Adevinta ASA

OSE:ADE

Earnings Call Transcript 2021-Q3

[Operator]

Thank you all for standing by, and welcome to Adevinta's Q3 2021 Trading Update Presentation. Mr. Rolv Erik Ryssdal, CEO of Adevinta, will host today's conference. Mr. Ryssdal, the floor is yours.

[Rolv Erik Ryssdal, Chief Executive Officer]

Thank you, operator. Hello, everyone. Welcome, and thank you for joining today's presentation of our Q3 results. First of all, I hope that wherever you are, you and your close ones are healthy and safe. We see a new surge of COVID cases in many countries, and we need to remain cautious. We just heard before this call that in France, they're encouraging people to take their third dose but are not planning any lockdowns currently.I have the pleasure today to have on this call with me the whole executive team of Adevinta. For the first time, we will discuss the last quarter's developments and performance for the new Adevinta, including the full quarter contribution from eBay Classifieds assets. We'll also share with you a preview of our Capital Markets Day, which is taking place Tuesday in London.So I will not go through the disclaimer. I invite you to read it, and I will start with an overview of the key highlights of the quarter before going into the details of the business review. Uvashni will do a review of the financials, and I will conclude with the outlook. Then Antoine, Patricia, Gianpa, Zac, Renaud and Nicki will join us for the Q&A session.So starting with the key highlights of the quarter, some major strategic updates. We announced this morning that going forward, we will concentrate our investment capacity on 5 core markets; Germany, France, Spain, Benelux and Italy. We are very excited about the significant growth opportunities in those markets where we hold unique leading positions.In line with Adevinta's active portfolio management strategy, we have decided to divest Australia, including Gumtree, Autotrader and Carsguide and South Africa. That will start in early 2022. And we also decided to carry out strategic reviews of other assets.When we announced the acquisition of eCG, we communicated on the synergy target range of EUR 130 million to EUR 165 million on a run rate EBITDA impact by year 3. That was based on the full portfolio. With the planned divestitures, we confirm that we are on track for a target of EUR 130 million. We have made good progress since the completion of the acquisition, securing these opportunities. And as a result, we are now providing a mid- to long-term outlook for our core market with approximately 15% annual growth, driving EBITDA margins to 40% to 45%.We will go into the details of our long-term opportunity, strategy and financial targets at our Capital Markets Day next week. Beyond this, the transfer of shares from eBay to Permira took place on November 18. Permira now owns 11% of Adevinta's share capital and eBay owns 33%.Finally, we're very pleased that Adevinta has been recognized as a sustainability leader within the Dow Jones Sustainability in Europe, ranking as 1 of only 6 companies recognized in the media entertainment industry group.Now moving on to financial performance. I will start by reminding that the comparative quarter in 2020 was a strong quarter, especially in France, which was leading the recovery trajectory ahead of other markets. And in Mobile, which benefited here from strong activity levels after the end of the first lockdown.This year, we saw the opposite effect with soft traffic levels in the summer following the lifting of restrictions in both markets and increasing supply pressure in the motors market as a result of the global chip shortage situation. In that context, we delivered solid revenue growth with total consolidated revenues up 6% year-on-year, excluding disposals, driven by classifieds in core markets that were up 8%. This was partly offset by lower display advertising.We expect revenue growth to accelerate in Q4, excluding Mobile.de. As announced in our Q2 trading update, we accelerated investment in marketing after several quarters of holding back due to the COVID context, and we're ramping up our public development resources to drive future growth acceleration in line with our long-term targets.As announced in July, our reporting structure has changed to align with our new organization, with 4 main segments: France; Mobile.de; European market; and International market. We released 3 weeks ago, the historical performance for the combined group based on this new reporting structure. I know it implies a lot of work for analysts and shareholders to adapt their models and build reliable estimates, but we hope this was helpful.Now I will quickly run you through the business development for each of those segments. In France, the vaccine rollout accelerated significantly in Q3, and macro indicators are going in the right direction. The real estate market remains dynamic, whereas the motors market is facing headwinds with the global supply issue and the impact it has on dealer inventory.In terms of product innovation, we launched face-to-face payment for private users and extended peer-to-peer payments for professionals. We continued to improve our vertical offers. In real estate, we launched virtual visits and pricing by region. In motor, we deployed access to L’Argus vehicle technical information on the apps. We also implemented a number of security initiatives to reinforce trust and fight fraud on our platform.In Germany, while macro indicators keep robust, the number of car transactions is declining. It's 4% year-to-date with dealer supply an all-time low due to the chip shortage and the decline in sales of new cars. The market for new cars is expected to continue to be weak for the rest of this year and for the first part of 2022, and we expect a gradual recovery during next year.I would like to stress that Mobile is a very high-quality asset with a clear lead in number of listing, number of dealers and consumer audience, so I expect Mobile to come back strongly when the market normalizes.Financing and C2B transaction showed a growth of 3% compared to Q2 2021. And for the first time since the start of the COVID crisis, we increased our prices in August with no impact on our dealer and listing coverage. I think this demonstrates a strong leading position Mobile has in the German car market. In the quarter, we continued to successfully roll out new products and improve our solutions for the benefit of our users and clients.Moving on to European markets, I will focus on the largest assets. In eBay Kleinanzeigen, traffic was down year-on-year compared to an exceptional Q3 2021 (sic) [ 2020 ], but compared to Q3 2019, traffic is still up 18%. We reached the milestone of 21,000 SMB subscribers in September, which is up 37% year-on-year and the number of transactions increased double digits compared to the previous quarter. In real estate, we further grew our subscriber base up 15% year-on-year.In Marktplaats, we saw market recovery in the quarter, but concerning -- but the concerning increase of COVID cases led to further increase in restrictions recently. We continued to work with the SMB and to increase pricing, resulting in a steady growth of B2C monetization.In Spain, we observed good recovery in the jobs market, which was significantly hit by the COVID crisis. We successfully launched also a new pricing and packaging offer in September in real estate.In Italy, we saw positive development compared to a very strong Q3 2020. We extended our market share in vertical segments, and we launched our payment and delivery solution, TuttoSubito.I will now conclude this section with international markets. In Canada, traffic declined year-on-year overall, but kijiji outlook was slightly up. Motor inventory charges has resulted in lower net motor dealer acquisitions and future package cancellations or downgrades. In real estate, we saw continued strength in account growth.In Australia, continued lockdowns and mobility restrictions led to soft traffic development. Strength in motor was driven by continued upselling of dealers to the Autotrader group joint proposition. In Mexico, we saw solid real estate traffic development and growth in real estate agent accounts.So I will now hand over to Uvashni for the financial performance section.

