze the number of referrals obtained from their advertisements on our marketplace, and the consequent value generated from a referral, to determine the amount they are willing to bid. Generally, the higher the potential value generated by a qualified referral and the more competitive the bidding, the more an advertiser is willing to bid for its advertisement. In early 2015, we changed our marketplace mechanics by introducing hotel-level CPC bidding. The change provides more flexible pricing options that allow advertisers to determine their CPCs for each hotel, rather than choosing from a pre-determined selection of possible CPCs for each hotel. Our current mechanism gives our advertisers the flexibility to optimize their bidding strategy, which we believe leads to a more efficient marketplace.

 

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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 our users. For the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016, RPQR was 1.43, 1.46, 1.51 and 1.40, respectively.

While changes in our geographic revenue mix can result in changes in RPR and the click-out rate, we have experienced a general underlying trend of increasing RPR and decreasing click-out rates, which we believe is due to product optimization (i.e., fewer clicks per user). Our goal is to increase user interaction with our websites and apps to improve the quality of our referrals and reduce the click-out rate, increasing the value to our advertisers.

We use RPQR to help us detect and analyze changes in market dynamics. Each of our segments is impacted by segment specific dynamics. The following table sets forth the RPQR for our reportable segments for the periods indicated (based on referral revenue):

 

      Year ended
December 31,
     Change      Nine months ended
September 30,
     Change  
(unaudited)            2014              2015      % increase
(decrease)
             2015              2016      % increase
(decrease)
 

Americas

   1.76       1.97         11.9%       2.13       1.99         (6.9 )% 

Developed Europe

     1.40         1.41         0.8%         1.41         1.35         (4.4 )% 

Rest of World

     1.07         0.92         (13.9)%         0.95         0.83         (12.6 )% 
  

 

 

 

Total

     1.43         1.46         2.1%         1.51         1.40         (6.9 )% 

 

 

The following tables set forth the percentage change period-on-period in each of the components of RPQR for our reportable segments for the periods indicated. Percentages calculated below are based on the unrounded amounts and therefore may not recalculate on a rounded basis.

 

      Year ended
December 31,
     Nine months ended
September 30,
 
% increase (decrease) in RPR (unaudited)    2014 - 2015      2015 - 2016  

Americas

     13.0%         3.7%   

Developed Europe

     8.3%         7.1%   

Rest of World

     (9.4)%         (1.4)%   
  

 

 

    

 

 

 

Total

     8.6%         4.4%   

 

 

 

      Year ended
December 31,
     Nine months ended
September 30,
 
% increase (decrease) in number of referrals (unaudited)    2014 - 2015      2015 - 2016  

Americas

     107.5%         56.6%   

Developed Europe

     14.0%         23.3%   

Rest of World

     153.3%         77.3%   
  

 

 

    

 

 

 

Total

     46.0%         41.5%   

 

 

 

      Year ended
December 31,
     Nine months ended
September 30,
 

% increase (decrease) in qualified referrals (unaudited)

   2014 - 2015      2015 - 2016  

Americas

     109.6%         74.4%   

Developed Europe

     22.5%         38.1%   

Rest of World

     166.7%         100.1%   
  

 

 

    

 

 

 

Total

     55.3%         58.6%   

 

 

 

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      Year ended
December 31,
     Nine months ended
September 30,
 
% increase (decrease) in click-out rate (unaudited)    2014 - 2015      2015 - 2016  

Americas

     (1.0)%         (10.2)%   

Developed Europe

     (6.9)%         (10.8)%   

Rest of World

     (5.0)%         (11.4)%   
  

 

 

    

 

 

 

Total

     (6.0)%         (10.8)%   

 

 

Key factors of our growth

From 2010 to 2015, our revenue grew at a compound annual growth rate, or CAGR, of 90%, based on our revenue for such periods under German GAAP. There is no significant difference in the revenue recognition principles applicable to the company under German GAAP as compared to U.S. GAAP. Our revenue increased 48.6% for the nine months ended September 30, 2016 over 2015 and 59.4% for the year ended December 31, 2015 over 2014. The key factors affecting our growth include the following:

