Adevinta ASA

OSE:ADE

Earnings Call Transcript 2023-Q2

[Operator]

Welcome, everyone, to the Adevinta's Second Quarter 2023 Results Presentation. [Operator Instructions]Mr. Antoine Jouteau, Chief Executive Officer of Adevinta, will host today's conference. Mr. Jouteau, the floor is yours, sir.

[Antoine Jouteau, executive]

Thanks, operator. Good morning, everyone. Welcome, and thank you for attending today's presentation where Uvashni and I will be presenting Adevinta's Q2 results and progress.We are pleased to report another strong sets of results in the second quarter. We will also take this opportunity to update you on the progress we have made this quarter on our project to verticalize Adevinta's operations as well as our exciting project to converge our generalist platforms into one global platform, starting with leboncoin and Kleinanzeigen. Uvashni and I will be joined by the rest of the Adevinta executive team for the Q&A session.Before we start, Uvashni will be stepping down as CFO of Adevinta at the end of the day. I would like to thank her again for her tremendous contribution over the last 4 years in building the new Adevinta.Overall, we delivered, once again, a strong financial performance with 14% revenue growth for our core markets. EBITDA margin was very strong at 38%, up 3 percentage points year-on-year despite the business mix evolution, the impact of French DST and higher share-based compensation impact. This has resulted in strong cash generation, allowing us to further deleverage the business and to pay down debt again this quarter, mitigating some of the impact of rising interest rates. This strong set of results position us well to reach the top end of the previously announced financial target for the full year.We continue to lay the foundations for stronger, even more efficient and innovative organization, and we are making good progress in the verticalization of our operations. We have also started to work on the convergence of generalist platforms, starting with leboncoin and Kleinanzeigen. At the same time, we continue to focus on the day-to-day delivery of our operations with significant product and commercial achievements in our key strategic pillars while maintaining financial discipline.Before I go into details of our convergence project, I would like to remind you of Adevinta's key strengths and why we are well equipped to capture significant business opportunities in the future. We are leading platforms with unique traffic, liquidity and content for both C2C and B2C and loved and trusted European local brands. We have a resilient business model with high profit margin and steady cash flow generation. We see a large untapped potential in transactional services and in key verticals. We have a strong purpose, which is clearly geared towards sustainable commerce. And of course, we have dedicated and experienced teams with around 3/4 of sales and tech profiles, including more than 2,600 product and tech talents. All these teams have a strong willingness to change, to contribute and to transform Adevinta.Fully unlocking Adevinta's potential and delivering more value to all our stakeholders is the reason why we have initiated our operational transformation with verticalization and convergence to a common generalist platform. This will allow us to better maintain our leadership position in classifieds in Europe, benefit from world-class capabilities supported by a single platform for generalists, reduce duplication of effort and benefit from scale and provide our users and customers with best-in-class products and solutions while reducing time-to-market.Our ambition is to leverage the best from our generalist platforms by converging them into one global Adevinta generalist platform to reduce the duplication of effort and simplify our platform landscape. Above all, we want to provide our users with the best products in all our geographies. Our global generalist platform will be supported by specialized capabilities from our vertical marketplaces. We have initiated convergence work with the most advanced platforms in our portfolio, leboncoin and Kleinanzeigen. Everything we do is based on capabilities that already exists. We are optimizing what we have at hand, bringing together the best of both worlds.At the same time, we continue to focus on the day-to-day running of our business with significant innovative products introduced in the quarter across our marketplaces. Our top priority is to deliver value to our users and customers. In mobility, we continue to enhance our offering for users: at leboncoin, with the launch of cash purchase that enables private sellers to simplify and to accelerate the process of selling a car to a professional; at mobile, with the integration process for digital payments for our private sellers. In real estate, in Spain, international users can now see translation for [ descriptions ] in the Fotocasa app detailed in multiple languages. In transactional services, at the moment, we introduced Shop2shop by Chronopost for all eligible categories, while the buy now option is now opted in at Kleinanzeigen and Marktplaats. Those are only a few examples, but there are many others.Three months into rebranding to Kleinanzeigen, all metrics are on track and, in many cases, performing above our expectations. The rebrand has been received very well by our users. Our traffic and brand metrics continue to perform well. And thanks to a very smooth migration to kleinanzeigen.de., our new domain is already ranked #6 for SEO visibility in Germany. In the rebranding launch month of May, we reached an all-time high of 60 million monthly active users, demonstrating the high-level interest of our new brand.Overall, activity continues to trend upward on our main platforms with traffic growing year-on-year, demonstrating the strength of our brands. Leboncoin showed an impressive performance with visits up by 12% compared to last year. In Kleinanzeigen, visits are up 2% year-on-year despite the rebranding and domain change, which is estimated to have impacted traffic by almost 4%. Mobile traffic has risen to positive year-on-year growth following the car market trend.Now let's dig into our 2 key verticals, starting with mobility. While the new car supplies is showing signs of recovery, we expect the recovery in dealer inventory and used car transactions to be probative versus the new car recovery. As a result, global supply volumes remain weak for the time being, well below pre-pandemic levels. In Germany, the total number of listings increased by 14% year-on-year, driven by an increase in new listing and lower demand for cars, resulting in an increase in the time it takes to sell a car. In France, the total number of listings increased by 3% in the second quarter, positively influenced by an increase in the time to sell. However, the current lack of orders registered by dealers would have an impact on the used car market and the total number of listings in the coming months. At the same time, we are implementing commercial initiatives such as price increases, alongside product enhancements and increase added value for customers.In mobile, we have successfully implemented a new price adjustment in April 2023, which has resulted in an average dealer price increase of around 15% with no reduction in dealer satisfaction. This has led to increased monetization with average revenue per lease up 14% year-on-year. Meanwhile, mobile continues to innovate in the space of leasing, financing, C2B and more. In the quarter, average revenue per dealer in France has increased by 12% year-on-year.The overall macro environment continues to be challenging with inflation and rising interest rates, low consumer confidence, ultimately affecting the property market with consequences of the number of listings available on our platform, about different degrees in France and Germany, largely due to the different market positions we hold. In France, professional listings increased by 9% year-on-year, driven by a slowdown in the number of transactions, which can be explained by the rise of interest rates and the tightening of credit access conditions on the demand side for all properties.We continue to improve our monetization. ARPA increased by 19% year-on-year, which continued to benefit from the successful launch of enhanced subscription packages in September with high added value for professional clients. In Germany, professional listings continue to show impressive growth, up 120% year-on-year. This is explained by the market dynamics where the demand for houses for sale is decreasing significantly and shifting partly towards houses for rent due to the current economic situation. As a consequence, professional listings stay longer on our platform.The second driver is our gain in market share and increased agent's penetration. The number of professional clients increased 15% year-on-year to 10,000. We still have a lot of room to grow in real estate, and we are making sure that we continue to bring further value to agents, ultimately leading to increased monetization.In transactional services, we continue to see very strong traction in product adoption with strong double-digit growth in all markets and even triple-digit growth at Kleinanzeigen. During the quarter, we had a strong promotional activity with the testing of the new shipping promotion in France and also shipping promotion on Kleinanzeigen as part of the rebranding, which had a positive impact on both the number of transactions and the adoption of the sales.In the quarter, we also continued to improve and to launch new products in all our core markets with, for example, the introduction of the mixed payment with both wallet and credit card and the bundled discounts at leboncoin and the introduction of price consideration screen at Marktplaats.I will now hand over to Uvashni for the financial performance section.