[Uvashni Raman, Chief Financial Officer]

Thanks, Rolv Erik, and good afternoon, everyone. Before I comment on the quarter financial performance, I'd like to highlight a few elements with respect to the financial information disclosed in the report. As Rolv Erik mentioned, our reporting structure reflects the new organization and the way we are structured to manage the business.To simplify the reporting, we do not include the noncontrolled JVs, which is OLX Brazil and Willhaben, in our segment reporting anymore. To better understand the year-on-year performance evolution, in the next 4 quarters, we will provide 2 references for the comparative periods on segment reporting. Firstly, the IFRS segment reporting that provides for the fully consolidated financial reporting that will not include the eCG numbers for those comparative periods where these markets were not part of the group.The combined view, this will reflect the results of the new Adevinta as if eBay Classifieds were part of the group during those periods in line with the historical performance we disclosed 3 weeks ago. These numbers are presented to help facilitate comparability and will be the basis for our year-on-year commentary. They are unaudited.Now moving on to the results. Again, as Rolv Erik mentioned, revenues on a combined basis were up 6% in the quarter compared to the same period last year. This excluded disposals. This growth is reflective of the post-pandemic recovery we saw in Q3 2020 and the lower level of activities we experienced this summer, following the lifting of restrictions in most markets.It also demonstrated the resilience of our markets, despite the temporary supply pressure we observed in our motor vehicles -- verticals. The motor verticals fundamentally remains strong, and all our motor properties maintained leading positions whilst we successfully implemented price increases associated with product improvement and high value add for our car dealers. Online classifieds improved 6% year-on-year, of which 1% is attributable to transactional services.Core market classifieds grew 8%. Display advertising revenues, however, decreased by 3% year-on-year. This was impacted by decreasing demand. EBITDA was down by 7% compared to the third quarter of 2020. The revenue growth was offset by a previously guided and anticipated increase in marketing investment, notably in Spain and Italy. Personnel costs also increased year-on-year due to the ramp-up in product and technology resources to fuel product development and new business models ahead of revenue generation.With this high level, I will now run through the financial performance by segment. Starting with France. Revenues in France grew by 7% year-on-year, excluding the impact of a change in policy we had this year. Despite a challenging period, where there was a cyberattack at L'Argus, they managed to maintain this growth.Compared to the third quarter 2019, underlying growth was 16%. We saw a double-digit growth in Classifieds revenues at 10% compared to last year and 27% compared to the third quarter of 2019. Motors and real estate verticals were the main contributors of the growth primarily driven by positive ARPU development.As previously noted, advertising revenue lagged previous year, impacted by the drop in programmatic revenue caused by decreasing demand related to the reopening and lifting of restrictions in the summer months. EBITDA margin improved compared to previous quarters, but decreased compared to the previous year, mainly due to the increasing share of transactional services. These contributed positively to gross profit, albeit at lower margin levels, and is still in the ramp-up phase. We also saw an increase in product and tech resources to drive further product development.As we move on to Mobile.de, here we saw revenues declined by 3% in the quarter, and it was also up 1% compared to the solid third quarter of 2019. The main drivers of this were the year-on-year decline in listings down 17% year-on-year. The level of available inventory in the market is low, driven by the low new car production due to the semiconductor shortage with a consequential impact on dealer inventory. The successful listing price increases across dealers in August, while we maintained leading market positions, mitigated some of the impact of the volumes.C2C revenue also declined compared to the third quarter of 2020 due to the supply increases -- supply issues, apologies. Low car production and turnover levels also had a knock-on effect on advertising spend of the OEMs. We therefore saw an advertising revenue decline 12% year-on-year.The transactional business, which is financing and C2B, both strategically important, showed strong performance despite the high baseline in 2022 that was inflated by a catch-up after a lockdown situation in the second quarter.EBITDA dropped by 9% in the third quarter due to an increase in marketing spend, which was up 39% year-on-year. This was as a result of the strong reduction levels we saw in 2022. Although higher, we believe that we needed to spend this to support and strengthen the Mobile.de brand in an increasingly competitive market dynamic.Moving on to the European markets. We saw revenue growth of 11% compared to the third quarter of 2020. This was mainly driven by eBay Kleinanzeigen in Spain. Italy and Ireland also contributed significantly with double-digit growth. Most importantly, Classifieds revenues, which includes transactional revenues, were up 13%, and display advertising