Good Investing Talks - Why do you own so much stock of HomeToGo, Steffen Schneider?

Episode Date: February 6, 2024

Please enjoy the second part of my conversation with Steffen Schneider of HomeToGo, where we covered HomeToGo Pro, M&A, and his investment in the company.

You can, and with higher share of repeat customers, we can decrease sales and marketing as a percent of revenues. We want to do that until we are maybe by the end of this decade at a sales and marketing range of 30 to 40 percent. When it comes to M&A, it really is, you know, we look at a wide range of potential target. In Hope to Go Pro, we have all the service. around the supply side and the services are subscription-based services, for example the software. Dear viewers of good investing talks, it's great to have you back for the second episode of our

Home to Go series, again with Stefan Schneider at the same place in my new home studio in Berlin. You can see it isn't fully finished but I'm working with it. So stay tuned to be part of this process. But the more interesting thing is Home to Go now. And we already talked about bit about your competition for Home to Go. And maybe as a small repeat question, who are your competitors in solving the problems of your customers? And maybe also with specialty, the smoooo thing, the smoo software thing. Is there any competitor people should watch out for? So when we look at our overall business, then looking at the marketplace to start there, and I'm coming to the software, but when we look at the marketplace, we of course have the three big OTAs,

booking, Expedia and Airbnb. Below that, you have a ton of property manager, some of them offering like more than 100,000 units, like an interhome interchalet. You have like a Nova Sol with close to 50,000. You have in the US, a Vakasa with 40-something thousand properties, but it also goes down to smaller ones who only only have a few thousand or a few hundred properties and then it goes down to the actual host on the software and services side for the supply side there are various competitors offering similar solutions there are channel managers who are offering their own channel manager software their channel manager service providers who are you know doing the whole channel management for for companies so it's a it's a pretty wide range of of

competitors each of them with their certain pros and cons and with smoo- With smoo- there are also other software who offering similar features you know maybe I'm not objective here but we think you have to be objective as long to go see if no chance that you can no so we see a smooth offer as a as a really compelling offer and and therefore we really there are other competition i don't have the names now now ready but it would make sense to to maybe add a few items But even if not, we can do it on our own. Where you're solving problems better than your competitors. You don't have to blame them or shame them, but more like where you think,

hmm, good. So, starting with Smoobu, it's really easy to use. It's easy to implement and then easy, easy to manage. we really have a solution which is very easy. When we look more at some of the other solutions we have, there's like a constant competition with other competitors where they offer a new feature and that new feature is maybe better than what we have and then we offer a new feature and ultimately it really comes down

to what is important for the respective customers. As some say they want to channel to channel to multiple channels, others say, only want a channel to fuse channels. So it really depends on what the customer is doing and what is the best offering them. When it comes to the marketplace, again, there is, and unfortunately I have to repeat myself, it really comes down to the breadth of the offering and the easy to use product we have. So to find things, to do the checkout, to do the payment, etc. And again, the big OTAs, like a booking, like an Expedia, they also have great technology, great platforms, etc.

But it's nothing that they have that we don't have. So we would say, oh, their product is so much better. Yes, they have a better brand. They have a better reach. Of course, they have much deeper pockets than we do. But there's nothing we are afraid of. Is there anything or any problem solution of competitors you admire? or even fear?

What I admire is their brand. So like in the case of Airbnb, I really admire their brand. It's a great brand. When I look at booking.com, I mean, the genius loyalty program they have is a great program. It's something we hear very often in investor talks that investors who, you know, book all their business travel with bookings. with bookings they collect genius points and yeah it's a good program when i do short-term trips and i stay in a hotel i usually book them via booking.com so it's a great program and i admire them for for that but i wouldn't say that we fear anything so sometimes it's even the other way

around for example flexible search date was something we already introduced a few years ago and and then Airbnb was presenting it as a as something really new so let me drill down a bit on complexity in your business and so maybe let's take a look at the past and can you explain it based on this why you have built so many different problem solutions for your customers or why are we having different business lines as a business so when you think about when we started was a pure meter search machine for fabrication rental. It worked out really well. We quickly got to scale. We got a lot of demand. We got a lot of supply, etc. But and we always have like a case study which we already show now since being a public company of a property