[Uvashni Raman, executive]

Thank you, Antoine, and good morning, everyone. As Antoine outlined earlier, our financial performance for the second quarter was very strong. This was underpinned by double-digit growth across the core business with excellent performance at mobile.de. Cost discipline and delivery on key initiatives across the group more than offset the impact from the evolving business mix and the French DST, resulting in improved margins and strong cash flow generation.Group revenues grew 12% compared to last year to EUR 465 million. The 12% growth references comparable revenues. This means that we restated revenue for the markets that we exited between last year and this quarter, which included Belarus and Mexico.Turning our focus to core markets. Revenues grew 14%. Online classifieds revenue improved by 17%, supported by continued outstanding performance and growth in mobility. Real estate posted double-digit growth in the period, with France and Kleinanzeigen leading the way. Jobs were slightly positive with steady performance in Spain despite lapping tougher comparisons.Transactional revenues grew 53% year-on-year with strong revenue growth in all our core markets. Advertising revenues, on the other hand, were down 6% year-on-year as a result of an overall weaker advertising market, especially in the automated display advertising. The domain switch at Kleinanzeigen also had a negative impact due to our advertising partners needing to adjust to our new URL. As expected, we saw a slight drop in revenue over a certain time period. We fully recovered within the first weeks of the rebranding.Moving to EBITDA. Reported EBITDA at EUR 177 million was up 21% year-on-year, representing a 38% margin. This performance was driven by: the positive top line evolution as outlined earlier; lower marketing spend across the markets on the back of measured spend and different phasing, this despite the higher spend we saw in Kleinanzeigen and mobile.de; overall discipline and prioritized spend across controllable cost categories; and a EUR 2 million benefit from a one-off hosting cost credit.This positive outcome was partially offset by an anticipated controlled increase in personnel and other costs, including transactional costs. The increase in personnel costs was in 2 areas. Firstly, as we previously announced, the resources built up ahead of implementation of our new operating models for support functions and product and technology teams; and secondly, the annualization of the previous year's investment in product enhancement teams and in sales and customer support operations, particularly in the legacy eCG businesses to support business opportunities and top line growth. As also mentioned, we had a higher level of share-based compensation.Finally, the EUR 3 million expense booked in the quarter that related to French DST also impacted our profitability. Excluding this DST impact, EBITDA improved 23% to EUR 180 million compared to the second quarter of 2022.I will now provide some more detail on the different markets, beginning with France. Revenues in France grew 9% in the quarter. Online classifieds grew 8% year-on-year, driven by real estate and mobility. Real estate double-digit growth continued to benefit from the successful launch of enhanced subscription packaging in September 2022, delivering high added value for professional clients. We saw a 19% year-on-year average revenue per agent increase.Mobility revenues grew in the quarter -- growth in the quarter was due to increase in the average revenue per dealer, up 12% year-on-year following the annual price increase. Advertising revenues were down 11% compared to last year. We saw the ongoing impact of reduced activity from media agencies and programmatic. Transactional revenue, on the other hand, was up 40% year-on-year on the back of volume growth.Reported EBITDA was EUR 64 million, slightly down year-on-year. The positive top line evolution and lower marketing expenses over the period were offset by: one, a EUR 3 million charge for the DST as previously mentioned, this was not in place in Q2 last year; an increase in direct transactional costs year-on-year, importantly though, the improved delivery pricing structure, supplier mix and the introduction of new solutions had a positive impact on the margin, partially offsetting the impact of higher transactional volumes; and finally, we saw a slight increase in personnel costs due to investments in product and tech development.The reported EBITDA margin deteriorated accordingly by 4.5 percentage points year-on-year but improved by 4.3 percentage points based on the previous quarter or compared to the previous quarter. EBITDA, excluding DST, improved 4% compared to the second quarter of 2022. The EBITDA margin, excluding DST, deteriorated by 2.2 percentage points year-on-year, mainly reflecting the evolving business mix with an increased share of transactional services and a decrease in share of the highly profitable advertising revenues.Moving on to mobile. We saw revenue improve by 29% in the second quarter of 2023. Online classified revenues and value-added services increased by 33% year-on-year, once again driven by the recovery in dealer listings, the successful implementation and execution of dealer price increases of 15% on average in April with no drop in dealer satisfaction and strong upsell performance we've seen in the business. Average revenue per dealer listings increased by 14% year-on-year. Revenue from private sellers also posted a strong performance in the quarter, supported by higher C2C average price per listing and C2B average revenue per user. Advertising revenues decreased by 13% compared to the previous year as a result of the current market context and the consequential reduced levels of advertising spend by OEMs.EBITDA improved by 46% in the quarter, mainly driven by the positive top line development and operating leverage. This was partly offset by an increase in personnel costs as a result of the annualization of our investments in product enhancements and in sales and customer support operations team. Marketing expenses also increased in the quarter, driven by a marketing campaign focused on our listing offering. Accordingly, the EBITDA margin improved by 6.7 percentage points year-on-year.In our EU markets, revenue on a comparable basis increased by 11%, led by a double-digit performance at Kleinanzeigen, Benelux and Italy. Online classified revenues were up 15%, supported by double-digit growth in mobility, consumer goods and real estate. Advertising revenues were down 3% year-on-year. Transactional revenues' strong momentum continued and almost doubled compared to the same period last year. In line with the top line evolution, EBITDA improved by 13% compared to the second quarter of 2022. This performance was despite an increase in personnel expenses, particularly in Kleinanzeigen as we continue to manage and prioritize product development and sales and customer support teams in growing business models, for example, transactional services. Transactional costs also increased, driven by higher volumes and by promotional campaigns driven or to drive the adoption of the service. We saw EBITDA margin slightly improve year-on-year despite the unfavorable revenue mix.Now I'll provide more insights on some of the -- of the 4 largest markets within this segment, starting with Kleinanzeigen. Revenues grew 11% in the period and reached EUR 64 million. This was driven by significant momentum in real estate with further market share gains; consumer goods with strong performance from the small and medium businesses and in mobility. Advertising, on the other hand, was down 3%, mainly due to the rebranding and the domain switch impacting 3P revenues. As mentioned earlier, we have fully recovered from this impact. Transactional revenues continued to show strong momentum, supported by 3 shipping promotional campaigns in June to drive adoption.In Spain, revenue grew 7% in the period and reached EUR 58 million. Contributing to this was solid performance in online classifieds, up 9% year-on-year, and this benefits from price increases in all verticals, along with product innovation and strong performances in mobility and jobs. The further ramp-up, of course, of transactional revenues also contributed. Advertising revenues was down 5% year-on-year driven by the lower vibrancy, mostly due to the current environment.We saw a very positive momentum in Benelux, which was back to double-digit growth and reached EUR 43 million in the period. Revenue growth in online classifieds was supported by recovery in mobility listings and by strong performance in consumables. Transactional revenues were up more than twofold, benefiting from the recent product launches. Advertising revenues were down 2% year-on-year.In Italy, revenues grew 20%, mainly by the strong performance in mobility, real estate and consumer goods and the continued momentum of transactional services, where revenues almost doubled. Advertising revenues, strangely enough, different to the other markets, improved year-on-year. This was basically due to the higher programmatic performance and new revenue streams that contributed to this.Now let's move on to the international markets, which now only includes Canada. Canada showed a 16% year-on-year decline in revenues when you look at it at a constant parameter. Reported 16% decline is driven by the currency impact and continued contraction in the vibrancy, both for the online classifieds and advertising performance. Reported EBITDA was stable year-on-year. This reflected the top line evolution and a slight increase in personnel costs in Canada, offset by prioritized marketing spend and other cost optimization as well as the exit of noncore operations. Reported EBITDA improved by 10.8 percentage points year-on-year.In Canada, we have a short-term mitigation plan in place to address the performance, and it is really focused on driving vibrancy and sustainable revenue growth through user engagement and reactivation, implementation of price initiatives and improving some of the ways of working, especially within our P&T priorities and resource allocation.In Brazil, which is not included in our segment reporting; however, we believe it's important to continue to provide the market visibility on this asset. Revenues improved 4% year-on-year in local currency and reached EUR 41 million. This weak performance should be seen in the context of the macro environment, which is affecting our activity, particularly in real estate. EBITDA improved dramatically compared to last year, reaching EUR 23 million. This was impacted by positive development in the management long-term incentives where we reflect a EUR 9 million positive impact due to the revised trajectory of the business, a decrease in marketing expenses and lower personnel expenses, mainly due to a headcount reduction and other efficiencies without compromising operations. The EBITDA margin for the quarter was 56%, excluding a one-off impact of ESOP. The EBITDA for the period reached EUR 14 million, representing a 34% margin.Moving to Other and HQ costs, which comprises Adevinta headquarter costs, global enabling functions as well as central product and technology costs. The cost or the HQ improved by EUR 3 million compared to last year to EUR 45 million. In the quarter, we benefited from one-off credits from the hosting of EUR 2 million. During the period, we continued to build up global capability due to the implementation of the new operating model for the enabling functions and product and technology teams to drive operational efficiencies and accelerate value creation. This was more than offset by the larger share of costs allocated to our market to reflect the global team's support and work done centrally on behalf of our markets. As a percentage of revenue, Central P&T and HQ costs were down year-on-year at 10%.Moving on to items below our EBITDA. The depreciation and amortization increased by EUR 3 million in the quarter, mainly driven by the reassessment of useful lives of certain trademarks. Share of loss of joint ventures and associates in the second quarter increased by EUR 11 million compared to the same period in 2022. This was due to the improved results we see in OLX Brazil. Other expenses amounted to EUR 27 million in the second quarter with the main drivers being the integration costs, the verticalization project and the rebranding of Kleinanzeigen, which was around EUR 8 million of marketing spend.The net financial costs were down EUR 11 million year-on-year, mainly due to the exchange gain of the loan granted to (sic) [ by ] Adevinta to OLX Brazil. This is denominated in BRL.We saw strong cash flow generation of EUR 135 million in the quarter. The main material movement for EBITDA to cash this quarter is CapEx of EUR 34 million. The CapEx was essentially -- CapEx is essentially the capitalization of development costs. It represents circa 7% of our sales in this quarter when compared to our previous quarters of around 6%. This number is slightly up compared to the previous quarter, mainly due to the integration costs, example, cloud and ERP migration, the convergence project, as mentioned earlier by Antoine, and the harmonization of CapEx policy across the group.That said, we continued to deleverage the business at the end of the quarter. We have already reached our year-end target for 2023, and we intend to move towards 2x net debt to EBITDA in the medium term. In the quarter, we managed to repay an impressive EUR 120 million of debt, of which EUR 100 million was for our term loan B, USD denominated, and EUR 20 million was for the term loan B in euro. This is in accordance with our financial policy and associated leverage targets and in line with the strategy to prioritize floating debt. We will continue to focus on deleveraging and further optimize our debt structure to mitigate the impact of rising interest rates. Our continued deleveraging has improved our debt profile as evidenced by the recent credit upgrades with Fitch and Moody's.Looking now at our debt maturity profile, we also have some ways to go before the maturity of our debt as we do not have to repay debt before 2025. With this strong position and a good balance between investment and cost control, we believe we have the right ingredients to take advantage of market upswings or have the right levers to pull on the back of further deterioration in market conditions.As explained in previous quarters, we are also taking measures to mitigate for FX and interest rate exposures. Regarding interest rates, we continue to reduce our floating interest rate exposure by prioritizing floating debt when it comes to deleveraging. Our floating debt to total debt ratio is now at 30%. With this deleveraging strategy, our interest expense was roughly flat in the first quarter of the year despite rapid increases of reference rates.Regarding exchange range exposure, we hedge every material transaction, and we try to minimize the FX risk by keeping FX cash at operational minimum and by hedging our M&A proceeds where possible.In summary, this quarter was once again, we saw excellent operational delivery and performance translating into strong financial results for the group. I could not have asked for a better set of results or financial position for the company to end my tenure as CFO at Adevinta. I take this opportunity to thank our investors, analysts community, partners and other key stakeholders for your support and process of interaction during the last 4.5 years. It has been indeed a pleasure to work with all of you.With that, Antoine, I hand back to you to wrap up with the outlook and conclusion.

