Adevinta ASA

OSE:ADE

Earnings Call Transcript 2019-Q3

[Rolv Erik Ryssdal, Chief Executive Officer]

All right. Then I think we're ready to start. Good morning to everyone. Warm welcome to the quarterly presentation for -- from Adevinta. And you'll see here, in addition to myself and Uvashni, today we'll -- we have the pleasure of having Antoine here. He's running our French operation. So there's a lot of things going on in France. So we thought it was worthwhile for him to come and comment on that. So that will lead to the -- I will keep my part of the presentations on the charts here so we got to spend some more time on France. Well, I think you've all seen the headlines from us. And we deliver a solid quarter where we continue to have good growth in our core business, that's the vertical businesses. So you can see, France is up 15%, Spain up 18%, Brazil around approximately 30% and we're very happy to see that we continue to deliver in the verticals in the important countries. Then you can see also the total revenues is up at EUR 15 million (sic) [ 15% ]. There has been some improvement in the advertisement despite that the market is relatively weak still. And as Uvashni will explain to you, EBITDA is going up, and we'll go through how that is configured and also the stronger cash flow. Right. The headlines for France is that we're delivering a strong quarter in France. And the core revenues are up. I say especially then we're doing well both in real estate and in cars. And we're continuing to deliver on product development. We also have an interesting new acquisition, L'Argus that we've announced earlier on that Antoine will go more into. And I would say that we're also happy to see that the product development continues. So we have a positive traffic development, and we're doing more on transactional goods and the launch there has been successful. That's also leading to a positive and a good margin in France. In Spain, I would say that we're also doing well in the verticals. So I think cars and jobs are performing particularly well. Cars continue to benefit from our product development. And I would say that, overall, we're doing a lot of product development in Spain, a lot of those smaller things that you might not think of. But we're introducing alerts, notifications, we're fixing the apps. We're improving many small things like ad insertion. All these are kind of important oil in the machinery to continue to have a strong traffic trend. I said that the -- that we're happy with what we're seeing in the verticals, especially then cars and jobs. In real estate, we're more dependent on the macro. So although we're going up in the real estate, the total real estate market in France is more flattish. So I think the number of transactions this year is about the same level or a little bit lower than last year, whereas last year it was up. And so -- and the macro development in France -- in Spain is such that it has been adjusted a bit downward, the expectations. And we're also curious to see then about the election that will take place soon. I think once that is done with, it will be more clear, clarity for all parties. Right. In Brazil, we continue to grow. Here, as you are aware, we have 2 companies in Brazil. Of course, the joint venture we have in OLX is the biggest, and then we control 75% of the InfoJobs. And you can see that the combined growth is 24% in local currency. OLX is then up 26%. And then, as I mentioned previously, cars and real estate is growing faster than that, a bit more than 30%. And then advertising, while it's up, but we're still not happy with that. So we still have some issues to resolve in the advertisement, and they're working on that and that is also the same things that's mainly developing, new formats and facilitating better ad insertions. Then I think we're -- also in Brazil, I know the team is busy working on value-added services, so helping people get financing from the things that are -- for the things they purchase. That is, of course, also beneficial for us if we can sell good financing leads to financial institutions. So we're happy about the top line. We've said previously that the margin will vary from quarter-to-quarter. And in this period, we've seen quite heavy marketing investment, which we believe is beneficial for the company and for their continued growth. So that will vary from quarter-to-quarter, but, of course, the trend on the top line and also the long-term trend on the margin is positive. Global Markets. This is the continuation of the development you've seen so far this year. We're not too happy about the top line development here. But these markets have also been hit by the display ad markets, but I'll go a little bit more into it soon. And then you will see that -- from the EBITDA that the combined financials is continuing in the same direction. This is, of course, because the investment phase losses have been significantly reduced, as previously advised. So some highlights from the global markets. Here, you can see that Italy is really making a big push into the motor segment and that's where we're developing a lot of our resources. And I think we're starting to see now good results from that. So high growth really for the motor segment. And we've developed a separate platform or a separate vertical called Subito Motori. And I think that verticalized experience is something that we received positive feedback on. Italy would have done better if it had not been for that display advertisement, but the direction Italy is going is the right one. And just yesterday, we announced a new General Manager in Italy. His name is Giuseppe Pasceri. He's coming from us internally. He's been working -- he's been responsible for product and tech in Italy in the last couple of years. Before that, he's also worked with other leading classifieds players in the region. And then comes to Willhaben. I think Willhaben is a very solid company and they continue to develop their verticals and are -- have a steady course. And they are also doing a number of large developments that you can see here. And what we're seeing here is that the lead generation is improving steadily in the verticals, which is good. Here again, it's the real estate and motors were the most important. And then they're also now looking into what we can achieve in the job market. Ireland, also real estate and cars. The engagement scores are going up, and we're curious to see how the macro will continue to develop in Ireland. We believe that our real estate sites, in particular, is well situated to take part of further upturn. Hungary, what we're doing there is that we have Jofogas, the big journalist, and we have Hasznaltauto, which is the leading car specialist, and we're now combining the offers and doing bundle for car dealers. We have very good experience of doing that in other countries. That is also now taking place, seems to be very well received. Finally then, a few words on Shpock. Well, we're very happy that although we turned down the marketing and we did kind of turnaround operation of the company, the user retention in the U.K. market seems to be good. So what we're working on now, as we've talked about earlier, is to have a transactional strategy and we're constantly doing product improvements. And so I think that the next year will be a very exciting one for Shpock. Right. I think that I'll actually end it there and hand over to Uvashni to go through the main financials.