manager who was telling us like, oh, I get all these traffic from you. That's great. It just doesn't convert. And the reason why it doesn't convert. is because the respective internet page of that property manager was just bad. If you were a native speaker in their language, you could find your way around. If you were not a native speaker, it would be really hard to find where you have to click in order to book that property. So what we said to that property manager, and that's just an example that happened to many others as well, that we said, well, why don't you come on site and be part of our own OTA and we complete the whole booking to us and we could show within like one year 50 times

more bookings now it's like 160 times more bookings than than what was at that point in time and the reason just is that when we talk about our product it's the core we do like I mentioned before in the first part of the the session with these 100 AB tests we constantly make the product better to make it more user-friendly to see what's working and what's not and for many of the property managers, they are just too slow. So by the time they have upgraded their web page, it is already outdated. And for them, we really have created that on-site business because the big OTAs, they don't need it.

They have a great product than themselves, but for them. And that was a win-win-win situation because the traveler was now making a booking. They didn't book before. The property manager was happy because he was getting many more bookings, and we were happy because, A, we got the data of the travelers, which enables us to generate repeat business. We get a higher take rate than what we got before. So everyone was happy. And then the subscription and services around the marketplace and around the supply side was really to think about, okay, what other services can we provide? And some of these

services were already out there. So, you know, some of these services we have acquired like ZECRA, we have acquired as they have already provided many services to local tourism offices, etc. And these are the things that our partners are using, they need them, and we are best place to offer them. So short story, TLDR, you started to throw Spaghettis at the wall, none of them really sticked. Then you decided to develop spaghetti wall clue, the wall stickable and threw more spaghetti at the wall? I wouldn't say it like like that. No, we are so serious.

So we just saw that there are certain parts of our initial business which worked well for certain parts of the supply side, but didn't work so well for the other. So there we developed the product further to also offer them something which was working there. And then we saw that there were. to stay with your picture we saw that there were people eating spaghetti which we didn't offer yet so that's when you know we saw okay there's an opportunity let's let's let's see and like in the past whenever we we haven't seen an opportunity to acquire a profitable business which is growing and which is enhancing the

overall value of our business we were looking at opportunities to to acquire them and if we could agree on on price and terms then we did acquisitions like we did in 22 and we maybe want to do in the future so looking at the complexity in your business structure investors love to ask this question what is your child you love most or to formulate the investor terms which of the business has the highest quality you own so what is your answer so i mean when you just pure look at it and what investors laugh. It's the sticky software business because I mean that's the reason why you have high multiples for software as a service business because it's just so sticky.

So from that point of view I could imagine and that's also the feedback we get in investor meetings that they love to smoo business. But it's just one part of our overall, you know, service offering which we now call Home to Go Pro. It's not everything. But, Many of the service offerings we are doing, they are also the value add because we also have the marketplace and the knowledge of the marketplace. So when I said in the first part, we could, for example, enhance the swooboo offering by also offering price information, i.e. increase the prices during peak season, maybe lower the prices during the shoulder season. That's information we generate from the marketplace. So these business together, they also generate value. and so maybe define what's home to go bro because it was just yesterday introduced at the capital market state

yeah so in home to go pro we have all the services around the supply side and the services are subscription based services for example the software but also we have subscription based services in italy in france in in spain where hosts can offer their properties on a platform and then they can basically get bookings of it. And we also have a what we call volume-based services where then it's more like that people get booked. It could be bookings via a channel manager, via a third party. We have what we call the doppelganger where we also offer our existing inventory to other parties. We work together with, for example, Tui, holiday check and this is more a volume based business and what is doppelganger and why this strange

german word and have you copied a german podcast so in doppelganger it's basically like a white label solution where we offer our our technology our inventory also two third parties and then they can also offer their customer base our inventory via that doubleganger solution So it's kind of the twin solution or the white label solution to put it in an English word. How does this complexity help you? You answer this question already a bit, but can you maybe outline this a bit? Because you could maybe use some data from the small business to feed the other business or they help each other to play together.