[Antoine Jouteau, executive]

Thanks, Uvashni. In conclusion, we have had a very strong first half for the group, delivering a good financial performance and making significant progress in the execution of our business and strategic road map. Thanks to this performance, despite the soft macro environment and consumer confidence, we are able to improve our guidance for 2023.We expect to generate double-digit revenue growth for the core market for the full year. In the second half, revenue growth will decelerate after the very strong first half and has [ relapsed ] softer comps. We expect to reach the top end of the previously announced consolidated EBITDA target range of EUR 620 million to EUR 650 million. Finally, we will continue to reduce our leverage until year end on the trajectory towards a net debt EBITDA target ratio of 2x in the medium term.Beyond 2023, we continue to see many further opportunities. Our financial ambition for the business remains strong, with annual revenue growth running between 11% and 15% until 2026, and EBITDA margin between 40% and 45% from 2026. Our priority remains to create value for our users and consumers, our people and our shareholders.I will now open the Q&A session. The rest of the Adevinta management team will join, and we are now available to answer your questions. Operator, please?

[Operator]

[Operator Instructions] The first question comes from Andrew Ross of Barclays.

[Andrew Ross, analyst]

Let me start by also thanking Uvashni and wishing you all the best going forward. I've got 2 questions, if that's okay. The first one is about used car pricing in Germany, which now seems to be coming down a bit. Maybe Ajay could talk a bit about what you're seeing in terms of used car pricing in Germany and how this might play through into dealer health and also the ARPU of mobile into '24, given I think there is an element about ARPU that is impacted by the price of the cars being advertised.Then the second question is about your plans for price increases in France. I think there's one you're looking in September and another one in January. If you could give us some comfort that the plan is to put pricing up again as normal and any numbers would be very helpful.

[Antoine Jouteau, executive]

Yes. Thank you very much. Ajay, do you want to handle the cost question, please?