grew 7% year-on-year.EBITDA reduced by 4% compared to the third quarter of 2020 due to the increased marketing spend in Spain, Italy and eBay Kleinanzeigen when we compare to last year. Now I will move into giving you a little bit more insight on the revenue development in the 4 largest markets within the segment. eBay Kleinanzeigen grew 19% compared to the third quarter of 2020 to EUR 48 million and 32% compared to Q3 2019. This was driven by steady performance in both advertising and online classifieds, especially in the consumer goods where we saw positive listing trends and a good contribution from SMBs.In Spain, underlying growth was 14% compared to the third quarter of 2020 driven by strong performance in Classifieds, which was up 14% -- 15% year-on-year. In Motor, we continue to see double-digit revenue growth fueled by higher dealer penetration to Milanuncios, this despite the motor market softness. The Jobs vertical performed with revenue exceeding 2019 levels towards the end of the quarter. This performance was also fueled by the small and medium business channels.In real estate, revenue recovered significantly, also driven by increased penetration and the launch of the new premium packages. Display advertising also grew year-on-year, driven by direct sales in the main verticals. Marktplaats revenue deceased 2% compared to the third quarter 2020. Motors remained challenged with the muted supply. General classifieds started to -- a steady growth, benefiting from transactional services revenue, which was up 36% year-on-year. Advertising revenues were down 4% year-on-year, driven by lower traffic in the post-lockdown context.In Italy, we saw a double-digit revenue growth driven by both motors and a steady recovery in jobs. The international market segment saw a negative growth of 4% compared to the third quarter of 2020 entirely driven by advertising revenue, which contracted 13% year-on-year, mainly in Canada and Australia.Classifieds revenue were up 2% compared to the third quarter of 2020, led by Australia. EBITDA reduced by 22% compared to the third quarter of '22 (sic) [ '20 ], landing at EUR 11 million because of the decrease in advertising revenues and increased marketing spend in Australia and Mexico.Moving on to OLX. I would like to remind you that OLX Brazil is not part of our business segment reporting anymore. However, we believe it is important to continue to provide the market with visibility on this asset as we exploit the real estate opportunity and drive further growth in transactional.OLX Brazil increased revenue by 116% year-on-year in local currencies, which included contribution from Grupo ZAP. On an organic basis, revenue grew 31% compared to the third quarter of 2020, driven by motors due to both higher penetration and price optimization and a greater level of development with cross-selling strategies in real estate.EBITDA increased by EUR 4 million compared to the same period last year fueled by the revenue growth with an EBITDA margin at 23.4%, while we continue to invest in product and tech resources and in marketing to drive new products and the joint proposition in real estate.The next slide is about the segment that we call other and headquarters, which comprises Adevinta shareholder and central functions as well as the central product and tech development. The EBITDA of other and headquarters reduced by EUR 3 million year-on-year to EUR 43 million, mainly due to the higher personnel-related costs because of the buildup of capacity to prepare for the eBay TSA exit ahead of some of the synergy expected in later years and also due to different phasing of third-party services.Now moving on to other P&L items below EBITDA. On this slide, the Q3 2020 column in the table refers to the IFRS reporting that corresponds to Adevinta's legacy parameter as we provided historical combined figures only for the segment information. Depreciation and amortization increased by EUR 50 million year-on-year, and this increase is entirely due to the amortization of the eCG intangible assets related to the purchase price allocation. The main amounts are related to Mobile.de, eBay Kleinanzeigen, Marktplaats and Canada.Other expenses decreased by EUR 7 million compared to the same period last year. This evolution is due to a decrease in acquisition-related costs compared to the same period last year, partly offset by an increase of integration-related costs. Net finance costs increased by EUR 4 million compared to the same period last year.Now I would like to conclude this section with our financial position. At the end of the quarter, we had a total cash position of EUR 232 million. This included the restricted cash of EUR 8 million. As a reminder, the refinancing with senior secured notes and institutional term loans have been effective at closing of the eCG acquisition, and we have drawn down EUR 150 million of the EUR 450 million revolving credit facility in June.Our senior secured net leverage ratio according to the definitions of our facilities agreement and before synergies was 4.0x at the end of September. Our leverage target remains unchanged, and it is to get back to 2 to 3x the range in the medium term. This concludes my section on the financials.In summary, overall, a resilient quarter for the business despite the headwinds in motor and display ads. On the long term to medium-term targets, we will provide more detail at the CMD on Tuesday next week. I will now hand over to Rolv Erik to conclude with the outlook.