Sure. So having like a big marketplace is a feature for. also users of the software or of the subscription services. So for example, we use that in our Italian business that we also offer them to get bookings via the marketplace. So they subscribe to present their properties and it's a nice stable, growing, profitable business. And we also get paid if we generate bookings for them. So it's a direct connection. When you look at the smoooo side to have a direct connection to the host and to enable the host to go to go on our platform enables us again to maybe show even exclusive content so in our industry there's very little

exclusivity but there's a little bit of exclusivity and to for example have a certain property exclusive on home to go again could be a benefit for for the marketplace And maybe with SMUBU, is there a customer acquisition advantage because it's easier to sell SMUB to existing customers that you know that they have a holiday place or is it not like? So, you know, with SMUBU we address mainly the owners while the majority of our customers on the marketplace are travelers. So if the travelers are also owners, then that would be. an ideal solution but the majority of our customers on the marketplace are not owners of vacation rental and you don't have the direct connection often to this owners because they are the volume of other partners sometimes we have but not always so the majority of the properties we get through

our partners and sometimes we know the ultimate owner sometimes we don't it's a bit of the matter observation from the investor does it help to build a stronger mode because you combine this business lines under the home to go umbrella you know mold is always a big a big word and it's i i would say it makes the business overall stronger is it already the the the mold which no one can can surpass I don't think we are there yet. We still need a little bit to get there. How does the data you gather through the different businesses help them to play together?

You answered us a bit. Yeah, I mean, it's... Imagine you have a house in Greece and you're offering that house for 1,000 euros per week. Just imagine that. We know that all your neighbors during the peak season are charging 1500. 1,500 and we know from all our data that they're booked out. So except for the few weeks they use it themselves, they're completely booked out. So we basically know that you leave money on the table and we can provide you with that information. While if you in the off

season maybe still charge 1000 euros and you don't get any bookings because all your neighbors are now charging only 800 euros. So up to you if you say, oh, you you know, I don't need that time anyway, but to get like an additional three, four weeks in the shoulder season and make 800, but get a booking makes for you a huge difference. So that's just one piece of example. And we have similar information we could use for the more professional property managers, where we can help them to manage their properties better. So there's a ton of data and we have data specialists and, you know, if they would be here on the podcast, they could easily talk for hours about all that. For us, it's always important to get like the real life business impact out of it because data itself, it's all nice, but we need to have a real life business impact and that ultimately comes down to revenues and profit. Before we jump into the serious topic of capital location, maybe let's finish the data topic. do you maybe have three or a few interesting fun facts you can tell us about what you learned

about the travel market general and travelers behaviors you know we always we do that for for the end of the year we have like an all hands meeting with all the employees and then we always have the kind of best property so what was the property we made the highest take rate with what's the property which had the highest bookings what was the biggest group etc we showed a little bit at the capital markets day but to see for example a property which was booked 50 weeks in a year and you look like and you don't understand why is this property particular working so so so so well but it is what it is or you have like a property where you see where we made a huge a amount of money and you wonder who was that person who was able and willing to rent that

property for for this this price but there are these people and it's a nice thing about the the industry we're working in and it's also nice about the products we look at it is there anything you've learned about the differences in the markets you're in like for instance the German market how it is different to the French market or the Italian market So it comes down the, you know, I started in 2020 when we were still in COVID times. And in 2020, most of the people stayed in their own country. And like French consumers also after COVID stay mainly in France.

Americans due to the size stay in the US. But for example, the Dutch, the Germans, etc. They usually travel outside. So, you know, to Austria, to Denmark. Italy, etc. So that was interesting to see how like the share of international travel for German customers during COVID went down and now it's up again like as if nothing, nothing has happened. Travelers in the US tend to book bigger houses than they do in Europe. So when we always like this year we had our basket size going up, but when we looked at the region, so

