Please ensure Javascript is enabled for purposes of website accessibility

Can Trivago Bounce Back After Last Week's 31% Drop?

By Rick Munarriz - Oct 31, 2017 at 10:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The former dot-com darling that was growing revenue at a 68% clip to start the year is now eyeing growth as low as 2% for the fourth quarter. The broken IPO is now descending.

There have been more outs than "inns" at hotel metasearch specialist Trivago (TRVG -1.97%) these days. The stock plunged 31.1% last week, coming undone after posting problematic financial results for the third quarter.

Trivago posted a widening quarterly deficit on a 17% uptick in revenue. It's a far cry from the top-line growth of 68% and 67% that Trivago posted in the first and second quarters, respectively, but that wasn't the deal breaker. The quickly fading dot-com darling had warned early last month that full-year growth would clock in at 40%, implying growth would be in the teens during the latter half of the year. The real problem is that Trivago is now eyeing just 36% to 39% growth for all of 2017. It may not seem like much of a tweak, but it translates into growth of just 2% to 15% for the final quarter.

It gets worse. Trivago is warning that it's unlikely to post revenue growth during the first half of next year, returning to positive results in the latter half of last year. 

A Trivago booth at a travel conference in Spain.

Image source: Trivago.

Bumpy landing

Trivago's now a busted IPO, falling to the single digits after going public at $11 late last year. The stock had peaked in the mid-$20s earlier this year. Last week's disappointing third-quarter results is just the latest step down for the stock. 

There are some serious questions about Trivago's model, where advertisers bid on placement of the site's lodging listings. Its platform generated a 20% year-over-year increase in qualified referrals, but the average revenue per referral has fallen by 3%. Trivago is warning that several of its larger advertisers -- online travel portals, mostly -- began testing new bidding strategies by the end of the third quarter. The tests have had a negative impact on Trivago's revenue and profitability. 

A couple of analysts would go on to downgrade the stock. Nat Schindler at Bank of America/Merrill Lynch lowered his rating to underperform and his price target from $14 to $8. He sees a vicious cycle where Trivago is generating less per referral while at the same time having to budget less to attract traffic. Guggenheim is also downgrading the shares from buy to neutral. 

A tip of the hat should also go out to Lloyd Walmsley at Deutsche Bank, who had slashed price targets for the leading online travel portals ahead of the report. He took his price goal for Trivago down from $20 to $13, which if anything may seem too high in light of the troublesome report. 

Trivago isn't dead. We still don't know if it will be able to tweak its model to thrive in a climate where advertisers are testing new bidding strategies. We don't know if new advertisers will step up to take advantage of the opportunity of cheaper leads. Things don't look promising right now, but growth investors know that disruption breeds opportunity. Your move, Trivago.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Trivago Stock Quote
$1.49 (-1.97%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.