[Uvashni Raman, Chief Financial Officer]

Thanks, Rolv Erik. Rolv Erik has covered quite a bit on -- in terms of the financials for the quarter. But just to reiterate, a solid performance across, from revenue to EBITDA. What we are seeing is, as our vertical growth really increases and cost elements start to decrease, we'll really be seeing operating margin really come through on that front. On the EBITDA front, yes, reduction in investment losses is contributing, and we believe that trend will continue. One of the areas that is emerging is our cash flow generation -- continuing to look at our cash flow generation to fulfill for the investment. So we're really looking on a positive trend. I think what we are really, really happy about is the vertical trends, 16% vertical growth versus -- yes, advertising is increasing, still muted, but we'd like to see that escalate. But what we do are happy about is some of the initiatives the teams have put in from the first quarter to -- starting to reap benefits. In terms of our revenue mix, our classifieds is our core revenue generator, 71% in Q3 last year versus 73% and continuing to grow, which is a strong indicator of our revenue generation going forward. Just to show you where the revenue is coming from. Again, the core markets contributing quite a bit, France, Spain, Brazil. And of course, the Global Markets, in this case, with the losses reducing, really starting to drive revenue. On the EBITDA, again, Global Markets, France, you can see start to see bringing that EBITDA performance and Spain, of course, with the operating leverage. In terms of the headquarters and others, we are happy with the projection (sic) [ progression]. We believe that it's on track to what we had anticipated, with slightly higher costs this year because of the transition cost that we had with our IPO from Schibsted. On the digital tax in France, a great topic. I mean, for us, we've continued to assess whether our total revenues which include Schibsted is above the EUR 750 million mark. We believe, based on our assessment, there are certain services that should not be within that EUR 750 million threshold. And therefore, for this quarter, we haven't raised any provision as yet because we do believe that certain services push us below that threshold. The French management team and ourselves at the corporate level are continuing to engage with the French authorities and tax authorities to truly understand where we are going and our interpretation versus theirs. And we're hoping for a positive outcome. Of course, we do understand that because we are -- there's still some conversations to be had, we have put out that we don't anticipate, if anything adverse happens, to be above the EUR 9 million impact on EBITDA for this digital tax on Adevinta. So all in all, a solid performance from a financial perspective. We anticipate some further improvement within the revenue line. However, it has been tough in some of our markets from a macroeconomic perspective. And advertising continues to worry, although we are seeing positive trends. I now hand over to Antoine, who -- sorry, Rolv Erik are you going to do the outlook first? Yes, for sure. Okay.