Advertising expense

In 2009, we began intensifying our marketing activities, primarily TV advertisements. For the years ended December 31, 2014 and 2015 and the nine months ended September 30, 2015 and 2016, we spent 271.4 million, 432.2 million, 362.8 million and 499.2 million on advertising, respectively, representing 87.7%, 87.6%, 92.1% and 85.3% of our total revenue for such periods. We believe that increasing brand awareness creates self-reinforcing value by resulting in a greater number of visits to our platform and referrals to our advertisers that encourage more OTAs and hotels to advertise their supply in our search results, which in turn makes our services more useful to users, further increasing the number of visits to our websites and apps and referrals to our advertisers. We believe that these investments contributed significantly to our revenue growth historically, although we expect deceleration in revenue growth rates in our more mature markets as our share in those markets increases and further advances in brand awareness become increasingly difficult and expensive to achieve. Increasing brand awareness and usage of our platform are important parts of our growth strategy, and at this time we expect to continue to invest in marketing at or in excess of current spend for the foreseeable future.

Global penetration

Our revenues from the Americas, Developed Europe and the Rest of World were 34.9%, 52.6% and 11.9% of our total revenue, respectively, for the year ended December 31, 2015 and were 38.2%, 47.2% and 13.6% of our total revenue, respectively, for the nine months ended September 30, 2016. We believe the relative growth in revenue across our reportable segments is primarily related to the different stages of development of our markets. We typically expect to have higher growth rates in newer markets than in markets where we have operated for a long time. We generate the most revenue in Developed Europe, our segment that includes the markets where we have operated the longest and where we have the highest brand awareness but relatively moderate growth. We expect our revenue in the Americas and the Rest of World to increase at a faster rate than revenue from the Developed Europe markets. We are focused on complementing our broad global footprint as we believe that global reach is important to our business. We continue to improve the localization of our websites and apps for each market in an effort to augment the user experience and to grow our user base globally. We invest heavily in marketing campaigns across our markets.

 

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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 June 2016, our revenue from mobile websites and apps exceeded our revenue from our desktop websites for the first time, which is consistent with an expected longer term shift towards mobile.

Visitors to our hotel 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 hotel search process, but prefer finalizing hotel selections and completing their bookings on desktop websites. This may be due in part to users generally finding the booking completion processes, including entering payment information, somewhat easier or more secure on a desktop than on a mobile device. We believe that over time and as more travelers become accustomed to mobile transactions, this sentiment may shift.

We have historically had, and currently have, a single bidding price structure for referrals from both desktop and mobile. We may choose to adopt a differentiated pricing model between mobile and desktop applications, which would likely lead to an increase in desktop revenue share, as the pricing for desktop applications would increase due to higher conversion rates, while the pricing for apps on mobile and tablets would likely decrease. We do not expect this to have a material impact on revenues, as long as there are sufficient active participants on both desktop and mobile to ensure our marketplace functions effectively, as we believe that the current bids advertisers place on our CPC-based bidding system reflect the overall efficacy of the combined desktop and mobile prices they receive.

We believe mobile websites and apps will continue to gain popularity, and we expect to continue to commit resources to improve the features, functionality and conversion rates of our mobile websites and apps.

Advertiser diversification and direct relationships with hotels

We generate most of our revenue from a limited number of OTAs. Certain brands affiliated as of the date hereof with our majority shareholder, Expedia, including Brand Expedia, Hotels.com, Orbitz, Travelocity, Hotwire, Wotif, ebookers and Venere, in the aggregate, accounted for 39% and 35% of our total revenue for the nine months ended September 30, 2015 and 2016, respectively. The Priceline Group and its affiliated brands, Booking.com and, through 2015, Agoda, accounted for 27% and 43% of our total revenue for the nine months ended September 30, 2015 and 2016, respectively. 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 direct relationships with independent hotels and hotel chains and continuing to act as a platform that enables travelers to book at the lowest rate regardless of whether hotel rooms are offered by smaller and local OTAs or independent hotels or by the leading international brands.