[Ajay Bhatia, executive]

Yes. Thanks, Antoine, and thank you, Andrew. On pricing, Andrew, you are right, pricing is starting to come off in Germany. It's the same trend in the rest of Europe as well. And correct, it does put a bit of pressure. I think someone needs to mute, there's a bit of keyboard noise. And that puts a little bit of pressure on dealer margin. We are seeing that drop slowly, and we haven't seen a massive drop at the moment. What I can tell you is in the U.S., they've seen a 15% drop. And in the U.S., it has impacted dealer margins. So we're very conscious of that. That's part of our plans. And this is exactly why we push innovation in the business.And at a high level, I must say, this has been an incredible year in 2023 for mobile, but it was a year of correction for us. Going into 2024 and '25, we would return to more normal growth rates for mobile. So that sort of accounts for the change in dealer margins and prices, et cetera.

[Antoine Jouteau, executive]

Thank you, Ajay. Maybe you can give you some flavor on the price increase we have done in France on the motor area.

[Ajay Bhatia, executive]

Correct. And Andrew, it wasn't in September. The price change was in July in France, the first one. And the second one is in January. So the first change was marginal. It wasn't on all categories of cars. So the overall impact was low to mid single digits in terms of increase in average prices. And then the price increase in January is expected to be mid double-digit.

[Antoine Jouteau, executive]

Thank you, Ajay. In France, maybe to continue on this country, maybe Roman, you can give some flavor on real estate. I think we cannot disclose what we will do this month because we are announcing to our customers during the next date, but maybe what we have done one year ago, that is still valuable.

[Roman Campa, executive]

Sure. Happy to. Thanks, Antoine. Yes, I mean -- so usually, we follow the same price increases every year. In last year, we did a price increase in September, which was the -- for professional customers. And those price increases are typically double-digit. And that's what helps us drive the ARPA growth year-over-year. And then we also did the price increase in February, more focused towards the private. So we'll probably continue increasing prices as we've been doing in the past. We cannot comment on the specifics, as Antoine was saying, because it will be communicated over the next few days. But we'll do it business as usual to continue growing the value in the business.

[Andrew Ross, analyst]

That's helpful. If I could just follow up on the first question. Ajay I think you talked about mobile going into kind of more normal growth rates in '24 and '25. I understand there's going to be much less of a tailwind from volumes. But is that also talking about ARPU? So how should we think about the kind of ARPU increase in '24 and '25 relative to the kind of mid-teens increase we've seen in '23 in that context of maybe a weaker environment for dealers?

[Ajay Bhatia, executive]

Adam (sic) [ Andrew ], I would love to answer specifically, but the difficulty for me is we want to align to value, and we want to see those pressures that dealers face next year. We are always going to err on the side of double-digit increases. But at the same time, we have to be measured in terms of aligning value. We've just launched new packages here in Germany. And part of the reason we've launched those packages is upsells will start to get harder next year and the year after as margin pressures come in. So we want to simplify our upsells and make it easier for our sales team to sell, for example. So we're anticipating a lot of this, but it's very difficult for me to be very specific now and I want to leave the team flexibility as well in terms of aligning to value.

[Operator]

The next question is from Adam Berlin of UBS.

[Adam Berlin, analyst]

A couple of questions from me on the German property market first and then a couple of just modeling questions. Can you just talk a little bit about what your ambitions are for Kleinanzeigen in German property? How big can that business get? What do you need to do to the platform and the product offering to kind of become a market leader or challenge the market leader in Germany? And then also, can you talk a little bit about what's happening in the German property market in your view? Do you have any sense of how the transaction volumes are trending year-on-year if things getting better, getting worse? That will be really helpful to just get your view on what's happening in the German property market.And then just a couple of quick modeling questions. Can you give us guidance on the total nonoperating costs for the full year? Is there more to come, for example, in the Kleinanzeigen rebranding? And also, can you just confirm what's the reason the France margin is so strong in Q2? Was that because of a reduction in marketing spend? And does that mean that -- does that -- is that just delayed to the second half? Or is that like a permanent reduction in marketing cost in France?

[Antoine Jouteau, executive]

Thank you for your question. I think, Roman, you can give some flavor on the German property market, and then Uvashni will handle the 2 other questions.

[Roman Campa, executive]

Sure. Perfect. And thank you, Adam, for the question. So first of all, on the -- our position, our ambition, I mean, we are currently already the #2 in the market in terms of supply, and we are the clear leaders in our -- in the -- in terms of C2C supply in the market. And we have that position already in Kleinanzeigen. And together with having a global generalist platform, we'll be able to improve our product offering and try to replicate the success that we're having also in leboncoin, for example. So thanks to the attraction of Kleinanzeigen, plus the product improvements that we'll have over the next months, we'll continue growing the business in Kleinanzeigen. We've reached already the 10,000 professional customers mark. And as you've seen, that's been growing steadily over the last quarters.And we've also launched last -- at the end of the last year, new packages that are helping us migrate those customers to more real estate specific offerings. And those packages are the same, as Ajay was saying for mobility, will help us increase upsells and increase the value we also deliver to real estate customers in Kleinanzeigen. So we are on the right track to capture the value of the real estate market in Germany.In terms of market dynamics, I mean, we are growing a lot because there's still some room to grow in terms of professionals. But the overall market, as we are seeing in other places in Europe, is not going to grow in terms of number of transactions in 2023, but still will be on parity with good years before COVID. So we expect a decline about 20% versus 2021, but beyond the 2018, 2019, 2020 levels in terms of transacted volumes. We are seeing -- as Antoine was commenting at the beginning, we are seeing that there's some shift in demand from sale to rent. We are seeing our volumes or, in general, the sale volumes in the market increasing and our inventory increasing because of the lower liquidity that there's currently in the real estate market. And then the move of sale to rent is putting some pressures on prices. And we are seeing about low single-digit growth in prices in the foreign category.

[Uvashni Raman, executive]

And then in terms of the nonoperating costs, we don't give forward guidance, but what I can say to you is that on our rebranding costs, we will see some reductions going into and reducing in the second half. And therefore, the biggest spend has been thus far. And integration and verticalization will remain, but what we are seeing is now tapering off of few integration costs with the largest spending this year and then effectively tapering off into next year.

[Adam Berlin, analyst]

And just on France margins in Q2, Q-on-Q being so strong?

[Uvashni Raman, executive]

Yes. Effectively, the France margins Q-on-Q was -- what we're seeing is, we're seeing effectively positive higher growth and positive coming out of your verticals, therefore, higher contribution in terms of margins. And of course, from a marketing perspective, we do have phasing, but it doesn't necessarily mean that we are pushing up margins with that. It's just about phasing. With our marketing spend in France, you generally find your Q4 is higher when you look at some of the elements around transactional where we try to push for the Q4 season and festive season as well. But ultimately, the main elements of that was the vertical contribution, a higher margin.

[Operator]

The next question is from Christopher Johnen of HSBC.