[Rolv Erik Ryssdal, Chief Executive Officer]

Thanks, Uvashni. I think no big news here in the outlook for you. This is mainly the same thing that we showed you last time. So although there could be macroeconomic uncertainty in some countries, the important thing for us is to continue to deliver on our strategy and that is to continue our growth organically and inorganically, and especially then develop our leading positions in the verticals. We're saying that we're looking for -- to continue our growth target, 15% to 20%. I've said all the time that 20% is, of course, is a stretch, and it will -- could vary from quarter-to-quarter, but it's important. It has been our long-term ambition. And well, verticals are extremely important for us. Then we think we can do a number of things also to improve our advertising revenues. And importantly, it is very important for us to continue to invest in product and technology. And we're focusing more on that than squeezing margins because we think our long-term differentiating factor will be if we're able to develop the good and long-term products. That means that we'll continue to invest both centrally and also locally. Right. Now I think that we're ready for the most interesting part of today's presentation and that is a deep dive in France. And I think perhaps you're going to start by entertaining us with a short movie, Antoine, is that right?

[Antoine Jouteau, CEO]

I will start by a nice video. I hope you will like it. [Presentation]

[Antoine Jouteau, CEO]

As always, we need to have an English leboncoin. I will have a French accent during this presentation, a nice accent. So some highlights for leboncoin today. As you know, we are building trusted marketplaces. This is our job. We are -- product and tech companies. We are building our efficiency. We want to provide the best experience for sellers and buyers. This is what we are. Of course, at the same time, we are business -- a strong business company developing strong results, and we are working a lot on our verticals, mainly on real estate and on the car market where we will see -- I'll disclose some well expected figures on each market. Third, most of the marketplaces in the world, we are switching our consumer goods business model onto transactional business model. This is promising, and I will come back to it with some more details. As I said before, we are continuing to invest a lot on the future of leboncoin in France. We are building strong product and data stack. And we'll continue to develop and to invest on this line to sustain the growth of the company for the future. And lastly, even if we had the tough beginning of the year on the advertising market, we are coming back to growth, and I will try to explain our ambition on this market, which is a big market and interesting market for us. To come back on a few trends on the French market. As you know, we have some important trend for the French people. First, as you know, the French people, they love to consume locally. They want the "Made in France," very important. So this is a strong trend, and people they want authenticity, they want local production. And this is something we have to be careful because the social context, as you remember, at the beginning of this year was tough, and it has impacted a lot the advertising market. Secondly, sustainable consumption is improving a lot and is increasing a lot, and it's impacting a lot the consumer goods part. People, they want to buy used goods because they want to protect their environment. And this is something that is sustainable, and we believe that it will impact positively leboncoin in the future. And the last thing is the collaborative consumption will impact all the different markets, all the different categories in a positive way. So on this market, what we have done in the last 13 years, I've been the CEO of leboncoin since 2015, we are building a very strong digital player. And now we are not only one brand. There's leboncoin, of course, top 5 in terms of audience in France, but we have also other brands because we are verticalizing a lot our experience. We bought Avendrealouer, which is a real estate portal; Locasun, which is a holiday rental portal; PayCar, which is a peer-to-peer solution for the car market; Agriaffaires on agriculture; Videdressing, which is a fashion content and we have developed a lot of features based on their know-how. And the last is Groupe Argus, which I will come back to it but will accelerate a lot on the car market, thanks to our skills and product. We are touching now 28 million unique visitors per month, which is most of the -- half of the French population, each month. We think that we are making around 110 million transactions per year, which is quite huge, mainly on the consumer goods market. And now the group is above 1,000 people. And 1/3 part of this people is product and tech. So this is a very solid company, developing several brands on different verticals and touching a lot of the French population. As I said at the beginning, we are a product and tech company, and we have a strong product and tech stack and strong teams. And I think it was important for me to present our priority of what we are doing in terms of product. And now if we are comparing now leboncoin -- what is leboncoin today stack and if you compare it with the past, it's changing a lot. We are now a data-driven platform. And we are changing a lot of product to improve our experience. First, we are developing what we are calling our automation. It means that we are developing a lot of AI experience. It's based on the machine learning experience. So we are completely personalizing the experience of leboncoin. Secondly, as I said at the beginning, we are switching onto transactional model, mainly on the consumer goods part. It means that now leboncoin you can be buy, you can be delivered of your product and we strongly believe that it will help us to increase our audience and to increase the satisfaction of our users. And third, of course, as we are generalists, we are also a multi-vertical company. We are present on real estate, on the car market, on the job market, on the holiday rental market. And on each, we are putting resources. On