What happened
Shares of Trivago N.V. (TRVG +12.23%) were moving higher today as the beaten-down stock gained with the broader market rebound. Though there was no specific news out on Trivago today, a combination of its surprising third-quarter profit that it reported last week and the general surge in the market resulted in the hotel-booking specialist closing up 10%.
Image source: Trivago.
So what
After Trivago shares jumped 29% last week, investors seem to believe that the business is finally beginning to turn around, and shares still look cheap as the stock has lost more than two-thirds from its peak last summer of around $24.
Revenue is still falling at the online travel agency (OTA), a sign that the business hasn't yet made a full turnaround. Third-quarter evenue declined 12% to 253.7 million euros, which was partly by design as the company scaled back on advertising spending in order to boost its bottom line. That strategy achieved the desired result; return on advertising spending increased from 111% to 136%, and the company posted net income of 10.1 million euros, up from a loss of 7.7 million euros the year before.
Now what
Trivago's OTA peers all gained today, but none of them experienced the kind of surge that Trivago did, indicating there was no particular industry news driving the stock up. While Trivago did take some important steps to improve its business, investors will have to be patient with a full-scale turnaround. Though the company forecast a small profit for the fourth quarter, it sees revenue falling again in the current period. CEO Rolf Schromgens said the company is aiming to rebalance the business to make it profitable and then focus on growing revenue, so it may be a few quarters until top-line growth returns.
