For most small companies, growth is the primary goal. It's a rarity for a company to decide that maximizing revenue isn't the best strategy to follow, but online travel specialist Trivago (TRVG +0.72%) is realizing that, after years of substantial losses, the company has an opportunity to emphasize the areas of its business that are most likely to generate consistent profitability.
Coming into Wednesday's fourth-quarter financial report, Trivago investors had high hopes that the company would be able to sustain its new streak of positive earnings. Trivago's results did indeed show the sales slowdown that most anticipated, but it also included some cause for optimism among shareholders that it's on the right track.
Image source: Trivago.
Trivago keeps moving forward
Trivago's fourth-quarter results were similar to what investors saw last quarter. Revenue was down 8%, to 166.8 million euros, which was in line with what most of those who follow the stock had expected to see from the online-travel company. Trivago once again got positive bottom-line results, seeing net income of 11.7 million euros. That equates to earnings of 0.03 euros per share, topping the consensus among investors for a 0.01 euro per-share profit.
The key strategy that Trivago has followed continued to work well during the period. The company has spent less on advertising and marketing, with the goal of making more efficient use of its expenditures in that category. The result has been a decline in qualified referrals, which fell 19% during the quarter, to 112.6 million. Yet the company is seeing greater amounts of revenue come in for each qualified referral it receives, amounting to 1.44 euros per referral in the fourth quarter, up from 1.27 euros a year ago. Overall, Trivago's measure of return on advertising spending soared to 163%, up 44 percentage points since the fourth quarter of 2017.
Trivago is also working to make sure that its stable of listings keeps up with its competition. The company reported more than 1.5 million alternative accommodation listings as of Dec. 31. Trivago also made a deal with outside provider RedAwning that will have the impact of adding 80,000 vacation rental, condominium, apartment-hotel, and townhome listings to the company's platform.
At the same time, Trivago wants to make its user experience as enjoyable as it can be. Platform modifications have aimed to make it possible to book reservations more efficiently, ideally reducing the number of click-outs necessary to finalize a transaction. That's showing up in higher user retention and conversion rates, and Trivago thinks there's more progress to be made in that area.
Trivago founder and CEO Rolf Schromgens was pleased with how the period went. "We remain committed to reshaping the way travelers search for and compare hotels," Schromgens said, "and I am particularly pleased that the levels of alternative accommodation on our platform continue to grow at pace." The CEO intends for those efforts to continue into 2019.
Check out the latest Trivago earnings call transcript.
Can Trivago keep growing?
Trivago is also optimistic about the coming year. In Schromgens' words, "Our marketplace dynamics remain stable, and we are confident that we are on a good track to succeed in 2019." CFO Axel Hefer added that he believes continued improvement to the bottom line is likely this year, as well.
That showed up in Trivago's guidance for 2019. The company sees adjusted pre-tax operating earnings coming in between 50 million and 75 million euros, building on its success in the second half of 2018. Revenue is likely to keep falling in the first half of 2019 as the online-travel specialist keeps pursuing its overall strategy, but top-line growth should return by the second half of this year.
Trivago investors were pleased about these developments, and the stock climbed almost 3% in morning trading following the announcement. If the company can keep making its spending more efficient, then greater profits could be here to stay -- and investors could finally start to see the full potential that Trivago has in the online-travel industry.
