Please ensure Javascript is enabled for purposes of website accessibility

Why Trivago Stock Rose 11% in April

By Jeremy Bowman - May 7, 2019 at 11:43AM

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

Shares of the hotel-booking platform jumped when the stock got an analyst upgrade.

What happened

Shares of Trivago (TRVG 3.25%) were gaining ground last month on an analyst upgrade and as investors anticipated the release of the company's first-quarter earnings report on May 1. According to data from S&P Global Market Intelligence, the stock finished April up 11%.

As you can see from the chart below, shares of the hotel meta-search company surged toward the end of the month, propelled by an endorsement from Guggenheim Securities.

TRVG Chart

TRVG data by YCharts

So what 

Trivago stock gained 7% on April 23 and continued to move higher from there after Guggenheim upgraded its rating on the stock from Neutral to Buy and raised its price tag to $5.50. Guggenheim said the company's focus on profitability as it optimizes its marketing spending gives the stock upside potential.  

A couple relaxes at a hotel pool.

Image source: Trivago.

Analyst Jake Fuller argued that the company could send significantly more cash to the bottom line if it continued to cut back on advertising spending, as nearly all its revenue goes to sales and marketing. Fuller also seemed to think that Trivago hadn't accounted for this possibility in its guidance even though the company is clearly focusing on profitability as it rebalances its business.

The stock climbed through the end of the month, but then pulled back when Trivago reported quarterly results on May 1, saying that revenue fell 20% to $234.8 million, badly missing analyst estimates at $266.8 million. On the bottom line, the company flipped a $0.07 loss per share from the year before to a $0.03 per-share profit, beating expectations by a penny. Nonetheless, the stock finished that session down 5% as investors focused on the decline in revenue. 

Now what 

The investor response to Trivago's first-quarter earnings report shows the problem with Fuller's thinking. While the company could beef up profits by cutting back on marketing spending, it needs to do something about its declining revenue. Luckily, the company is forecasting a return to revenue growth in the second half of the year as it laps the beginning of its optimization strategy, but it's unclear how much revenue growth management is expecting. 

In order to deliver the kind of profits that Fuller and others are eyeing, Trivago will have to get revenue growth consistently back to double digits. At this point, that's far from guaranteed.

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
Trivago
TRVG
$1.59 (3.25%) $0.05

*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
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

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.