Advertiser diversification allows us to improve the user experience by expanding the depth of our hotel offerings to facilitate price transparency as well as to improve the content quality, availability and usability of our advertisers’ offers, thereby increasing the value our users derive from our websites and apps. For example, some independent hotels and smaller hotel chains rely exclusively on their own websites and/or an OTA to distribute their offerings. Our engagement with such advertisers permits us to display an offer on behalf of that advertiser directly, making the offer accessible to our users, or increasing the number of offers if an accommodation was previously only available through an OTA. Direct engagement also permits an advertiser to

 

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have more control of the content and placement of its offer, since we are able to offer tools and assistance to optimize content and offer strategy on our marketplace. In addition, we recently began offering a booking engine product for our direct hotel relationships in order to make it easier for our users to book an accommodation online for an advertiser that did not otherwise have an online booking engine available.

We believe advertiser diversification could become more important if additional consolidation within the travel content marketplace occurs, as this could reduce the number of offers we have available on our platform for each hotel, which could, in certain geographies, cause our services to become less valuable to users. Correspondingly, with fewer bids for offers from a consolidated group of advertisers, our revenue per referral could decrease. We believe that as a result of the number of marketplace participants and the competition among various brands within consolidated OTAs, the impact of consolidation in our most relevant markets has historically been limited. Such markets have historically been sufficiently liquid to sustain competitive bid levels, such that if the top bidder leaves the platform, the next highest bidder moves into position to at least partially sustain our revenue. In less liquid geographies or if consolidation dynamics were to change, our initiative to connect hotels directly to our platform may mitigate, at least in part, a potential decrease in OTA marketplace participants. As of September 30, 2016, we had direct relationships with over 220,000 hotels, representing around 15% of the total number of hotels advertised on trivago.

Continued shift to online travel

The hotel distribution market has shifted towards online channels as consumers are increasingly using the Internet to book their travel. According to the Global Online Travel Overview, hotels have increased their online gross bookings through hotel websites and OTAs from $69 billion in 2010 to $125 billion in 2015, representing an increase from 22% to 33% of total gross bookings, respectively. This trend of increasing online penetration is consistent with growth in the online segment of the travel market, which is estimated to have grown by 9.8% from 2010 to 2015, compared to total travel market growth of 4.1% in the same period, which represented a 39% online penetration in 2015. In addition, there is a portion of corporate travel being booked online, which is not included in the online penetration numbers above.

We believe that due to increasing worldwide online penetration, the Internet will continue to facilitate consumers searching for, comparing and booking travel products, particularly given improvements in consumers’ ability to refine searches, compare destinations with better precision, view real-time pricing across real-time availability data and complete bookings. We will continue to adapt our user experience in response to a changing Internet environment and usage trends.

 

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Results of operations

Comparison of nine months ended September 30, 2015 and 2016

The following tables set forth our results of operations for the periods presented in euros and as a percentage of revenue.

 

      Nine months ended
September 30,
    Change  
( in millions) (unaudited)        2015    

    2016

    Amount
increase
(decrease)
    % increase
(decrease)
 

Consolidated statement of operations:

        

Revenue

   239.4      378.7      139.3        58.2

Revenue from related party

     154.4        206.3        51.9        33.6   
  

 

 

   

 

 

   

Total revenue

     393.8        585.0        191.2        48.5   

Costs and expenses:

        

Costs of revenue, including related party

     2.0        3.1        1.1        55.0   

Selling and marketing

     383.5        538.1        154.6        40.3   

Technology and content

     20.9        40.6        19.7        94.3   

General and administrative, including related party

     12.4        42.2        29.8        240.3   

Amortization of intangible assets

     22.5        11.3        (11.2     (49.8
  

 

 

   

 

 

   

Operating income (loss)

     (47.5     (50.3     (2.8     5.9   

Other income (expense):

        

Interest expense

     (0.1     (0.1     (0.0       

Other, net

     (0.7     0.5        1.2        (171.4
  

 

 

   

 

 

   

Total other income (expense), net

     (0.8     0.4        1.2        (150.0

Income (loss) before income taxes

     (48.3     (49.9     (1.6     3.3   

Expense (benefit) for income taxes

     (10.9     1.6        12.5        114.7   
  

 

 

   

 

 

   

Net loss

     (37.4     (51.5     (14.1     37.7   

Net (income) loss attributable to noncontrolling interests

     0.1        0.5        0.4        400.0   
  

 

 

   

 

 

   

Net loss attributable to trivago GmbH

   (37.3   (51.0   (13.7     36.7   

 

 

 

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      Nine months  ended
September 30,
 