[Christopher Johnen, analyst]

A couple of them. First, on mobile. So I've seen the details of the price increase for this October. I think you're moving around 24% higher on the new platinum package. I'm just curious, can you give us a bit of a sense of what that really entails for 2024? I mean what percentage of revenues today is coming from the old premium tier? Just to get an idea of how we -- what sort of split we have and how many people do you expect to move from the current premium tier to the new platinum tier? And then a final one on mobile. Does that sort of reshifting of the pricing tiers imply that there is going to be a change in the timing of the price increases or price increase momentum overall? That's the first sort of question.Then second one on Kleinanzeigen. The business only grew 11% in the quarter. Is there any color you can give? Is this, in your view, due to the rebranding? Is there an eBay impact and their shift in strategy? Yes. And is it possible to get any sort of view of how that's developed so far in Q3? I know you usually don't want to comment on current trading. But given we have the eBay shift in strategy, it will be interesting to see whether this was sort of temporary branding or not?And then a very final, very quick one. Antoine, I think a couple of quarters ago, you said that there was no talks with Prosus on OLX Brazil. Is that still the case?

[Antoine Jouteau, executive]

Thank you, Christopher, for your question. I think on the first one, I will handle the question about mobile. As you know, we have probably competitors and they are [ watching ] what we are doing closely, and we cannot disclose what we are doing, and we can -- it's difficult for us to disclose the commercial information for -- to be very transparent on that. What we are doing now and what we have done, we have done a 15% price increase. You are right, we have restructured completely our commercial offers. We are continuing to innovate to push our sales force to upsell our customers but unfortunately, as you can understand, it's difficult for us to disclose the movement between the different packages and how this would be for next year. But as Ajay said before, we will continue to increase our prices. We will continue to innovate. We'll continue to push our sales force to serve our customers and to increase our market share in these markets.In Kleinanzeigen, maybe, Paul, you could comment the Q2 results, the 11%.

[Paul Heimann, executive]

Yes, I could do so. Thanks, Antoine. And thanks, Christopher, for the question. So let me comment a bit on the overall quarter for Kleinanzeigen because it was quite an outstanding quarter. As you said, you touched on it already, we did have the rebranding in there. So what we've seen, and you've actually commented on that briefly, and Antoine mentioned it as well, is that we did see a smaller dip in advertising performance, and that was due to changing the URL. So the way it works is that your advertising partners basically index your page and give you certain quality ratings for the traffic that you serve. And if that comes from different URLs, you're basically being reassessed and the quality of your traffic is being reassessed. So that was an impact, which, fortunately, within the first couple of weeks, also as you've actually commented, went back to normal. So this is driven mostly by this effect in advertising that we saw and the related impression impact on advertising positions.Let me comment a bit more on the rebranding. So the rebranding went very well. So we had a couple of internal assumptions on how it would go. We are actually trending above where we thought we would be in terms of overall rebranding performance. Antoine commented on the strength of the new domain, which is already the sixth most visible SEO picture in Kleinanzeigen in Germany. We have also sort of kept our traffic metrics where we want them to be. So the rebranding, not only in numbers perspective but also from -- in terms of customer and market reaction and feedback, is going really well.The 11% growth is not impacted by eBay. So we do obviously monitor very closely eBay's proposition change in their strategy, but we haven't so far seen any major impact on us or growth rates, our traffic, demand or supply. That said, we are, of course, cautiously monitoring every move, and we are also always ready to react if we need to.

[Antoine Jouteau, executive]

Thank you, Paul. And on your question, Christopher, on Brazil. As you noted, the last 12 months, we have done a few changes in the way we were managing the assets and in the business side. We have a very strong and good relationship with Prosus. We have a new CEO in Brazil. Our goal is -- we think that this country has a potential. We said that mainly on real estate, even if the context is tough at this moment. And on the car market, we think also that the generalist has potential to grow on the transactional part. So there is no specific discussion with Prosus except the fact that we want to grow and we want to come back to more growth that we think that the potential of this asset should be.

[Operator]

The next question is from Lisa Yang of Goldman Sachs.

[Lisa Yang, analyst]

Best of luck, Uvashni. It was a pleasure working with you. The first question, I think, in general, is on the second half and the full year. Obviously, you have raised your guidance on top line and EBITDA at this point, you still mentioned some moving parts just around advertising. So just wondering what gives you the confidence to raise the guidance today? And what are you assuming in terms of how advertising will develop in the second half? And in general for the overall top line for core markets, do you still expect basically Q3, Q4 to be up double-digit or maybe low double-digit? That's the first question.Secondly, on marketing, I understand, Q2 probably seasonally lower in some markets on marketing. Could you comment on how do you expect that to develop into H2? If you can quantify the level of the amount of phasing in Q2 would be helpful. And what are the areas of priority for the second half in terms of how you want to spend on marketing?And the third question is on the synergy targets, which you have reiterated, but I understand you don't report a separate line for synergy. But where do we actually see the synergies being more obvious, like which line do you expect, I think, the synergies to contribute the most over the rest of the year and into 2024 as well?

[Antoine Jouteau, executive]

Thank you for your question. I think as you noticed, we have delivered pretty good Q1 and a strong Q2. It's why we think that improving the guidance is a natural thing for this year. We think that we have a strong top line growth for this year, probably a lower growth for the second half of the year. But we are delivering on motors. We are growing on real estate. We are doing very well on the transaction part. So we -- I think on these lines, we are confident on that. We are more cautious on the advertising part. As you noticed, during Q1 and Q2, it was the line that was suffering a little bit depending on the country. But globally, it's a more volatile business than the others. And I think it's why we have raised our guidance for the top line and also on the EBITDA. I think we are still continuing to do our financial discipline, but also we have some seasonality depending on the quarter. We have more transactions, more advertising during the Q4 before the Christmas period. So I think we are reasonably positive. It's why we say that at the top end of the range, EUR 650 million. And we are, at this moment, confident to reach this trajectory.Maybe on the Q2, Uvashni, you can comment on the question on the marketing and how will be the outlook for the H2 and where...

[Uvashni Raman, executive]

Yes. So in terms of marketing, as we rightly point out, we've been super cautious on when and how we spend it and spending it in areas where we believe we're really pushing in terms of top line. We will continue to be cautious, but we will spend marketing where we believe that it is actually going to drive our top line or it is going to protect us in the markets that we are, based on competitor positioning, et cetera. We don't anticipate, though, it accelerating over and above where we are in H1, but we do expect that, at some point in time, especially in Q4, because we do have a higher marketing spend seasonality in Q4, et cetera, that we will increase it. But we'll continue to be super cautious, Lisa, but we've provided a guidance, and we provided the up end of the range because we have confidence that where we see the position of the business, where we've seen the pricing increase are, we will be able to deliver on those outcomes.

[Antoine Jouteau, executive]

Is it answering to your question, Lisa?

[Lisa Yang, analyst]

On the synergies, I'm just wondering which...

[Uvashni Raman, executive]

Yes, on synergies, we have them embedded. As we said previously, our targets include our synergy targets embedded within that. It's really in some of our cost lines when it comes to some of the way we -- and how we spend marketing is also embedded within that. So although we may be seeing reduced marketing spend, we're actually getting high efficiencies out of our marketing based on some of the synergy and concentration of some contracting in some of our pricing, that you have some too. We are still effectively putting in our operating models, and we are seeing some of that efficiency coming through where we're centralizing some costs. We're doing that with lower number of the people and then reallocating those costs at a much lower rate back into the market. So some of the margin improvements you see in our markets on the cost line actually are coming from the synergy deliveries.So that's where you'll see some of that. And of course, the acceleration of some of the revenue lines as well in transactional as we take some of the learnings, some of the product development that we've already seen in the likes of France, et cetera, pushing that into our other markets as well. There's more to come as we further enhance our product and tech delivery and structuring around product and tech. So Lisa, you'll see it in cost lines, you'll see some in your revenue lines, but overall, embedded within the targets that we have at this point in time.

