Most companies try to achieve revenue growth at all costs, figuring that the more business they bring in, the more profitable they can become. However, online travel specialist Trivago (TRVG 4.91%) has discovered that even when tough competition weighs on top-line growth, being more focused on finding the best opportunities to profit can be more valuable than accepting money-losing business for the sake of boosting sales.
Coming into Wednesday's second-quarter financial report, Trivago investors wanted to see a repeat performance from the turnaround that it scored in the first quarter of 2019. Trivago's results didn't quite produce the same hype that its first-quarter results produced, but the company still managed to stay profitable, and there may even be an end to the declines in revenue that the company has seen recently.
Another quarter in the black for Trivago
Trivago's second-quarter results revealed some of the progress that the company has made over the past few months. Revenue was still down 5%, to 223.4 million euros, but that decline was a whole lot less extreme than the 20% plunge that the online travel company suffered in the first quarter. Trivago once again reversed a year-ago loss, posting 5.9 million euros in profit that worked out to almost 0.02 euros per share, just barely topping the 0.01 euros per-share consensus forecast among those following the stock.
A closer look at Trivago's metrics show just how far the online travel company has come. Referral revenue in the Americas was down just 3% from year-ago levels, and developed Europe referral revenue actually rose slightly over the same period. The rest-of-world segment did lag behind once again with a 17% drop year over year, but improvement in Trivago's two biggest geographical regions was a huge part of its turnaround strategy, due in part to a shift in the timing of the Easter holiday.
As we've seen before, Trivago made sure that it took advantage of only the highest-quality referrals. The number of qualified referrals once again plunged, falling 26%, with relatively consistent drops across Trivago's geographical footprint. Overall, qualified referrals dropped 32%, to 129.3 million. However, revenue per qualified referral soared 28%, to 1.67 euros per referral, with the best gains in the Americas, where the figure rose 31%, to 2.34 euros per referral.
Trivago also got great returns from its advertising spending, which rose by almost 20 percentage points, to 129.6%. The company attributed the gains to more efficient use of marketing budgets to concentrate on the best performers.
Can Trivago keep it up?
Trivago founder and CEO Rolf Schromgens described how the company got more from its efforts. "This quarter, we worked closely with key advertisers," Schromgens said, "to provide more flexibility over how they bid on our platform. These refinements have already begun delivering increased value to both advertisers and end-users, and we will continue to focus on delivering the best experience to our users." CFO Axel Hefer also pointed to Trivago's emphasis on profitability as a game changer for the travel company.
The optimism that Trivago's executives had about the company's future also showed up in upward revisions to its full-year guidance for 2019. The online travel specialist now sees pre-tax operating earnings being between 60 million and 80 million euros, up 5 million to 10 million euros from its previous range. Trivago sees total revenue increasing in the second half of the year, with positive growth in both the third quarter and the fourth quarter. In addition, Trivago expects to spend more on advertising in the last two quarters of the year, taking advantage of opportunities it sees to boost its business.
Trivago investors didn't have a huge reaction to the latest results, and the stock was largely flat on Wednesday following the announcement. Yet if Trivago can keep making money, then shareholders will have to give the travel specialist credit for finding a turnaround strategy that's paying off with business success.