(unaudited)    2015     2016  
Consolidated statement of operations as a percent of revenue:     

Revenue

     60.8     64.7

Revenue from related party

     39.2        35.3   
  

 

 

 

Total revenue

     100        100   

Costs and expenses:

    

Costs of revenue, including related party

     0.5        0.5   

Selling and marketing

     97.4        92.0   

Technology and content

     5.3        6.9   

General and administrative, including related party

     3.1        7.2   

Amortization of intangible assets

     5.7        1.9   
  

 

 

 

Operating income (loss)

     (12.1     (8.6

Other income (expense):

    

Interest expense

     0.0        0.0   

Other, net

     (0.2     0.1   
  

 

 

 

Total other income (expense), net

     (0.2     0.1   

Income (loss) before income taxes

     (12.3     (8.5

Expense (benefit) for income taxes

     (2.8     0.3   
  

 

 

 

Net loss

     (9.5     (8.8

Net (income) loss attributable to noncontrolling interests

     0.0        0.1   
  

 

 

 

Net loss attributable to trivago GmbH

     (9.5     (8.7

 

 

Revenue

Total revenue for the nine months ended September 30, 2016 was 585.0 million, representing an increase of 191.2 million, or 48.5%, compared to the nine months ended September 30, 2015. Revenue from related parties increased by 51.9 million, or 33.6%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, while revenue from third parties increased by 139.3 million, or 58.2%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Our total revenue in the nine months ended September 30, 2016 consisted of referral revenue of 579.3 million and other revenue of 5.7 million. Our total revenue in the nine months ended September 30, 2015 consisted of referral revenue of 392.3 million and other revenue of 1.5 million.

Referral revenue in the nine months ended September 30, 2016 increased by 187.0 million, or 47.7%, compared to the nine months ended September 30, 2015. This growth was primarily due to an increase of 58.6% in the number of qualified referrals in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

During the same period, RPQR decreased by 0.10, or 6.9%, as an increase in RPR of 4.4% period-on-period was offset by a significant decrease in the click-out rate. The decrease in RPQR was primarily due to the introduction of hotel-level CPC bidding and the change in the mechanics of the marketplace in early 2015. After a period of bidding adjustments and tests by our advertisers, which led to very high CPC bids, the marketplace adapted to the new bidding functionality during the course of 2016, which resulted in increased and more efficient bidding by our advertisers and higher customer value due to more competitive RPQR levels.

 

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The breakdown of referral revenue by reportable segment is as follows:

 

      Nine months ended September 30,      Change  
(€ in millions) (unaudited)              2015                2016      Amount
increase
(decrease)
     % increase
(decrease)
 

Americas

   137.6       223.5       85.9         62.5

Developed Europe

     209.1         276.1         67.0         32.0   

Rest of World

     45.6         79.8         34.2         74.9   

 

 

Referral revenue in the Americas in the nine months ended September 30, 2016 increased by 85.9 million, or 62.5%, compared to the nine months ended September 30, 2015. Growth in revenue in the Americas was primarily due to an increase of 74.4% in the number of qualified referrals in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. This growth was significantly impacted by growth in the United States, where we focused our marketing activities to further develop our position in the market during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. During the same period, RPQR in the Americas decreased by 0.15, or 6.9%, even though RPR for the period increased by 3.7%. This was due to a decrease in the click-out rate of 10.2% for the period, a consequence of our product optimization, which typically leads to fewer referrals per qualified referral.

Referral revenue in Developed Europe in the nine months ended September 30, 2016 increased by 67.0 million, or 32.0%, compared to the nine months ended September 30, 2015. This growth was primarily due to an increase of 38.1% in the number of qualified referrals in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. During the same period, RPQR in Developed Europe decreased by 0.06, or 4.4%, even though RPR increased by 7.1% for the period due to a reduction in the click-out rate of 10.8% for the period.

Referral revenue in the Rest of World in the nine months ended September 30, 2016 increased by 34.2 million, or 74.9%, compared to the nine months ended September 30, 2015. This growth was primarily due to an increase of 100.1% in the number of qualified referrals in the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. During the same period, RPQR in the Rest of World decreased by 0.12, or 12.6%, due to a decrease in RPR of 1.4% for the period and a decrease in the click-out rate of 11.4% for the period. Increased marketing in newer markets in our Rest of World segment, particularly in Japan, had a significant impact on our revenue growth in the segment for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Other revenue increased by 4.2 million, or 272.1%, primarily due to an increase in subscription revenue for Hotel Manager Pro.