[Rolv Erik Ryssdal, Chief Executive Officer]

Thank you, Uvashni. As I indicated in my introduction, going forward, we will concentrate our investment capacity on 5 core markets, that is Germany, France, Spain, Benelux and Italy. In these markets, we remain very excited about the significant growth opportunities and our unique position to capture them.We expect core market revenue growth of approximately 15% on average per year in the mid to long term, driving the EBITDA margin to 40% to 45%. We will also continue to support the development of our fast-growing joint ventures. In line with Adevinta's active portfolio management, we have decided to divest Australia and South Africa and to carry out strategic reviews on the other assets.In the fourth quarter of 2021, we expect an acceleration of revenue growth, excluding Mobile.de. In the short term, our motors vertical is still impacted by lower used car volumes because of the semiconductor shortage leading to low production levels of new cars globally.We do expect supply pressure to be a drag on growth until mid-2022, more especially in Mobile.de, given that at this stage, the revenue model is largely linked to listing volumes. It is important to note that the fundamentals of the Mobile business remains strong with high demand and lead generation levels.Furthermore, as we maintain leading position across our markets, the supply effect will continue to be partially mitigated by price increases associated with product efficiency. When the semiconductor shortage unwinds and supply pressures relax, we expect an acceleration in growth in the motors vertical driven by the combination of a normalized listing levels and higher ARPUs.In 2022, assuming a gradual recovery in the motors market in the second half, we expect core markets revenue growth to be low double digits. We will also continue to invest in product development to capture future growth opportunities and to support further development to additional online classifieds and new revenue streams such as transactional services. We will go more into this and outline this on the Capital Markets Day.The integration of the businesses is progressing well, and we remain on track to deliver on the previously announced synergies that will progressively contribute to accelerated growth and margin improvement towards our mid- to long-term targets.I will now open the Q&A session, and my colleagues from the Executive Committee and myself are available to answer your questions. So operator, please?

[Operator]

[Operator Instructions] First question is from the line of Christopher Johnen from HSBC.

[Christopher Johnen, Equity Research Analyst]

I'd like to do them one by one, if possible. First, on the 15% revenue CAGR and the margin target. So I'm just trying to understand if it's possible to get any color on how much of that is driven by transactional services? I mean, I'm asking because France, Mobile and the European markets are essentially already at 45% margins, so at the upper end, excluding any synergies. So I was just curious if there is any color you can give on the sort of, how you say, makeup of those 15%, if possible?

[Rolv Erik Ryssdal, Chief Executive Officer]

Uvashni, this is something that we'll cover more at the Capital Markets Day, right?

[Uvashni Raman, Chief Financial Officer]

Yes, for sure. There's quite a bit of differentiating contributors. So I'd prefer to hold this over to the Capital Markets Day, if you can, because there's a lot of context behind it as well.

[Christopher Johnen, Equity Research Analyst]

Okay. Sure. No problem. Then second question. Thinking about 2022, I mean, obviously, I understand that the sort of planning assumptions regarding the auto space, inventories coming back, et cetera, is kind of difficult. It looks like it's going to be very different in H1 versus H2. Is that probably a fair assumption? Just in terms of margins for overall 2022. Obviously, motor space, very high margin, particularly on the Mobile side, probably one of the highest margins.A lot of the growth is coming from sort of transactional services also, where the margin is still negative. Is it possible to give us a bit of color on the sort of scope of investments, new product R&D, et cetera, marketing, just to get a flavor on how much this will be in 2022 because the range of margin possibilities is potentially quite wide?

[Uvashni Raman, Chief Financial Officer]

As you know, we don't really provide forward-looking guidance, especially when it comes to the financials. We did provide the guidance and the revenue in light of the longer-term targets we were providing in knowing the shorter-term implications on the supply within the motors vertical.I wouldn't want to comment at this stage. As you said, it's early stage. Anything could move and anything could happen, but -- so I'd like to hold that position for now. But we will fundamentally, of course, continue to invest in the business, but we will not do it at the detriment of full-scale margin. So we'll always balance those views. That's all I can tell you at this point in time, I'd like to disclose at this point in time.

[Christopher Johnen, Equity Research Analyst]

Okay, sure. And then maybe lastly on the German car classifieds market. Maybe you could talk a little bit about the competitive dynamics there. I think you said competition was increasing. I'm just curious what you're seeing. I know you just had a price increase there last year, which went into effect earlier in the summer, I think. I'm just curious what you're seeing aside from the sort of inventory issues?

[Rolv Erik Ryssdal, Chief Executive Officer]

Well, I think the inventory is really the main factor because apart from that, we're seeing that we are -- our position is very strong, and we are delivering very good on leads. We are delivering well on our market share in used cars and also in dealer -- number of dealers. And then I would say, when I said competition, we have questions about the new players, such as outlines, et cetera. But what I can tell you is that the levels that they are trading are still very small. So the main topic there is really the supply shortage.And then we are working very hard to develop new services and testing many new services on our site. So I remain very confident about the position that Mobile has in the German car market, also in the competitive landscape. And we'll give you some -- we'll give you even some more detail on that when it comes to position within the different segments on Tuesday.

[Operator]

Our next question is from the line of Jo Barnet-Lamb from Credit Suisse.

[Joseph Barnet-Lamb]

Rolv Erik, Uvashni and team, I've got 3. So firstly, again, on Mobile. You've seen significant ARPU increases at Mobile with a lot of this offset by cyclical headwinds in listings. As cyclicality turns and volumes come back, is there any reason why ARPU wouldn't continue to grow? Is there any sort of offsetting factor or blend or anything that you'd say to play that down?Secondly, on transactional. So transactional revenues were slightly weak versus my expectations. Is that cyclicality as per what you've seen in the core with regard to sort of like post reopening world? Or is there anything else behind that? And when can we expect an acceleration?And then finally, on your portfolio strategy announced this morning. Can you comment on Canada, which I think is the largest business outside of your core, what's your current thinking about its position in your portfolio? And what's behind that sort of view at this point?