So North America basket size stayed the same, European basket sizes stayed the same. It was just that the US had a higher share and therefore the overall basket size has increased. Another fun fact is when the people are actually booking. So you know, Germans, Dutch, they usually book in January. So December traffic is usually flat, comes to 26 and traffic goes up and then in January people are booking. and then the dach market goes down while the you know french and british are going up the u.s you never know sometimes they book early sometimes they they book late so these are the things which are really interesting hey turn on here it's great that you have made it that far into the video and i think

it shows a certain passion for investing you're having if you want to dive deeper and go further down the rapid toll you're invited to apply to my community good investing plus it's a place that's very helpful to people who are ambitious about investing it's helpful to investment talent as well as experience fund managers so if you're interested please click on the link below and now without further do enjoy the conversation that's this is also interesting now let's talk a bit about capital allocation very important topic for investors so you're the cFO not the c but with DF, how much of your own money is allocated in Home to Go? Oh, might be personally?

Yeah. Quite a lot. Quite a lot. So, you know, when I started, we were still a private company and we had like a virtual share option program. And when we had the IPO, so all that claim got translated at 10 euros per share. So, you know, I feel all the pain of the IPO. investors who have invested 10 euros and it's good to hear four investors that invested at 10 so I feel you as I always say the the tax authorities are the ones who have really benefited

because I had to pay taxes on 10 euros and now the share price is where the share price is but I don't want to complain about that and then I also have under the new program options I haven't exercised them yet because I don't think it's the right share price to exercise them. But if I take everything together, I would say quite a significant part of my net worth. I wouldn't really say worth, but out of my capital allocation is within home to co-share. So I have a very personal interest to get the share price to increase. Let's go to the C-Suite. How are they positioned with this question?

So how much of their wealth is? So, you know, we are four members of the management board and two of them, our CEO, Patrick and our C-S-O, Wolfgang, are also co-founders. And Wolfgang has like close to 5% in the company. Patrick has close to 4% in the company. So for them, it's also, I would say, a very significant, if not the biggest part of their net worth in the company. And then the fourth management board, he also was hired a little bit earlier than myself. So all together, we have significant skin in the game here. So you will win when home to go.

Hopefully, yes. That's not the worst setup for management team. Yeah. So maybe walk us a bit through the capital allocations decisions you do with the bit of complexity, with the different business lines. So how is the process, how you decide to allocate capital in between the business lines? So again, starting with the Home to Go pro side of the business because that's a very stable business. It's nicely growing. we will, in particular in the next year, invest in certain parts because there we see opportunities to grow and to grow significantly.

So 24 will be a year where we will invest in order for that growth. And as always, you invest in one year and the real benefits are coming a little bit later. When we look at the marketplace, there we have already continuously invested over the years. years. And there it's more like a working capital question. So as I have explained before in Q1, we get the majority of our bookings. We have to pay Google, Bing, et cetera. But since we only realize revenues when we have a check-in, it usually takes until Q3 and then thereafter until we get paid. So that's a kind of working capital we have to finance. The requirement of these working capital are going down because we also do now more and more payments for our customers and we get prepayments.

So that's money we first can get on our balance sheet. We do that with a payment partner so that everything is done in a proper way. And that is easing our working capital requirement. So in 23 was already better than in 22 and we expect the same thing to continue. But there I always keep a bigger part in terms of capital just to be ready because if there's a great opportunity for us to invest, we want to make use of it. So we can usually plan the year pretty well, as I said, depending on where the traveler is coming from. We know if they're more Q1 booker or Q2 or Q3 booker, but there are always exceptions to the rule and we just want to be ready. And if there's an opportunity in a pocket and we can see we can get bookings with a high contribution, we will go for it.

So that's the biggest part of it. And then we have a share buyback program out there. It's a 10 million program. And so far we have not even used a million yet. And there are still 9 million earmarked for that. And then the overall remaining biggest position is the MNA. We have a new colleague, Baudutilman. and he also presented at the Capital Markets Day and outlined our strategy to go for profitable,

growing business. And there we have more than 70 million earmarked for M&A. And that excludes any share or debt to include. And we just want to be very disciplined about it. So it doesn't mean that we spent next year 70 million on MNA. But if there's a good opportunity to add value, we will go for it. So maybe to clarify it a bit, you've already mentioned this a bit, but how much room do we have for capital allocation, like how much free capital there is and like cash and how much do you think will come in over time through free cash flow? So by the end of Q3 we had net cash of 130 million and we expect that amount to be a bit higher

by the end of this year and so calculating with 130, 35 million to go into the year, a little bit more than half would be earmarked for M&A. Close to 10 million would be earmarked for the buyback. Not sure if we need all of that, but we have it earmarked. Then we have about 10 million of operating cash where we still, from adjusted EBITDA to free cash flow, would still have a gap. And then the remainder of that amount is what I see as briefing space, networking capital. We don't need that for the year, but it just makes me sleep better.