Cost of revenue and expenses

Costs of revenue, including related party

Our cost of revenue consists primarily of our data center costs, salaries and share compensation for our data center operations staff and our customer service team. Costs of revenue, including from related party, was 2.0 million and 3.1 million for the nine months ended September 30, 2015 and 2016, respectively. Cost of revenues for the nine months ended September 30, 2016 increased by 1.1 million, or 55.0%, due to an increase in share-based compensation expense primarily driven by fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods. See Note 6—Share-based awards and other equity instruments in the notes to our unaudited condensed consolidated financial statements.

 

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Selling and marketing

Selling and marketing consists of all selling and marketing related costs and is divided into advertising expense and other expenses.

Advertising expense consists of fees that we pay for our various marketing channels like TV, out-of-home advertising, radio, search engine marketing, search engine optimization, display and affiliate marketing, email marketing, online video, app marketing and content marketing.

Other selling and marketing expenses include research costs, production costs for our TV spots and other marketing material, as well as salaries and share-based compensation for our marketing, sales, hotel relations and country development teams.

 

      Nine months
ended September
30,
    Change  
(€ in millions) (unaudited)    2015     2016     Amount
increase
(decrease)
     % increase
(decrease)
 

Advertising expense

   362.8      499.2      136.4         37.6

% of total revenue

     92.1     85.3     

Other selling and marketing

     18.3        28.5        10.2         55.7   

% of total revenue

     4.6     4.9     

Share-based compensation

     2.4        10.4        8.0         333.3   

% of total revenue

     0.6     1.8     
  

 

 

    

Total selling and marketing expense

   383.5      538.1      154.6         40.3   
  

 

 

    

% of total revenue

     97.4     92.0     

 

 

Advertising expense for the nine months ended September 30, 2016 increased by 136.4 million, or 37.6%, compared to the nine months ended September 30, 2015, as we continued to invest in performance marketing and other advertising to increase our brand awareness in each of our three operating segments, the Americas, Developed Europe and the Rest of World. Other selling and marketing expenses for the nine months ended September 30, 2016 increased by 10.2 million or 55.7% compared to the nine months ended September 30, 2015 due to higher personnel expenses of 7.1 million primarily due to an increase in headcount from 365 employees as of September 30, 2015 to 526 employees as of September 30, 2016. Share-based compensation expenses increased by 8.0 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, which was primarily driven by fluctuations in the fair value accounting treatment of liability classified awards granted in prior periods.

 

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Technology and content

Technology and content expense is principally comprised of technology development, product development and content personnel and overhead, depreciation and amortization of technology assets including hardware, purchased and internally developed software and other costs (primarily licensing and maintenance expense).

 

      Nine months ended
September 30,
    Change  
(€ in millions) (unaudited)           2015            2016     Amount
increase
(decrease)
     % increase
(decrease)
 

Personnel

   12.6      16.6      4.0         31.7

Share-based compensation, net of capitalized internal-use software and website development costs

     3.3        15.3        12.0         363.6   

Depreciation and amortization of technology assets

     1.0        2.7        1.7         170.0   

Other

     4.0        6.0        2.0         50.0   
  

 

 

    

Total technology and content

   20.9      40.6      19.7         94.3   
  

 

 

    

% of total revenue

     5.3     6.9                 

Technology and content expense for the nine months ended September 30, 2016 increased by 19.7 million, or 94.3%, compared to the nine months ended September 30, 2015, primarily due to an increase of 12.0 million in share-based compensation expense driven by fluctuations in the fair value accounting treatment of liability-classified awards granted in prior periods, and an increase in personnel costs of 4.0 million to support key technology projects primarily for our corporate technology function which resulted in an increase in headcount from 383 employees as of September 30, 2015 to 491 employees as of September 30, 2016, respectively. See Note 6—Share-based awards and other equity instruments to our unaudited condensed financial statements. Additionally, depreciation and amortization of technology assets increased by 1.7 million and other overhead costs increased by 2.0 million.

General and administrative

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