[Operator]

The next question is from Pete Kujala of Morgan Stanley.

[Pete-Veikko Kujala, analyst]

It's Pete from Morgan Stanley. The first on mobile, there was one question already on the package structure, and I understand you are kind of not giving too much details. But can you say that does this new structure -- does it have the car price component in it as the current pricing does? Or have you taken it out? That's the first question. I'll ask the others after that.

[Antoine Jouteau, executive]

Maybe, Ajay, you can answer to this one.

[Ajay Bhatia, executive]

Yes. Pete, I just want to clarify the question. Do you mean in terms of do we charge higher prices for higher-priced cars, value factor? That's the first question?

[Pete-Veikko Kujala, analyst]

Yes, the value factor. Is it still included in the new package structure?

[Ajay Bhatia, executive]

So we haven't got rid of value factor. Value factor is still there. The thing about packages is simply simplifying the ability for our sales team to do upsells with our customers. Unlike some recent reports, actually not a price rise. And we're not pushing it in 2023. We're testing in 2023. And then 2024 is when we actually start selling these packages. But value factor remains.

[Pete-Veikko Kujala, analyst]

All right. And can you give some commentary on like what are the key features that dealers want when they are considering an upgrade? So in the current package structure, like, what are the features that drive people to upgrade to the currently the highest, which is premium?

[Ajay Bhatia, executive]

Yes. I mean at the end of the day, the most important thing for dealers is visibility. And what we've done in 2023 and even previously, we've concentrated a lot on making sure that with every package, visibility for the dealer increases, therefore, value decreases. And we've been very, very careful about ensuring that there are differences between each level of package. So it's linked to value for the dealer.

[Pete-Veikko Kujala, analyst]

All right. I have 2 more. The second or the third one is on leboncoin, the transactional revenues and the EBITDA from those. Looking at 2024, should we expect leboncoin to break into positive EBITDA on the transactional revenues? I know you already were a positive EBITDA in Q4 last year, but I'm talking on a more sustainable level into positive EBITDA. And do you still have the -- I think it was roughly 20% margin target by 2025 for transactional revenues. Is that still valid?And then lastly, on buybacks, what do you think about buybacks? Are you -- because you're looking to reduce leverage now to 2x EBITDA in the medium term. But with cash, after that deleveraging, what are you going to do with cash after that? Is the main focus on organic investment? Or do you think there is room for buybacks in 2024 or 2025?

[Antoine Jouteau, executive]

Thank you for your question. I think maybe, Paul, you can start by giving some flavor on the transactional business in leboncoin. And I will comment the financial part, if you want.

[Paul Heimann, executive]

Yes, happy to do that. So let me talk a bit about the profitability of transactions. So what we've seen is transactions is growing across all of the markets in France, obviously, as well. The profitability that you're alluding to is highly dependent on a few things. One of the key drivers is our promotional activity. So promotions are a very strong tool for us to drive the adoption, but they also reduce profitability. So it's sort of a fine grain balance that we're striking there. Then obviously, there is a few pieces that we are working on to increase the profitability of transactions, not just in leboncoin, but across the group.So there is a few, namely on the product side, which are bundles, for example, multi-item purchase, shopping card, wallet. All those are features that help us change the profitability footprint of transactions. Then another piece that we look into is the automation of customer support. That's a big driver, so simplifying the processes that are related to transactions and automating them to a higher degree. And then obviously, we are always in close contact with our payment and shipping partners to sort of negotiate and find the most effective and efficient way to collaborate.So we are on our path in terms of increasing the profitability, but it's also something that's going to take a while in terms of our sort of long-term goal that you mentioned, we haven't changed that. So we believe in sort of our long-term goal.

[Antoine Jouteau, executive]

Thank you, Paul. On your question on your -- on the buyback, it's difficult for us to comment to that. We said during the last quarter, again this quarter that we continue to deleverage. This is our top priority at this moment. But in the future, we'll assess all the opportunities to increase the solidity of this company and to be sure that we'll continue to improve our financial KPIs, but honestly, at this moment, focus on deleveraging, and that's the top priority for us.

[Uvashni Raman, executive]

If I may add, Antoine, it doesn't preclude us from looking at share buybacks at a later stage. I mean, ultimately, we want to deliver value to the shareholders in the best possible way, of course. If they are -- if liquidity improves and also the fact that there may not be other value-accretive opportunities, for sure, one of the options will be on buybacks. But in the shorter term, I think it still makes sense for us to delever, considering the rising interest rates and also considering where we -- the amount of savings we've had to date. Just to give you an idea, on a year-to-date basis, we've already saved about EUR 10 million of -- in interest costs just by the paydown of some of the debt we've done this year. I think it's been circa EUR 30 million from the time we started to pay down debt. So it makes absolute sense increasing value and EPS as well.

[Pete-Veikko Kujala, analyst]

Uvashni, all the best going forward.

[Uvashni Raman, executive]

Thank you.

[Operator]

The next question is from Marcus Diebel of JPMorgan.

[Marcus Diebel, analyst]

Many questions have been asked already. Just one for Ajay. Obviously, a lot of discussion on pricing, and I understand you don't comment too much. But just -- I think we just want to understand what do you think are sensible levels for the slowdown in growth? Obviously, the slowdown we can all expect. But on the flip side, I mean, the EUR 25 that you disclosed for the listing is obviously just a fraction of car dealer gross margins. So could you maybe tell us a little bit more what you think the share of listing fees is actually the share in gross margin? Is it EUR 25 to about EUR 1,000, is that about right? Or how do you actually see the share in the gross profit? Just to get an understanding how much you can really increase pricing from here.

[Ajay Bhatia, executive]

Marcus, thank you. It's a good question. And I mean there are several factors involved in understanding gross margin. The number that you talk about can't be taking a nice [ sedation ] because there is a time to sell. So you've got to take that number and then work out how much time is it taking to sell a particular car. And the time to sell is different in the premium segment versus the lower segment. So that's one factor. The other factor is our market share because dealers are not just paying us. They're also paying others as well. So there's a combination of all of that.But even when I consider all of that, I clearly believe in the mobile opportunity. There is clearly room for further growth, and that's the reason I'm hearing this because I see that opportunity. So by international standards, we are still one of the lower monetized assets around the world and that room remains. But we've just got to be cautious around the economic circumstances that are coming next year, and that's where we'll measure it and we'll link it to value, but that long-term opportunity absolutely exists.

[Operator]

The next question is from Markus Heiberg of SEB.

[Markus Heiberg, analyst]

I have 2. So just following up on mobile and looking more on the listing volumes because last quarter, we were waiting for used car transactions to pick up in Germany and what we've seen over the past few months is that they have actually picked up. And how do you see that impacting H2 volumes on mobile? And also more broadly, what's the sort of normalized level of listings on mobile from where we are today? That's the first question.And then secondly, following up on the synergies. Of course, we're seeing personnel costs increasing, but we're seeing that being offset by synergies. How should we think about 2024 versus 2023, just looking at OpEx, excluding transactional costs, et cetera? What is sort of your expectation for the cost base in '24 versus '23? Those are my questions.