So is there a minimum amount of cash you should keep at hand to have all this working capital requirements? Or is this $130 million just in case over time you do very well fully disposable? So for the operating site, you know, we won't need more than 40 million. And that's already generous. Okay, that's a good answer. How do you balance like your entrepreneurial gut feeling in capital allocation and your data and KPI-driven information? So again, when you look at these various buckets,

So the share buyback program we have announced. And it's ultimately something which we can only buy back certain amount of shares, which is a percentage of the daily Xedra trading volume. And then there are certain uptick rules so we can't increase the prices. So we can always only go with the flow. There are certain ways to maybe do a tender offer within the share buyback program, but to be seen. to be seen. The kind of money we need in terms of cash between the adjusted EBITA and free cash flow, that is something we know from this year and we have a pretty good idea what it will be for

next year. So again, I feel comfortable with that number. The operational part, the networking capital part, that is something we can base on historic behavior, And it's usually pretty stable, but there's always an element of surprise in the way if certain markets open up, if there are certain good things to do, then we would just want to be ready. Like for example, this year, in September, October, we had very good bookings, which is not so usual. In September, we had more than 40% than in the prior year. So these are the little things we want to be flexible. about it and data is helping us to spot these opportunities early on and then, you know, we want to have the flexibility to go for it. When it comes to M&A, it really is, you know, we look at a wide range of potential targets and then very early screen them on, you know, what makes sense in terms of product, how does it fit into our company, et cetera.

And then once we decide on, okay, this is really interesting, we then go on, you know, making an indicative offer and then do real due diligence, spending money on it. So then it really comes down to hard data. Is it really worth it or not? It's a big word, but does Home to Go maybe have a bit of a moonshot culture that you have some things that you dry out that could be interesting business lines, but you don't know? or is it just operating on the existing pockets you have? I'm always careful when I have these, you know, moonshots. Yeah, I think in general we are rather, rather down to Earth and to, you know, ultimately it's relatively easy. You want to have a growing business, you want to have a profitable

business which is generating cash. And then as Wolfgang Hegel, our co-founder always says free cash flow means freedom. And as one of our shareholders has said, you know, when they were, he was following booking for quite some time. And he says for a long, long time that share price wasn't moving at all. But at some point, investors started to see how the profitability was coming how the free cash flow was coming etc and i would rather see us in that camp which doesn't mean that if a great opportunity comes by that we would immediately discount it i just rather see us you know constantly improving than shooting for the moon yeah david haslhoff maybe have to text a new song i'm looking for free cash flow at a certain point um i've been looking for

for M&A is also an interesting topic we called towards one of the larger headlines from the Capital Markets Day. Is there recording of it available? Yes, it's all available on our investor relations side. So you can see all the slides and also the full recording. Feel free to send me a link and I put them show notes so it's easier for people to find it. And like who's this new M&A dude you hired and why is he qualified to do M&A for you? I have to tell him that you call them like that. Yeah, so next time he gets a chocolate as a payback for dude. So Bodo Thielman, he is like in the industry for a very long time.

So he just joined us from HISDS, which is also active in the area. He worked for a very long time for Axel Springer doing M&A and investing there. He worked for for Oyo, which is a player in the industry. And, you know, he's also active in the Vacation Rental Association. So he's basically a person who knows everyone. But, you know, besides being a dealmaker and facilitator, he also, you know, has a very hard business background, has a PhD in business administration. So he also knows what he's talking about and how to put. Sorry?

