Online travel websites have seen their capabilities improve dramatically in the past decade, and that's made competition among the industry's leading players extremely fierce. Trivago (NASDAQ:TRVG) has fought to strengthen its own platform and to let potential customers know the advantages that it offers. Yet that hasn't made it any easier for the company to work its way through difficult situations and find the best way to communicate its benefits to travelers.

Coming into Wednesday's first-quarter financial report, Trivago investors were prepared to see both modest declines in revenue and a small net loss for the period. Trivago's results showed the difficulty that foreign-currency impacts can have on companies that do business internationally, but the travel specialist is boosting its investment in key areas that it thinks can enhance its future growth and lead to greater success in the long run.

Conference display showing Trivago hotel manager product.

Image source: Trivago.

How dollar weakness hurt Trivago

Trivago's first-quarter results didn't hold up as well as some had hoped. Revenue was down 3%, to 259.4 million euros, which was roughly in line with what most of those following the stock had expected to see. Net losses of 21.8 million euros, however, were quite a bit worse than the consensus forecast among investors, working out to per-share losses of 0.06 euro compared to the 0.01 euro per-share loss that most were looking for.

One key issue that many U.S. investors wouldn't necessarily think of is the fact that the strength of the euro compared to the U.S. dollar and other currencies in the Americas and in Trivago's rest-of-world segment hurt its financial results. When the euro strengthens, the dollars and other foreign currencies that Trivago gets as revenue aren't worth as much in euro terms, and that holds back its revenue and earnings growth.

Yet Trivago also faces many of the same challenges operationally that we've seen before. Qualified referrals were up 7%, to 189.5 million, but revenue per qualified referral was down 9%, to 1.35 euros per referral. Again, the strong euro was largely responsible for that decline in the Americas and rest-of-world segments, as revenue per referral in dollar terms rose. However, in Europe, both referral counts and revenue per referral declined. Lower levels of commercialization were once again a primary detractor from Trivago's internal performance during the period.

CFO Axel Hefer explained the results most succinctly. "We managed to grow the usage on our platforms," Hefer said, and "we achieved this despite strong headwinds from currency movements in the Americas and Rest of the World and a drop in commercialization." The CFO noted that it looked as though advertisers have boosted their target for profitability in choosing how much to spend on Trivago's marketplace.

Can Trivago recover?

CEO Rolf Schromgens was optimistic that Trivago can make progress. "Over the course of 2017," Schromgens said, "we invested heavily into building up both our team and technology to promote long-term growth. While impacting our operating costs, we believe the effects of this investment will become increasingly visible." Trivago pointed to higher rankings for its platform among travel websites in many key countries in Europe, including Germany, Spain, the U.K., and Italy. Brand awareness also has improved in the U.S. market, which is key for the company.

Yet Trivago had to make cuts to its guidance for 2018. The travel website now sees flat revenue for the year, down from prior guidance for 5% to 10% growth, as weakness in the first half will cancel out improving conditions later in the year. Substantial declines in revenue per referral should slow by the end of the year, but it won't be enough to keep Trivago from posting an adjusted pre-tax operating loss of roughly 25 million to 50 million euros for the year.

Trivago investors weren't happy with that news, and the stock plunged 10% in pre-market trading following the announcement. To succeed, Trivago will have to find ways to reverse the adverse trends that have held it back recently, and it looks like shareholders need to be prepared for that process to take a bit longer than they'd hoped.

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