[Antoine Jouteau, executive]

Ajay, do you want to handle the first one and maybe, Uvashni, the second one?

[Ajay Bhatia, executive]

Yes. Thanks, Antoine. And yes, thanks, Markus. On volumes, we've seen a decent increase as you've seen in our results. We have actually continued to see a slight increase since then as well. So Q3 is slightly up on even the numbers that you've seen on Q2. But we are now starting to see a more flattening trend. So from here onwards, I expect Q4 to be more flat on Q3 in terms of volumes and 2024 to be flattish as well. And that's probably a good way to think about volumes.

[Markus Heiberg, analyst]

All right. So you don't see there any -- so the level we're seeing in volumes now is the normalized listing volumes for mobile, you think?

[Ajay Bhatia, executive]

Well, there's a little bit of upside coming in Q3, and then we're seeing a more of a flattening from there on.

[Uvashni Raman, executive]

In terms of a cost base for 2024, we do not provide forward-looking guidance. But remember, we have provided a mid- to long-term guidance on our margin profile. And ultimately, our synergy is embedded within that. So -- and we will be looking to progressively improve our margins relative to that guidance. So that's how I would look at it at this stage.

[Operator]

The next question is from Adrien de Saint Hilaire of Bank of America.

[Adrien de Saint Hilaire, analyst]

I just had one question, Antoine, if that's okay. You kind of touched on that. Advertising revenues have -- or the growth has slowed down between Q1 and Q2. Where does it go from here? And if you could perhaps [ discriminate ] this between France and Germany?

[Antoine Jouteau, executive]

Yes. I think what we said -- yes, you're right, that revenue are suffering. As you know, it's the most volatile market we have. And the reason is that we don't have yearly deals or just a few, and we are slightly more dependent on the OEM spending. The trend now is that Germany is doing better than France. France is suffering more. And the reason is more that the French market is suffering on the classic display ad. Also, the inventory is switching more on mobile than in the past, which is good because it means that the marketplace and the usage is very good, but we have less formats on the mobile than on the desktop. The reason it's why the inventory is going down slightly. So it's why also our strategy is to better control the way we are selling advertising. It's why we are switching from 3P to 1P. So we want to control directly the commercialization, the sale of our inventory. We want to develop the retail media offer. We want to optimize our prices and the way we are yielding our inventory. So really, we are focused on that. That's the situation.But as you noticed, the German market is reacting better than the French market that is suffering slightly more. But in France, the part of the advertising business is lower than in Germany, right? In leboncoin, the advertising part of the revenue is below 15%, which is not the case in Germany.

[Adrien de Saint Hilaire, analyst]

Great. And in terms of the second half outlook? So are you assuming that second half is similar to Q2? Or what's the underlying assumption here?

[Antoine Jouteau, executive]

I would say it will depend on the macro context and how the inflation will be contained or not and how the consumers will react during the end of the year. But the advertising market, I think is going pretty okay for the [indiscernible] and pretty okay for the video format and the retail media, but most of our inventory that we are seeing is more on the classic display. So we are cautious on this market still. We are not expecting any rebound or any recovery. It's why we are thinking that we need to restructure this business in the future. It will take some time. And this is a market we try -- this is a market line we try to contain.

[Operator]

The next question is from Martin Marandon of ODDO.

[Martin Marandon-Carlhian, analyst]

I have 2, actually. My first is on Canada. When could we expect the growth recovery in Canada? And is it fair to expect another flat performance to be put in 2024? And also, is there any fundamental reason to think that the assets will continue to grow significantly less than the rest of the group going forward? That's my first question.And my second question actually is on the leboncoin wallet initiative. I was wondering if you could maybe give a little more detail on that. What are the main takeaways since you launching the project? Is it helping transaction volume? Do you have any ideas of further monetization? And do you have any plans to iterate similar projects to other platforms?

[Antoine Jouteau, executive]

Thank you for your question. I will take the first one on Canada. As you know, the Canada asset had faced some issues during the last quarters, last year. That's an asset that we want to revitalize. We are doing some changes there. And I think it will take some time. So we are not expecting any recovery on this asset during the next quarters.Regarding your question of selling the assets, we have done a strategic review last year. We have stopped this strategic review. So now what we try to do is to stabilize this asset, revitalize this asset that have some opportunities in the Canadian market. And we will think later what we will do. But so far, the focus is really executing, focus on the operation and to try to revitalize this asset.On leboncoin assets, Paul, do you want to handle this question about...

[Paul Heimann, executive]

Yes, sure, of course. Thanks, Martin, for the question. So let me just give you a bit more color on our wallet. So the wallet is a very powerful tool, sort of in the toolbox of transactions for mostly 2 reasons. First of all, it's a strong driver for loyalty. So customers that use the wallet, they retain their funds within the platform. And that's something that helps us to sort of strengthen the overall ecosystem, and it also helps us with trust and the brand perception of users. On the other hand, wallet is also something, and I mentioned it already in the context of transactional profitability, so the wallet helps us to lower the transactional costs that are associated to each and every transaction that we facilitate. So it's good for us, and it's good for our users. We have seen the adoption in France since the launch continuously grow. So a lot of users actually make use of the wallet day-to-day.And to your question on whether we plan to scale this in further markets, yes. So we are absolutely looking at that and we're in the process of planning to roll it out in further of the European markets.

[Operator]

The next question is from Catherine O'Neill of Citi.

[Catherine O'Neill, analyst]

I just got 1 question. I wanted to ask if you could provide a bit more detail on the convergence of the generalist platforms in terms of the implications there, what you're doing and what kind of [ legacy ] cost there is that we should think about in terms of efficiencies?

[Antoine Jouteau, executive]

Thank you for your question. I think what we said during the last month is that we want to simplify the way we are operating our tech, I would say, generally. It's why we decided to start by leboncoin and Kleinanzeigen to join and to build together one single platform. The idea behind is to grab some opportunities, right, is to be focused on delivering better products for our users, especially on the transaction side and for our professional customers on real estate and motors and combining it, and we will be able to deliver more value for them.And regarding your question, I think it's too early stage, but our focus now is more to gather the team. And when we will have completed this merge, then we will be able to optimize our [indiscernible] to dedicate teams to further opportunities, right? So that's the thing that we didn't decide, but probably we'll do both. But the focus now is really to gather the 2 teams to be sure that we'll have a better product in all of our generalists in the next quarter of next years.

[Catherine O'Neill, analyst]

Okay. And what kind of time frame in terms of how long does this take before you have more idea about the sort of efficiency around that?

[Antoine Jouteau, executive]

Yes. I understand your impatience. I'm quite impatient as well, but my experience on the tech world is that it's very difficult to plan when it will be delivered. We are already working on this convergence. And in parallel, we are continuing to deliver [indiscernible] customers. We are not talking what we are doing. On the contrary, it will be a positive rollout, but it's very difficult to -- for us to guide on the planning. When we know, of course, we will communicate. But I think it's too early stage at this moment.

[Catherine O'Neill, analyst]

Good luck, Uvashni, with your next steps.

[Uvashni Raman, executive]

Thanks, Catherine.

[Operator]

The next question is from William Packer of BNP Paribas Exane.