[Rolv Erik Ryssdal, Chief Executive Officer]

Right. I think I'll answer your question 1 and 3, and then I'll leave to either Antoine or Uvashni to comment on the transactional volume. So on Mobile, so Mobile has been working well with the car dealers and then did not raise prices last year. So what we did was this year in August raised prices with close to 14% and that has not had any impact on our volumes. So we remain confident that we can do more also next year.But of course, we have to launch new products in order to justify price increases. But I remain confident that as long as we do that and continue to develop, then the revenues and the ARPA should continue to go up when the market normalizes. And the good thing is that it's also that the dealer economics are quite healthy due to the positive development of car prices and also their margins.Then on the portfolio question, yes, we're very excited about our 5 core markets, and then we have decided to sell South Africa and Australia. And then there are a few other markets such as Canada, where we said that we need more time to conclude. I think that Canada is -- kijiji is a great asset, so they developed the car vertical. On the other hand, it's also a challenging competitive situation.So what we've said is we need to have some more time to really conclude what is the best way forward for Canada. And we expect to be able to do that during next year. It's just that we want to spend more time on evaluating the various options that we have there. On the transactional, I don't know if you want to comment on that, Antoine?

[Antoine Jouteau, Chief Executive Officer of Adevinta France]

Yes. Do you hear me?

[Rolv Erik Ryssdal, Chief Executive Officer]

Yes.

[Antoine Jouteau, Chief Executive Officer of Adevinta France]

So on transactional, you know that it's a young activity for us. So we don't have a lot of background on this activity. But globally, what we understand from this business now is that it's completely an e-commerce style. So we have some seasonality quarter-by-quarter. So I think we will come back to more information during the CMD. But globally, we said that the end of the year is interesting because of Christmas and Q3, during December, the volume are changing during this period. So yes, you're right, there is some seasonality, and I think we will come back to you on this topic during next week.

[Operator]

Our next question is from the line of Miriam Adisa from Morgan Stanley.

[Miriam Anuoluwapo Adisa, Equity Analyst]

Three for me. Firstly, just a follow-up on the sort of 2022 investment, specifically on marketing spend. I think you said marketing spend should essentially normalize to pre-COVID levels. If I look for Adevinta for 2019, I think you were doing about EUR 98 million. So could you talk about what that would look like on a pro forma basis just so we have an idea of what the right level is for next year?And secondly, on the midterm growth outlook. So you're guiding for 2022 to be below that 15%. So is it fair to assume that 2023 will be above the 15% level? And how should we think about the lead time between investment and seeing that acceleration come through on the revenue growth?And then finally, if you could just talk about Q4 growth, including Mobile. I think for Mobile, the comp is a bit easier in Q4. So do you think that Mobile will be back in positive territory in Q4? If you could just comment on what you're seeing at the moment with Mobile?

[Rolv Erik Ryssdal, Chief Executive Officer]

Do you want to take the first question, Uvashni?

[Uvashni Raman, Chief Financial Officer]

Yes. Again, Miriam, as you know, I'm not going to give you a pointed answer or directly in terms of the number. But what I can tell you is our marketing investment is going to be really tactical. We'll do it based on new product development coming to market, new opportunities that we see and in terms of some of the competitive positioning we see in our markets.If you look at 2019 levels versus 2020, we really cut back in 2020. So what we will do is not spend marketing for the sake of it, but really because we believe there's lots of new product coming to market, there's different positions and top of mind we want to maintain. That's the opportunity we will use, and then we'll utilize that in order to invest. So at this point in time, we're now going -- when we talk about increased marketing spend, we talk about it relative to positioning our revenue going forward as well.

[Rolv Erik Ryssdal, Chief Executive Officer]

You had a question on Mobile. And yes, I think that last quarter was -- last year, it was declining, but still not -- but still holding at a decent level, especially in the first part of that quarter. With the current new car trends, I think that I don't expect them to recover in Q4 compared to last year. Does that answer your question, Adisa?

[Miriam Anuoluwapo Adisa, Equity Analyst]

There was 1 more question just on the 2023 growth. Should we expect that to be above 15%? And then how should we think about how long it takes for that investment to come through in terms of faster top line growth?

[Uvashni Raman, Chief Financial Officer]

Again, you're asking me to provide forward guidance in terms of where those numbers are going to go. I mean I'm not going to do that. What we'll do is we'll provide you some context on Tuesday and how we see that development come through and where we see those products come through and services that are driving that revenue, and we'll give you an indication of then the acceleration of growth around it.

[Operator]

Our next question is from the line of William Packer from BNP Paribas.

[William Henry Packer, Executive Director of Media Equity Research]

Firstly, just to come back on Mobile in a bit of detail. So revenue for the quarter declined year-on-year. But if we take out the display ad headwinds, I think Mobile classified revenue was flat to small up despite the significant decline in inventory. My understanding was that your price increases in August, so you only had the yield increase for 2 of the 3 months. But it sounds like your tone on Mobile for Q4 and into the first half of next year is pretty cautious. Could you talk us through why has the inventory headwind materially worsened? Or is there some kind of competitive dynamics?And then secondly, on the synergies, can we -- rather than focus on synergies as a whole, can we talk to cost synergies? What percentage or what portion of the EUR 130 million of cost synergies? And do we see any savings in FY '22 or FY '23?And then my final question is, I suppose just a brief update in France. It's been a tough quarter versus recent history and the cyberattack issues were flagged. The transactional slowdown was flagged. How should we think about going forward? Is this a one-off blip and we'll return to normalized double-digit kind of growth? Or is this a more lasting, enduring challenge?