each, we are personalizing a lot the experience to be sure that we are delivering good experience for our users and very good products for our customers. If I come back to the automation, which is impacting a lot the platform of leboncoin. On each step of the user journey, we are investing in terms of machine learning and we are automizing a lot the user expense. For example, on the ad insertion, we are testing some auto complete features, so image recognition features on our apps, on the search and discovery. We are personalizing each vertical now. We are giving some advices to our users. So now when you are on leboncoin, you don't have only one leboncoin, you have 28 million leboncoin. So we are personalizing the experience on each universe. On the matching, this is very important, mainly on the job market. So we are testing on the job market and on the holiday rental market how we can improve the matching between the offer and the demand. Improving also the transaction and the trust. We are developing a lot of tools to protect the quality of the content. This is a tricky point how the marketplace is. If you have a good content on your platform, it's very good for our users because you are -- they are protected by scam, by the bad quality of the seller. So this is what we are doing. On each step, we are improving our technology to provide better experience. At the same time, as I said at the beginning, we are -- we have started to put some transactional features. We have started last year, and we are doing it slowly because leboncoin is a big platform. So when you are putting some payment systems, some delivery features, you have to do it slowly. So we have started by consumer goods. So now on leboncoin, most of the categories, they have payment solution and they have delivery solution. And the KPIs are very positive at this moment. So we strongly believe that it's bringing a lot of added value to our users because it's bringing safety in the transaction. Secondly, we will develop these kind of services on the car market, on the private market. So we'll develop based on PayCar technology, during H1 2020, peer-to-peer payment solution on the car market for private only. That would be a big change because, as you know, now in France, when you are private, you are paying by check, which is not very secure. So we will provide a very safe payment solution based on PayCar technology. And third, which is completely different from the other market, the holiday rental market. We have already launched the booking system so you can book on leboncoin your holidays and you can pay and you have an insurance included. So as you can see, the transaction model is improving the consumer goods part, the generalized part. It's providing a lot of securitization for our users and bringing a lot of growth for the audience of leboncoin. And this audience then we switch to the other verticals like real estate and the car market, so transactional shift. And last, but not least, and I'll come back to it after, verticalization. This is something we are investing a lot. That's right that we have one platform, which is a big advantage, and we are integrating the different brands of the group, building one unique platform. We are building components on this platform. And on this platform, on each universe, we are personalizing the experience. So it means that the experience on real estate or the experience on the job will be different. And we think that it's very good because, for example, on the holiday rental market you need a calendar. On the job market, you need CV database. That means that on each market, the experience you will have will be personalized, which is completely new, because in the past you had only one leboncoin for everybody. Now each Internet French user will be its own leboncoin. So that's a big change. At the same time, we are a growing company. We are -- during the last 10 years, we have proven that we were able to build a strong and regular growth. We have a long-term view. So we are building at the same time steady growth on revenue, but at the same time, we are improving our EBITDA when we can. So we are investing. So leboncoin, as you can notice, is still growing on revenue, growing on EBITDA, and we're investing on other verticals that we believe that in the future they will bring a lot of added value for the future. So we are a growing company, and we'll continue like this. And this growth is based on few -- performance in different verticals. Just -- we'll just give you an overview on each. I think the first would be real estate. Real estate market, I will come back to it, is a very -- was very dynamic market during the last 3 years, a strong volume of transaction, especially in the cities. And 2019 will be like this. 2020, we don't know yet, but I think it would be slightly below 2019. But globally, the volume of transaction is growing, and there is a strong pressure in the cities on the offer. So when you are selling your flat in Paris, that will be good for you, you will sell it quite quickly. So real estate agents, now they are looking for goods to sell. This is something I will come back to it because this is important for them. So car market also is a very solid market. We have new competitors entering in this market. We have a very strong position in this market, and we will improve it, thanks to L'Argus. The market evolution is towards financing and insurance like most of the countries in the world, but it's accelerating in France. Transactional verticals. This is something impacting different categories on leboncoin. Most of the consumer goods are impacted by this. But now on the consumer goods part, most of the business model now is based on the transaction. It's not enough to connect people. Now you have to provide peer-to-peer payment, you have to provide delivery. So this is important. It's where leboncoin is switching step-by-step on this model, and we expect some good results on it. Advertising, the market is changing a lot. So GAFA are quite powerful in this market, maybe too powerful. But as you noticed at the beginning of the year, most of the different media in France, they were decreasing on the advertising market. And now leboncoin is