[William Packer, analyst]

Apologies for the connection cuts in and out. So firstly, just to come back on the exceptional marketing costs, it sounds like the message is less than EUR 10 million for H2 '23 and thereafter, no more.Secondly, could we just talk through the drivers of some of the ad weakness we've seen? To what extent is it cyclical, the structural backdrop of the ad market? Or are you tailoring your customer experiences away from advertising towards a more transactional focus? Or any color there would be helpful.And then just lastly, to come back on Ajay's point around the inventory outlook. If I look at where inventory for mobile is today, it's a double-digit percentage below where it was pre-COVID. Could you just kind of explain to us why it shouldn't return to that level? Is it that gross margins being that dealers need fewer cars? Just any kind of explanation would be helpful.

[Antoine Jouteau, executive]

Yes. Just you take the gross margin question?

[Uvashni Raman, executive]

Yes. Just in terms -- Will, you're referring to the rebranding costs, exceptional, correct?

[William Packer, analyst]

Yes, that's correct, yes.

[Uvashni Raman, executive]

Yes. Certainly, the rebranding cost will certainly be lower in the second half than the first half because this quarter was the highest spend level that we would have expected. It will be tapering off in Q2 -- in Q3 and Q4. So it's certainly lower.

[Antoine Jouteau, executive]

On the advertising trend, if I understand correctly your question, Will, I think that this market is more volatile than any other market in our portfolio. What we are doing now is that we try to contain this advertising business in some of our assets, like in France, for example, but also in the other markets. We want to accelerate and to be more e-commerce style than dependent on the advertising. And on the advertising side, what we want to do is to switch from 3P to 1P. It means that we want to be less dependent from external partner and controlling ourselves the commercialization of our advertising. It means that the link is strong between the advertising business and the transaction business, because in the future, as we will increase more and more our production business, we will plug on that some retail media offer because the link is strong. And we know that that's the best practice.We have benchmarked with most of the biggest e-commerce giants in the world that they sell themselves, their advertising. They are pushing retail media offer in their own listings. This is what we have started to do. And I think that would be not short term, as you know, because it's -- you need some investment in terms of product and tech, but we'll use the current resources we have, but that's the right thing to do. So switch from 3P to 1P, acceleration of the retail media development and controlling our pricing on that to continue to [Technical Difficulty] our inventory in France, in Germany and across the portfolio.And for the third, maybe Ajay, you can give some color on the goals.

[Ajay Bhatia, executive]

Yes. Thanks, Antoine, and thanks, Will, for the question. So a couple of things, Will. One of the things we are predicting and we're seeing in our analysis is longer term, we will see a lower volume than pre-COVID levels even by 2025, '26. And there's a few reasons for that. But one of the reasons is the change in habits as well. Over the time of the supply crisis, a lot of habits have changed for consumers in terms of not owning 2 cars, in some cases, owning 1 car. So we see a reduction, coupled with some take-up in subscription, for example, in Germany, that 6% take-up in subscription. And those kind of factors are limiting the longer-term full recovery of -- to pre-COVID levels. But there is still recovery to be had. And we still predict recovery in '25 and '26.The reason we are cautious on '24 is the new car orders that you've been seeing probably have been hitting it out of the park, 20% up in most of Europe. But what you're seeing is a backlog of deliveries coming through at this point. We've done a lot of talking to our dealers in Germany, in France, in Spain, in many places and the universal [ theme is ] the new orders coming through right now are very, very low, in most cases, negative 20%. So I expect new cars to drop quite a bit in the next 6 months in terms of the number that's reported. That has been a downstream impact. So for example, you can imagine the number of 1-year-old cars in 2024 will be less because number of new cars will go down by 20% this year. And this is the mix that's making us more cautious. There was a lot of fleet conversions in 2023 as well. And those fleet conversions are not going to be happening at the same rate in 2024.

[William Packer, analyst]

I thought the flip side would be that it should be a good environment for pricing at least for the dealers.

[Ajay Bhatia, executive]

Pricing-wise, we're seeing moderate declines here compared to the U.S. So it's still a reasonable environment.

[Operator]

Next question is from Silvia Cuneo of Deutsche Bank.

[Silvia Cuneo, analyst]

I have 3 questions still. First on the growth guidance. Could you help us put together the message on the growth outlook for the core market in 2023 since in Q1 and Q2, you delivered 15% and 14% growth? And you mentioned an expected slowdown in H2. Does it mean for the full year, you might end up somewhere around 13% growth? Just trying to understand the magnitude of the upgrade from the low double-digit guidance that you had previously.And then second question on the shape of the portfolio. Obviously, you are now focusing on integration and vying organic growth in the core markets and efficiencies with the verticalization strategy. But if you could think of a particular vertical or country where you would like to expand potentially inorganically, what would those be?And then a final question, if I may, on the traffic trends and what you think they mean for the consumer confidence in your markets more broadly. The trends were positive in all of your platforms despite the soft macro? And do you expect that to continue to be the case in H2? Just wondering whether you think this traffic would convert more or less to inquiries and transactions.

[Antoine Jouteau, executive]

Yes. I will handle the first one. I think what I said that we have done in H1, to be honest with you, better than expected, thanks to mobile's performance, and that was very good, and it was boosted at the same time that the performance in terms of prices -- boosted by the price increase that we had done last year, plus the recovery on the car listing in H1. So regarding the H2 revenue growth, I think what we think is that maybe the comparison will be stronger in H2, especially in mobile. And -- but as you know, we have some seasonality on this market, and we have some seasonality on advertising, on transactions. So it's why we think that, on this market, we could have some adjustments, and we are always cautious on the consumer confidence for the rest of the year.Mobility in France, for example, the current lack of orders registered by dealers is softer. But really, we are overall positive for the full year. It's why we say that we'll not be a low double-digit. I don't know if we will be close to what you said, but we said it will be not low double-digit. We don't have visibility on the advertising market, that could change a little bit the trend, but we are comfortable for the rest of the year at this moment, right? This is what I said, what I think for the next 2 quarters.Regarding your question on the portfolio, this is -- as you've noticed, we are very focused now on the EU side, Canada. We want to be good on this market. We have plenty of opportunities. And I would say that even more focused in Germany and in France. We have started a big transformation, a big tech transformation in parallel that we are continuing to deliver a lot of added value for our customers and clients. We don't have any geolocational target, new country in our mind at this moment. Of course, if we have opportunities, we will have a look on it, but that's not the priority.And regarding your last question on the traffic trend, you're right. We have a positive momentum at this moment. That's the result of the last months of investment in our product, that is improving a lot, especially on the 2 verticals, real estate, motors but also on the transaction. So that's very positive. We think that we will continue to have a good growth on that. And the reason is that with the context of different platforms, our different brands are very helpful for the consumers to do some of the good deals and to find the right product for them. So I think it's an opportunity at least that's for us to continue to grow. And what we notice is everywhere our brands are improving because our marketplaces are more and more efficient and closer to the consumer expectation, right? So that's why we are positive on that, and we are optimistic for the rest of the year.

[Operator]

Mr. Jouteau, there are no more questions. Back to you for any closing remarks, sir.

[Antoine Jouteau, executive]

Yes. First, I would like to thank you again for the comments and good questions today and looking forward to see you soon. Thank you very much.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.