Not like me. And also, you know, to make sure that the due diligence teams are performing, that everything is then put into a sale and purchase agreement, you know, and all these nitty gritty things which make an MNA transaction complex. And he's a real great addition to to have on board. And, you know, I really enjoy working with him. Nothing against Bodo, sorry if you've seen this, but like you already have a complicated business models with different business lines. Why do you add M&A on top of this now?

Because there are still things we can do in order to make the business better. So, and unfortunately, I can't go into more more details, but there are on the Home to Go pro side, certain things which would be a great addition. There are certain things on the marketplace side, which would be great additions, for example, to increase the share of repeat customers. So, There are certain things we can do and we see they are adding value by itself because we're only looking at profitable MNA as we see that as a better fit because you can let that company run on its own. You don't have to integrate it and it's also helping our overall profitability. And there are certain things which then combined with our business can can also help and

therefore we just see m-on-a as an opportunity to accelerate growth and to accelerate profitability and therefore get or become a bigger and more profitable business faster so on the artwork creation side it's still like the face trust us we know what we're doing well or is there anything you could maybe give us a little teaser i i i really wish i could but uh it's you know if if our in-house capital markets lawyer, Christoph, would see that he wouldn't like it. So I won't say, already teased Bodo, no, no issues with Christoph. It's Berlin, I have to stay on a safe side. But maybe give us some confidence that you don't overpay or how or walk us through the framework you think about like value creation when

doing MNA. Yeah. So already very early on, we we have set ourselves certain limits where we just say, okay, if the potential seller is asking for, and we mainly look at EBIDA multiples as the main metrics, if certain sellers are looking at EBITDA multiples, which are beyond our threshold, we just say, okay, thank you very much and let's talk again in a year's time. So we have seen that, and you know, we have that also in other industries, you have it in the real estate market where, you know, people still thinking of 2021 prices when you're in 23 or in 24. So we just have to say, okay, it would be a nice addition to our business, but not for this

price because I would have difficulties to explain it to our supervisory board. I would have even more difficulties to explain it to investors why this business is worth that price. And if I can't explain it, we just don't do it. Maybe give me a bit more detail if if you, Christoph allows this, how to change prices have changed from 2021 to 2023 and like how this dancing process to accept lower prices is going? I mean when you looked at 21 the mainly internet businesses were valued on revenue multiples and only using like Iberda multiples as a as a alternative metric. Now everyone is looking at EBIDA multiples and also looking at free cash flow.

So you can clearly see that we are going down in the P&L and it's all coming more towards free cash flow. And in our case it's you know one thing when you say okay that's maybe cheap on the revenue multiple side but still expensive on the EBITDA multiple side. And now basically no one really cares about a revenue multiple. Everyone is looking at an Ibeda multiple. And then you can see how also the multiples have come down to the overall industries. I mean, it's no longer the same kind of multiples we have seen two years ago. And that just needs to reflect.

And there are some potential sellers who are aware of it and are willing to look into that. And there are others who just say, look, I don't care. It's my business is running well and I don't see any need to reduce my price expectations. And then just say, okay, that's fair enough. You have to make the best decisions for your business. We have to make the best decisions for our business

and for our shareholders. And at this point in time, I just cannot justify these kind of prices. And then let's see, you know, we always, I live under the impression that you always meet twice in life. And if you explain that well, then let's see. You meet in the marketplace, you meet otherwise. And maybe then we have a new situation in a few weeks or a few months or a few years time and then take it from there. marketplace is a good bridge to my next question or the last topic of our conversation it's growth and maybe you can give me some insights how the holiday homes market call it like this you can

correct me is growing in general like outside of home to go so the finding good reliable data on on the market and on the growth of the market is quite a challenge because you have that range. So for example, for our IPO, we found some research reports which came out after the Airbnb IPO, which said that the overall accommodation market, including hotels and everything was one trillion US dollars and was supposed to grow within 10 years to 1.7 trillion so that's one one way there are other things which are more towards the vacation rental market would say that within the overall accommodation market vacation rental is the fastest growing market but it's it's not so easy and one of the