coming back to growth on the second part of this year, mainly because we have done a lot of transformation in our business model. We'll come back to it. And the last is the Other, which is the rest of the categories of leboncoin. As you know, we are multi specialists. We are present in 74 different categories. So the rest is also we have some GAFA arrival like on the job market, and that, I will come back to it after. So if I zoom on the different markets, and of course, real estate market is the biggest market of leboncoin. This is one of our 2 locomotives, and we have a strong growth in this market, 16% year-on-year with a very strong traction. This growth is driven by ARPU growth but also some volume growth. As you can notice on each KPIs in terms of traffic, in terms of content, in terms of customers, customer penetration, we are #1. What is good also is that Avendrealouer is taking market shares. So Avendrealouer plus leboncoin, we are providing a very complete experience for our users. It's a generalist experience for leboncoin, it's a specialist experience for Avendrealouer. And for the real estate agent, you can buy both to have the best media to generate more leads and more quality leads for your business. So very strong market for us, and we are reinforcing our leading position with a very strong growth. And on this market, we will continue, as I said a few months ago during the roadshows, the real estate market, what we want to do. First, in terms of expansion, we want to gain the new market shares. It's what we are doing in the cities, mainly in Paris and around Paris. We are gaining market shares in terms of volumes, in terms of number of real estate agents and we will continue. We'll continue to expand. The second thing is we are verticalizing a lot the real estate experience. It means improving the search engine, improving the criteria, integrating maps. So now when you are on leboncoin or when you're on Avendrealouer, you have a very strong and a verticalized experience on real estate. We will continue to develop some professional services. We have a strong strategy developing performance dashboard, giving real estate -- to the real estate agent tools to monitor the quality of their ads, to benchmark their ads with the competitors. So that's something important for them. And this is something we built based on our data stack, which is very important. The second thing is, as I said before, they need leads, they need mandates, mainly in the cities. So we are working on building some leads qualification tool, bringing them new mandates because they need flats and houses to sell. At the same time, we are a taking a niche on this market, but with promising results, which is new construction market. We have started to build this new solution on Avendrealouer stack. This is now leboncoin brand, but this is Avendrealouer stack and with some promising results. And the last thing is that we have completely renewed Avendrealouer experience with a new design, new experience. Now Avendrealouer is a premium brand for us under the real estate market, building components that will be expanded to leboncoin after. So very strong ambition on the real estate market, and we have dedicated product teams working on improving both. Okay? So real estate, one of our locomotives. The second locomotive is the car market. As you can notice, it's plus 19% growth year-on-year, which is very strong, and this growth is without L'Argus. So it's only leboncoin. So very strong growth. It's based on a few things. We are growing in terms of ARPU. So of course, we are making some pricing changes, but we are bringing also added value to our customers. At the same time, under different KPIs, leboncoin is, by far, #1 in terms of audience, in terms of content, in terms of market shares on the car dealers. And with the help of L'Argus, that -- you can see that we can challenge our competitors on this market, and it will bring a lot of product and skills. I will come back to it. So what are we doing on the car market? What we want to do is to continue to increase our leading position so we have a leader behavior. First, as we are doing on real estate, we are verticalizing the experience on the car market. So we are switching what we have done before through new criteria on this category. We are integrating a new search engine. We are making a recommendation. So this is a strong verticalization for us. At the same time, we have started to work on the integration of the L'Argus features. It will take some time, but we will have the first synergies before the end of the year. So that's important for user experience. It means probably new facilities for the professionals and also for the private, I'll come back to it. On the C2C payments, we -- as I said at the beginning, we are switching part of our categories of leboncoin onto transactional model. The car market will be also switched on the transactional model, mainly on the private part. So now at the end of June next year, it will be possible to pay on leboncoin your car and that's something that our users are asking for because it's bringing a lot of safety when you are buying your car. So -- and we will build it on the PayCar stack. And the last thing, the next product for the professional. As we have done with the real estate, now we have dedicated team on the car market developing components and products for our customers. So this market, we have started a new data-driven product, which is improving the efficiency of the ad automatically. That is promising and it's explaining part of our ARPU growth because when you are car dealers and when you are buying an offer bumping automatically your ads is bringing a lot of added value. A new dashboard which is quite the same as on the real estate market, but this dashboard is now very good tool to bring added value to car dealers. And the next step for us on this market will be to develop synergies between L'Argus and leboncoin. L'Argus, just to summarize what is L'Argus, so it's a well-known brand, very famous in France, famous for its pricing tool. So if you want to buy a car in France, we have to quote your car on L'Argus. This is important. It's a very solid company with 270 employees. So