[Rolv Erik Ryssdal, Chief Executive Officer]

I'll answer the first question, and then you'll take the second one Uvashni, and then Antoine can also comment on the third one. So for Mobile, Will, so yes, we're being cautious. It has nothing to do with competitive dynamics. We're confident about our position. The reason we're -- and you're right also that we got the price increases done in August. So the reason why we're cautious is simply due to the chip shortage and the uncertainty around that, that we think may affect car sales for some -- still some months and a couple of quarters. That's the clear reason for us being cautious on Mobile. So nothing -- sorry.

[Uvashni Raman, Chief Financial Officer]

Yes, so -- no worries. I was just going to cover off on the synergies. Well, in terms of the synergies, we'll give you a clear view of some of the phasing of the synergies next week. But yes, definitely, we'd anticipate savings in '22 and '23. However, we do have some investment as well in '22 in order to obtain some of that synergies in 2023 and going forward. So you definitely will see some of that phasing coming through, and we'll be able to give you a view of what we believe the numbers are next week as well.

[Rolv Erik Ryssdal, Chief Executive Officer]

Yes. And then on France, before you comment too much, Antoine, I would say that if you look at the France performance during the last few years and also year-to-date, it's a strong performance. And we will show you the ARPU development in the important verticals next week. And then it will vary a bit from quarter-to-quarter. But in general, we're optimistic about the situation in France, and we will go into more detail there next week, Will.

[William Henry Packer, Executive Director of Media Equity Research]

Just 1 quick follow-up. When it comes, therefore, to Q4 Mobile, we should think that inventory declines are worse in Q4 than Q3, and that's the delta.

[Rolv Erik Ryssdal, Chief Executive Officer]

Yes. So let's go into that next week. But yes, as it looks now, I think the supply shortage will be worse in the fourth quarter than the third quarter. And let me repeat, there is nothing in the fundamentals or in our competitive position that has weakened.

[Operator]

Our next question is from Ms. Lisa Yang from Goldman Sachs.

[Lisa Yang, Equity Analyst]

I have 3 questions as well. Firstly, could you come back to the orders vertical? And could you help us understand how the relationship between listings and revenue work across the different core markets, especially for Mobile.de and point us how the revenue model there differs from just leboncoin? I think that will be just really help for us to understand how to model being part of the supply shortage.Secondly, on synergies. So you narrowed the guidance to EUR 130 million, given the planned divestiture, which so far, I think is just Australia and South Africa versus the EUR 130 million to EUR 165 million run rate previously. So has there been any change in the way you think about the synergies since the integration? Should we think about that EUR130 million applying only to the 5 core markets now or to the growth portfolio ex South Africa and Australia?And third question is, could you maybe give us a bit of color on the trends seen so far in Q4 in terms of traffic and listings and maybe advertising trends as well, especially across France, Germany and Spain?

[Rolv Erik Ryssdal, Chief Executive Officer]

So I will start with the autos vertical and then Uvashni can take the synergies then perhaps Antoine and Gianpa can comment on Spain and France when it comes to traffic development. So Lisa, so the auto vertical, yes, we have different pricing models in different countries. And in Spain -- sorry, in Germany that you're asking specifically about, around 70% of the dealer -- of the total revenues of Mobile are dealer revenues and dealer listings. Then for larger dealers, it's quite volume dependent.So in totality, the German model is more reliant on volumes than we have in other countries where we have more packaged solutions and more brackets. And so what we're working on is that we will implement more sophisticated packages that are, I think, more value driven rather than volume reliant.And -- but the situation today in Germany is that they are more reliant than the other countries because especially the big car dealers, they have a model which is very variable and it's less so in Spain and France, and we can detail it a bit more out next week.Then I think on synergy, Uvashni, do you want to comment on that?

[Uvashni Raman, Chief Financial Officer]

Yes, sure. Yes, in terms of the synergies, you're right, the EUR 130 million to EUR 160 million was on the whole portfolio. What we've done now is relooked at not just the disposal, but those assets under evaluation as well. And therefore, you can then conclude that most of -- the majority or most of the EUR 130 million will be attributable to the core markets.

[Rolv Erik Ryssdal, Chief Executive Officer]

Right. And then I don't know if Gianpa, do you want to comment on some traffic development and also Antoine for traffic in the European markets?

[Gianpaolo Santorsola, Executive Vice President of European Markets]

Sure, yes, I can start. So in Europe, as we said, we saw Q3 that was a bit soft on traffic development, but mostly because of a spectacular Q3 2020 but we are well above 2019 levels. So going to Germany and eBay K, Q3 was minus 6%, about 18% versus 2019. And what we see in Q4 is a gradual recovery of our traffic. So good positive signs there. In Spain, the situation is similar with the nuance. The verticals are going very well. So fotocasa is well above 2019 levels already, Coches.net as well, jobs is doing well in this recovery, not only in terms of traffic, but in terms of listings and also in terms of leads.So the vertical development is very, very positive. Why we see more softness on the generally -- on Milanuncios, which is also an effect of a new algorithm of Google that penalized a bit our SEO traffic knowing that Milanuncios is -- in Milanuncios, SEO is an important traffic source. But overall, eBay K recovering well above 2019 already now. And the same for the verticals in Spain. Same thing for Marktplaats in the Netherlands, decline in Q3, well above 2019 already and improving in Q4.