reason is that think about you own a property in Italy. You have a property manager. I would wish myself. So you used the help of a property manager. The property manager is maybe using the help of Expedia. Expedia is using the help of home to go. Now let's assume you are renting it out for 1,000 euro. The traveler is paying 1,000 euro. Now I guess your reporting wouldn't show up anywhere. But maybe the property manager reporting would show up. The Expedia reporting would show up and we also would show 1,000 euros of gross booking value. And that is I would say one of the reasons depending on how much consolidation you have and that on a global scale is not so present. But all in all,

we see that the market is growing and we were benefiting from COVID and we are benefiting now that working from home, working from anywhere is something which is more or less established. As people can just say, look, I go two weeks on holidays and I just add a third week and work from Italy and my family can enjoy the beach in Italy and I just work there. We have seen that during COVID when suddenly fast internet was the number one filter that everyone was looking at, which wasn't the case before so in e-commerce you often talk about the shift from offline to online like how is it in your industry i think it's hard to get data on this but like is it there's still a large offline chunk or is it has it already moved online so i think from the travelers

more and more is is online on on the supply side there's still a significant And Changa, you know, mentioned it in the first part a few years ago. We were expecting it to be 50-50. Maybe now it's more like 55, 45, 45, maybe 60-40 online to offline. But with every new generation, you then are using it more online. And now the question is, how much online? So coming again to the smooth-o software, you don't need to connect to any of the big booking platforms. You can just have your own website and maybe you get sufficient

traffic out of it. Is this online? Yeah, on the one hand, it is online. You could book everything online and you don't do it by phone or by fax even. But to have it like real online is I think when it comes to the big platforms like home to go like booking like Airbnb. Yeah, no Germans, no facts. It's hard. How should I read your growth against the market your peers so the last time we talked you talked that you were some people were surprised that Airbnb did grow more than you you're the smaller player yeah so how should people read the growth of you yeah what is your personal hurdle with growth yeah so when we Airbnb and booking expir they're always reporting a few days before us which is you know always helpful and when i saw

the headline numbers from Airbnb and from booking a thought it will be it's not so easy but but then when you look at the next level where did their growth come from it came from asia and from latin america we are not present in asia at all and in latin america we have a very tiny business in brazil which isn't really which is not even a one percent of our revenues so it's it's really minor when you compared their european business and the north american business to us we were pretty much even in some case we were even growing faster. But nevertheless, I mean, they are much bigger companies. So to grow in the same way as them being a smaller company should not be our benchmark. But it's important to

see like last year, also to some extent with the help of acquisition, we were growing more than 50%. This year we are more growing towards 10%. But the reason is we very clearly from the beginning onset that we want to reach adjusted EBITDA break even. That's our number one priority and we will reach that goal and therefore have compromised on growth. So it's now growing, but with this capital, this profitability baseline. I think you've formulated it like this or how. So, you know, we will grow about 10% this year. And by that time and reaching adjusted EBDA break even, we have improved our EBDA from last year,

adjusted EBDA to this year by around 20 million euros. And that's something we are proud of. You know, it's adjusted EBITDA break even can't be the end of the story. We need to make real profit margins. We need to generate real free cash flow. But it's a big step. And to improving profitability by 20 million, it's not too bad. So for investors that like growth companies and now really want to have profitable companies,

you will give a kind of like, like, not promise, but goal to have always this adjusted EBITA. Yeah, we said that in our capital markets day that, you know, 24, again, we want to have a more focus on the growth and we would reinvest the improved profitability into additional growth, for example, building up a good backlog to then go into 2025. But we ensured investors and I could show investors here that the break-even is the floor. So we won't go below what kind of profitability level we have achieved this year. It will be the floor and from there we improve going forward.

So how much effort do you need to grow or let's make the crazy experiment that you stop marketing expenses? What would happen to your business in the next year? Well, if we stop the marketing expenses completely, of course we would make a huge profitability because marketing and paid marketing is the biggest factor on our whole P&L. But then again, if you stop it completely, the business would become smaller, smaller, smaller. So it wouldn't make sense. You can, and with higher share of repeat customers, we can decrease sales and marketing as a percent of revenues.