they have 2 main activities. One is the pricing tool and the second is the software for car dealers. And this is very important for us for the future because we believe that we will improve our leading position based on their product and based on their know-how. So the next step for us will be 2 things. On the private part, we will integrate the pricing tool on leboncoin in the next months. That will be very useful. So when you post your ads, we have also the quotation of L'Argus, which is important. We'll integrate some editorial content, so -- and plenty of product that L'Argus will bring us quite quickly, which is very positive for leboncoin users at the beginning. The second part would be to develop some professional services with L'Argus stack. So we'll connect directly to the software of the car dealers in the next months. That will be the first synergies, but we have plenty. So during the 14 -- the next 14 months, we will integrate step-by-step a lot of synergy on the car market and that -- we will gain a lot of time, thanks to this portfolio of product. So that's very promising results. And hopefully, we'll be able to integrate it quite quickly. Transactional markets. So that's covering what I said before, the consumer goods categories, plus the holiday rental category. As you can notice, you can notice strong growth because we believe that this transactional market will bring added value next year. That is promising. The first thing is, as we are doing on the other categories, we are personalizing each categories with criteria search engine adapted to each market. It means that on the fashion category we'll have specific criteria. We will continue to integrate new peer-to-peer payment system and new delivery system. That is promising. The KPIs are very positive at this moment. So that's what is already live on leboncoin consumer goods and on holiday rental, you can already book your transaction live. And this is something that we have very good feedback from our users at this moment. Advertising. As I said before, this is probably a much more complex market and the toughest market. Advertising is dominated by the GAFA quite strongly, and we had a tough year at the beginning of this year. During H1, we were suffering a lot, and we were negative during the first part of the year. Now we are back to growth during the Q3, mainly because what we said during the roadshows is that we wanted to completely change our way to work. So we have rebuilt a business unit dedicated on advertising. We have a specific -- we have a dedicated sales force. We put some product teams specifically on this business. So this switch has been done during the first part of the year, and now it's producing the first results. Secondly, our strategy. So we are completely changing our way to sell advertising on the market. So first thing is we will -- we are launching data-driven product. It means now we are not selling only display ads, we are selling segment for our customers. We are selling data -- relevant data for our customers, which is completely different. From old-fashioned CPM banners, now we are going to data-driven product based on the algorithm, and we are pushing a lot mobile, of course, which is 80% of our traffic. So data-driven product, mobile and we are developing a lot of synergies with the classified business as well. On real estate, on the car market, we are pushing also display product to improve our market shares. So advertising, tough beginning of the year, switch -- big switch at the beginning of the year in terms of organization, new product vision, new ambition and now will come back to growth. And last, had to make some choices. It doesn't mean that this market are not top market, but as we are present on most -- plenty of markets, I had to make some choices. For others, it's a packet of different market, but I have chosen 2. One is the job market and second is the professional equipment market. So job market is doing okay. At this moment, what we are doing is we are changing a lot the product -- improving a lot the product. We have a dedicated team on this market also. For example, we have just developed CV database product, which is very relevant for candidates and recruiters. So just launched 2 weeks ago. We are -- our strategy is based on getting more content from SMB, small businesses, small recruiters and big groups. The second is we want to continue to increase the lead generation for our recruiters. So we'll test different business models during the next months to continue to be a strong actor on this market, and we are already in the top 5. So we'll continue to grow. Professional equipment. This is MB Diffusion business plus leboncoin professional equipment category. It's doing well. What we are doing now is we have expanded internationally. We are present in Italy, we are present in Germany. So we will continue probably in Spain. We are improving synergies with leboncoin but also with Spain, for example, and we are starting some diversification of this market. We are small niche, but -- like trucks, but quite promising results on this market. So continue to make some bets and to find new markets to deliver growth for the future. So if I summarize what we have got today. First, we are building marketplaces -- trusted marketplaces in France. We are -- we have built a strong group in France, and the economy is changing a lot. Secondly, we are, of course, investing a lot in our verticalization, mainly on the real estate and on the car market, and we are going quite fast on this market. Third, we are shifting to a transactional model, especially on the consumer goods market and on the holiday rental market and on the car market, which is -- with some promising trend. Fourth, we are a tech company. We are building products, and we are building products based on data-driven analysis, data-driven ambition. So that's important for us because we are investing for the future in our product in different categories. And last, tough year on advertising, but coming back to growth based on a new ambition, a strong transformation that we have started at the beginning of the year and we expect good and positive results for next year. Thank you very much.