[Antoine Jouteau, Chief Executive Officer of Adevinta France]

And for France, quite the same situation for the traffic. Just to remember that Q3 2020 was the recovery quarter in France. So we had a strong rebound in -- during this quarter last year. But this year was also a good quarter in terms of traffic well above if we compare to Q3 2019. And in terms of listings, you saw a big increase of our listing during the last month. It's continuing, far away from 2019 and a bigger increase regarding 2020. So globally, the liquidity KPIs are positive in France on the consumer goods categories, but also on the rest of the portfolio, except the motors and real estate category, which are suffering a little bit, as we said before.

[Operator]

Our next question is from the line of Adrien de Saint Hilaire.

[Adrien de Saint Hilaire, VP & Head of Media Research]

This is Adrien from Bank of America. So a couple of questions, please, if I may. So first of all, short-term, Q4 -- sorry, Q3 EBITDA was, I believe, down year-on-year, given the pressures you mentioned around Mobile for Q4 and the investments you're making pre-synergies, is there any reason why the Q4 EBITDA trends would be any different?Secondly, perhaps to come back on what Will was asking. I believe that primarily the synergies were revenue driven. So is it fair to assume that EBITDA margins should be sliding again in '22, given the things we mentioned and the things that are happening in Q3 and Q4? And maybe last question around Mobile. I saw a video interview with one of your executives where she was talking about Mobile revenues doubling in the next 5 years. Is that something you can confirm? Or perhaps did I misunderstand something in this interview?

[Rolv Erik Ryssdal, Chief Executive Officer]

If you want to start with the first 2 questions, Uvashni? And then I Patricia, are you on the line? Yes, sorry.

[Uvashni Raman, Chief Financial Officer]

Yes, I'll take -- no worries, Rolv Erik. Yeah, I'll take the first 2 questions. Again, on -- in Q4 and EBITDA, I'm not going to provide any guidance on that in the sense that it's heading towards. But at the end of the day, we are seeing some revenue acceleration in Q4. And -- but we will continue to do some of that investment that we set because we really want to see a ramp-up in some of our other product lines for the new year. On the synergy target, we -- the majority of the synergy targets or almost 2/3 of that is actually cost synergies, not revenue synergies, and most of the revenue synergies come later. So you -- in terms of the theory that 2022 will not be impacted, there will be some synergy impact in -- or positive impacts in 2022. If you want more flavor on that, we'll give it next week as well as to some of the run rate and on those savings on cost and revenue.

[Rolv Erik Ryssdal, Chief Executive Officer]

Right. And I think let me start Patricia on the Mobile development. What I can say is that Mobile is a very, very strong asset. And we think that with the current development going on in the classifieds industry where you see more and more transactional opportunities coming, we see the ability to do new things, so that is helping the dealers becoming better at online buying and selling.We think we can look into how we can help them with sourcing. We think we can do more on the financing side. So in addition to delivering better basic products, we are, in general, optimistic about our position there, and we have -- we like to have stretch targets, but we'll get more into that also on Tuesday. So I don't know Patricia, is that a fair summary of what is that?

[Patricia Lobinger, Interim CEO of Mobile.de]

Yes, Rolv Erik, I would agree. Could you hear me?

[Rolv Erik Ryssdal, Chief Executive Officer]

Yes. Fine. Yes. So I think we believe it is that, and we'll hope that you will come and listen to us -- Patricia because we need to talk more about this next week. But in general, we like the Mobile franchise very much.

[Operator]

We'll take our next question. It's from the line of Silvia Cuneo from Deutsche Bank.

[Silvia Cuneo, Research Analyst]

My first question is about the strategic review of the portfolio. Can you please share some background as to whether this was the plan from the beginning that you were only interested in the European assets or eBay classified. But to secure the acquisition with eBay, you had to acquire the whole classifieds group?Then second question related to that, can you please discuss if you already see demand for the assets that you are looking to divest in early 2022, so that you will be able to secure an attractive valuation for Australia and South Africa? And what do you intend to do with these proceeds?And then third, about the progress in the transactions. Can you please talk about the take-up in Italy with TuttoSubito following the marketing campaign last time May and how that take up compares with what you've experienced in France? Also, I see you've signed an agreement with local logistics providers. So just wondering what are the next steps?

[Rolv Erik Ryssdal, Chief Executive Officer]

Okay. Thank you. So let me answer the first 2 questions. And then I think the next one is for you, Gianpa. So no, it was not the plan from the outset when we started to look at the eCG portfolio. We always liked eCG, and that was our dream partner. But remember, there's always -- there's almost 2 years since this process started. And what we've done the last half year is to do a very thorough review of the competitive dynamics and our own competitive situation of the economics. And I would say, not least our ability to execute.And then I think that it's fair to say that if you look at Australia and South Africa, I think they will benefit from having another owner because we, as Adevinta, were quite far away from these markets, and they're quite far away from our technical hubs. And we believe that with the opportunities that we're seeing in Europe, we should focus our business and try to do our very best to be the best owner for these businesses. And then we can see that in other divestments we've done that we've found better homes for some of the assets that are further away. So that is the answer to that question.And yes, I expect there to be good interest for these assets because I think they both have interesting market positions with an untapped growth potential. So we'll get back to you on that during the next year. I think your third question was more specifically on Italy, Gianpa, I will hand it over to you.