And we want to do that until we are, you know, maybe by the end of this decade, at a sales and marketing range of 30 to 40%. That is something we... Mao is more like 80. Okay. So still some way to go. But we see 30 to 40% long term as a sustainable level. Nevertheless, we don't want to cut back in absolute terms.

So we still want to grow sales and marketing in absolute terms. we just want to grow faster. Is there any ratio you've experienced in the past, like every percent of marketing rate to growth or the interlink? In our Q3 results, we showed the year 23 in three phases. First phase, the first four months we had really nice growth. There was still some acquisition related factors in it. factors in it, but even if we would take that out, we would be have seen growth of around 30%.

Then the next four months, August, May to August, so basically no growth in in few months even below 22. And then in the last by the time we reported in November. So we had like data for September and October, which was again way above the year before. Now, giving our seasonality, Q1 is much more important than the end of the year in terms of the absolute booking revenues. Nevertheless, to be like, as I mentioned in September, 40% above prior year is a big step. So with all the data, with all the knowledge we have, there are still some things which are surprising. And this year we could have made much more revenues. you know, if we would have had a little bit more space on the adjusted Iberda target,

but we said two years ago when we went to the public market that we want to reach within two years, adjusted Ibeda break even, and we will achieve that. We also mentioned that within two years we want to have 20% subscription and services, what we now call Home to Go Pro, we will achieve that. And to have that kind of you know, stability that also the capital markets can see what we promise to the capital markets we take very seriously and we do everything to achieve that should hopefully give them comfort and then, you know, put us from the not profitable bucket into the break-even bucket and then to the full profitable bucket. Looking like five years out, what do we expect to grow?

have grown stronger than the revenue to the profitability well so five years out that would be 28 i would see us you know maybe at an ibeda margin or around 2025 you know i maybe regret that look at that video in in five years time we have we have it on But I would expect that we have grown revenues much faster than this one. Yeah. And maybe give us two or three reasons why we should trust with this? Number one reason... He gave a lot in the video already, but...

Yeah. Yeah. Number one reason is we have said that we would achieve adjusted Ibidabrake even this year and we will achieve it. this year. And we have compromised in terms of growth, but for us it was just important to achieve that milestone, also to ensure investors that we are serious about it. Number two is that I mentioned that when we talked about M1A, we are not shooting for the moon. We just constantly want to improve profitability, improve cash generation, etc. So we see that as a long-term commitment but also as a long-term you know like a marathon we are not hoping for any

any special event to to happen which helps us we rather see that as something where we continuously develop the business and then come to to something and finally it's the good thing about the industry we are in i mean people make money in the industry the businesses we have acquired they have made you know, 20% plus EBITDA margins for many, many years while it's still growing. The big OTAs are growing and they have 35% EBITDA margins. So that's really good thing. In our industry, people make profit, they generate cash and that's also what we will do. So as a last tradition at the end of the interviews, and I'm coming to my end with my questions and my quirky comments, do we have anything you want to

at. We haven't discussed a fun fact that came to mind, a greeting to Christoph or something like this. Usually I, it's, you know, getting so many questions. It's always a little bit of exhausting and I, uh, I bought you to death. I would say. I, you know, I usually, you know, when you have these investor meetings, when you have like a full day of one, one by one, I always enjoy the meetings when investors are shooting one question after the other because that way i make sure that i don't forget anything when i have to tell the same story eight times after the other or ten times i you know sometimes make a joke in the morning and then in the evening i forgot did i just make that joke five minutes ago or was it five meetings ago so therefore

i'm all fine from my side okay then you're welcome to shoot a lot of questions at him if you're more interested there's in the internet you find him in western relations i think it's also called and then thank you very much for staying till here and thank you for coming to my next premiere in the newly upgraded home studio it will change a bit thank you for inviting us and thanks a lot for listening bye bye i really hope you enjoyed this conversation if you did please leave a like and a comment and for sure subscribe to my channel traditionally i want to close this conversation with the disclaimer. So here you can find the disclaimer.

It says, please do your own work. This is no recommendation. What we are doing here is just a qualified talk that helps you, but it's no recommendation. Please always do your own work. Thank you and hope to see you in the next episode. Bye bye.