[Rolv Erik Ryssdal, Chief Executive Officer]

Great. Thanks a lot, Antoine. I think you now have gained the better insights in France, our biggest market. As you can see, we have many interesting things going on there. So I think, Antoine, perhaps you can just remain up here, and I'll ask Uvashni to come up. Because then I think we can open up for a Q&A and of course, both for people in this room and then also I know normally there is a number of questions on the webcast. So please, if there's anyone in this room who has questions, we're happy to answer.

[Rolv Erik Ryssdal, Chief Executive Officer]

Nothing at this stage. How about you, Jo Christian?

[Jo Christian Steigedal, Head of Investor Relations]

Yes, sir. We have plenty of questions from viewers on the webcast. So let's kick that off. We have some questions on -- follow-up on France, just more a technical thing. When do you plan to consolidate Argus into the numbers financially?

[Uvashni Raman, Chief Financial Officer]

Well, we don't anticipate to do it immediately. We're still waiting on -- we're fully taking into consideration the PPA. We'll try and do it in this quarter, but probably in early first quarter next year.

[Jo Christian Steigedal, Head of Investor Relations]

Okay. Thanks. So then there are a few questions on display advertising. Can you -- do you expect this to improve further into Q4 due to -- partly due to easier comps and, of course, also that you have a better underlying performance? Do you have any comments to that?

[Rolv Erik Ryssdal, Chief Executive Officer]

I think advertising is a volatile market. We don't want to be too firm on the guiding. I think we're -- I'm happy that we're seeing results of some measures that we announced that we would take, and hopefully that will give effect also later on, but we've seen that that's a volatile market. So we're doing what we can and happy with that. But given the volatility of the market, I don't want to give any firm guidance on it.

[Jo Christian Steigedal, Head of Investor Relations]

And then there's a specific question to Antoine. You're shifting more towards the transactional models. Do you see sort of an underlying risk that your revenue become more cyclical as a result of this?

[Antoine Jouteau, CEO]

I would love to. At this moment, we -- this is not a big business at this moment. We expect that it will become significant. But as we have just started implementation of these transactional features, I think it's too soon at this moment to say if we can have some seasonality on that. I think we'll have more visibility in 1 year, I think.

[Rolv Erik Ryssdal, Chief Executive Officer]

These are, today, mostly consumer-to-consumer transactions and traditionally they are not very cyclical.

[Jo Christian Steigedal, Head of Investor Relations]

Okay. Can you give some more color on the margin development in Brazil? It was 16% in Q3, somewhat lower than the underlying first half. Any light you can shed on expectations in the next 1 to 2 quarters there? Can we go up to 20% again?

[Uvashni Raman, Chief Financial Officer]

We generally don't give expectation growth on going forward. But what I can say is the growth this quarter has been impacted, as we said, by some marketing phasing and the onset of product and tech investment, including some recruitment of product and tech. We are positive about the growth rate in Brazil, and we still remain very confident on the business in its entirety.

[Jo Christian Steigedal, Head of Investor Relations]

Okay. And then a question on investment phase spending. You're now guiding that to be at maximum EUR 10 million for this year. Any comment to the drivers for this? And what can you say about 2020 in this respect?