[Gianpaolo Santorsola, Executive Vice President of European Markets]

Sure. Silvia, thanks for the question. So I'd say that I'm very excited about how TuttoSubito is picking up in Italy. I think the team has done an exceptional job to launch all these service before September so that we could take the back-to-school wave of transactional. That has been very positive. I think it's a bit too early to compare with pickup rate in Leboncoin because our offer in Leboncoin was launched more than 3 years ago, and we are just 3 months into the journey in Italy.But I have to say that there is a lot of exchange or knowledge sharing. Our friends in France are sharing a lot of information and a lot of best practice and this is really accelerating product development in Italy. So overall, very satisfied with the traction so far.

[Operator]

We'll take our next question. It's from the line of Marcus Diebel from JPMorgan.

[Marcus Diebel, Research Analyst]

It seems a lot of questions will be answered at the Capital Markets Day. But one question still is on the guidance, which I assume is not going to change next week. What is really the reason that you just guide for core markets and just not the basic portfolio as we see it after you gave the new reporting structure?And then secondly, if you could give us a guidance for this, how we should think about it? Again, the new reporting structure and that entire portfolio, I think that would be very helpful. And then if you guide on core markets, how should we think then about the 40% to 45% EBITDA margin? I'm just asking, does it mean is the full headquarter included or is it just [ for rate ]? How should we actually think about it?

[Uvashni Raman, Chief Financial Officer]

Marcus, thanks for the question. In terms of why we kept it on core markets is because you do -- we have some assets that we've announced as disposal, and we've had other assets that we have announced as evaluate. And we did not want the medium- to long-term targets be variable related to that, where we believe the core markets will be the core elements of where the investments will occur and where we see the value come from. And that's why we've concentrated the targets around that. Then when it comes to the 40% to 45%, that's our all-in margin, including our HQ and product and tech central.

[Marcus Diebel, Research Analyst]

Yes, but only for then the core markets, I assume, yes. So you have the cost base or -- sorry, I just wanted to really understand how it works. We can also take it otherwise offline.

[Uvashni Raman, Chief Financial Officer]

Yes, we can take it offline, but it's -- effectively 40% to 45% target is our core markets, including our full HQ and product and tech central costs.

[Rolv Erik Ryssdal, Chief Executive Officer]

Okay. Operator, I think we're actually at the hour now. So I don't know if we should have time for 1 last question and then defer the next to next week.

[Operator]

Okay. Our next question is from Andrew Ross from Barclays.

[Andrew Geoffrey Ross, Research Analyst]

Last but not least, I've just got 2 to finish with, if that's okay. The first one is to follow up on the transactional model and why it slowed in Q3. I hear your answer on seasonality, but grew 36% year-on-year in Q3, and it was more than 100% year-to-date. So I'm struggling as to why seasonality is all of the answer. I'm just wondering if you can give us any more color. Is it possible there have been some discounts on shipping fees, so the GMV growth is better than the revenue growth or maybe something else? And then the second question is, can you give us the revenue and the EBITDA of Australia and South Africa?

[Rolv Erik Ryssdal, Chief Executive Officer]

Antoine, do you want to give some color on the first question and then perhaps Uvashni can comment on the second question?

[Antoine Jouteau, Chief Executive Officer of Adevinta France]

Yes. So on the transactional trend, just to remember, we are still investing in all of our countries on this activity. So we are developing new products, and we're integrating features step by step. We are not all at the same level, but we continue the investment phase. So during this period, you're right, I think you have some volume issues and volume effect based on seasonality. This is the first one.The second thing is, you're right, we are doing some pricing operation to -- especially on the shipping side to get more users on these services. We are testing stuff. We are adjusting our pricing strategy because we are investing on this activity because we believe the volume is the most important thing. So you're perfectly right. I think next week, we'll give you more details on this business model to understand what are the key KPIs and you'll understand how we are building this e-commerce business model. But you're right, during the last month, we continue to invest in our pricing analysis, in our strategy, and this is changing the KPIs and changing, of course, the trend.

[Rolv Erik Ryssdal, Chief Executive Officer]

I think it's fair to say, we remain very optimistic about our opportunities in the transactional in our core markets when we look ahead. That's what we're ready to present to you on Tuesday. Uvashni, was it -- yes, sorry.

[Uvashni Raman, Chief Financial Officer]

Then with respect -- yes. With respect to the share of Australia and South Africa, the total revenue is less than 5% of the total group revenues. In the last 12 months to Q3 2021, it was around EUR 65 million. And then from an EBITDA contribution perspective, it's just about EUR 7 million.

[Rolv Erik Ryssdal, Chief Executive Officer]

Okay. Operator, I think we're now past the hour, and we would very much like to invite everyone to attend our Capital Markets Day where we will shed more light on our plans going forward. We are, as you understand, very excited about the growth prospects in our core markets that both goes for the transactional and also -- and for the verticals.In the verticals, there is some temporary pressure in motors, but that does not jeopardize the long-term growth opportunities. And we'll -- with our strong and leading position, we will continue to grow at scale. And we're looking forward to telling you more about it on the CMD, which is November 30th in London.So thank you so much for tuning in. I wish you all the very best. Stay well and stay healthy, and thanks for your time, and have a good time. Have a good day. Thank you.

[Operator]

Thank you. That concludes our call for today. You may all disconnect. Thank you all for participating. Speakers, kindly standby.