[Rolv Erik Ryssdal, Chief Executive Officer]

Well, we commented on -- I commented earlier on that this is also a matter of phasing and so far this year has been low, and we don't expect it to be very high in the fourth quarter either. But some of those investments in marketing that we're seeing there could be phased out to next year. But in general, the trend is that it's decreasing and it remains at relatively low level.

[Jo Christian Steigedal, Head of Investor Relations]

Then there are some questions on capital allocation and your balance sheet. Can you say anything about your -- how do you expect to get into the leverage target range of 1x to 4x? Sort of, how do you manage that? And what M&A opportunities are most attractive?

[Uvashni Raman, Chief Financial Officer]

Well, the 1x to 4x, yes, will depend really on more material transactions. We are always confident and we always said that we want to play a key role in some of that activity as we see fit in the future. Of course, we will only attempt to do transactions we believe that can add value, we will get synergies off that, and we will continue to investigate. I mean the 4x is not a very significant amount of money that we can add on to our balance sheet to get there, but it's significant enough to do a material transaction, which we'll continue to look at.

[Jo Christian Steigedal, Head of Investor Relations]

Okay. Can you say anything more about the development of HQ and other costs going forward from the Q3 level? Any outlook on that?

[Uvashni Raman, Chief Financial Officer]

As we said -- I've said that in the Q3, there are some transitional costs in there. We don't expect the cost to go up further than that unless, of course, we'd make a decision on further product and tech development because that is also included in there. From just a headquarter perspective, we don't anticipate anything further from that.

[Jo Christian Steigedal, Head of Investor Relations]

The growth rate of Spain was around 13% in Q3. Do you expect this to improve going forward?

[Rolv Erik Ryssdal, Chief Executive Officer]

I said -- I think I commented there on the macro. I think it will depend on the macro development in the country. And we're -- what I can say is that we're very happy with the execution we're having in Spain now, and then the growth rate will be connected to the macro development, but we're quite confident about our own -- the things we're doing on our side.

[Jo Christian Steigedal, Head of Investor Relations]

When it comes to transactional services, payments and delivery, anything to say about the adoption rate of these kind of services so far? And what's the business model in a brief -- in a few words on this?

[Antoine Jouteau, CEO]

We are -- at this moment, we are not communicating on the conversion rate, but the business model on this will be commission, probably on the buyer side and a slight -- very light margin on the delivery feature, so commission and margin on delivery.

[Jo Christian Steigedal, Head of Investor Relations]

Can you please comment on your ARPU levels in France? How do they compare to your main competitors in the real estate vertical?

[Antoine Jouteau, CEO]

So what we are -- we have presented today that we are quite -- we have very strong growth on our ARPU. It's mainly based on pricing improvement and some additional services on real estate. So we are quite happy on this. We are closing the gap with our competitors, and we will continue in the next month because we are launching new products, because we are changing our prices and we have very strong dynamic, I think.

[Jo Christian Steigedal, Head of Investor Relations]

Any views on the competition from CarGurus in France?

[Antoine Jouteau, CEO]

We know that they have launched this summer. We are monitoring them closely. But at this moment, we don't see any impact on our business.

[Jo Christian Steigedal, Head of Investor Relations]

Can you say anything about the competitive landscape in Spain, particularly in real estate versus Idealista? Any updates there?

[Rolv Erik Ryssdal, Chief Executive Officer]

I think, as I said, we're doing well. I think Idealista has a strong position. But if you look at the combined sites of Adevinta so both Fotocasa and Habitaclia and also a number that's being added on Milanuncios, we're seeing good progress. I don't think there are any big news in the competitive landscape as such, but we're happy with what we're seeing from our partners.

[Jo Christian Steigedal, Head of Investor Relations]

Okay.

[Rolv Erik Ryssdal, Chief Executive Officer]

We need to wrap up soon because there's an EGM starting also.

[Jo Christian Steigedal, Head of Investor Relations]

Yes, I think we covered most of the key questions. We can follow-up on e-mail to those who need more follow-up afterwards.

[Rolv Erik Ryssdal, Chief Executive Officer]

Sure. Thank you. We'll be happy to provide answers later today. There's also a conference call at 2:00. Okay. Thank you very much for coming, and for those who would like to stay, there's an EGM starting in 35 minutes. Thanks so much. Have a good day.