When Trivago (NASDAQ:TRVG) hit the public markets in 2016, the hotel-booking specialist looked set to join a successful parade of online travel agency stocks, including Booking Holdings (NASDAQ:BKNG), which was Priceline Group at the time; Expedia (NASDAQ:EXPE); and TripAdvisor.
At first, Trivago shares surged as revenue growth boomed. But the bull story soon changed as the company's relationship with Booking, its biggest partner, soured and the competitive landscape in the travel industry changed. Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google has become a major player in hotel meta-search, which is Trivago's core business, pressuring established online travel agencies. Its bidding partners like Expedia and Booking Holdings have begun focusing on generating more direct traffic to their sites rather than through Trivago; and the industry in general is maturing as growth is slowing across the board.
Trivago's fourth-quarter earnings report makes clear that those trends are likely to persist through 2020. The stock plunged as much as 21% on Wednesday as revenue fell 7% to 155.5 million euros ($169.7 million), a reflection of the company's decision to pull back on marketing to get more valuable search traffic. On the bottom line, adjusted EBITDA fell by 33% to 18.4 million euros, and earnings per share slipped from 0.03 euros to 0.01 euro.
New CEO Axel Hefer, who was recently promoted from CFO, summed up the headwinds in management's letter to shareholders. Describing Trivago's outlook for the industry, he said, "In the past few years, the industry dynamic has changed as growth has slowed, and large players have focused more on their profitability. At the same time, competition has increased."
Hefer noted the influence of Google as well as newer competitors like Airbnb and Trip.com, and added, "Trivago has been negatively impacted by the slowdown in industry growth, growing competition, and the reduced spend of their large [online travel agency] advertisers. We believe that the slowed industry growth has led to a lower share of first-time users of online travel websites, reducing the value of meta-search leads to the large [online travel agency] advertisers."
A broad set of challenges
Starting in 2018, Trivago has been forced to adapt its strategy to the changing marketplace dynamics. In general, the company has shifted its focus from revenue growth to profitability, and tried to use its marketing budget (its biggest line item) more efficiently. That strategy has produce mixed results, but there have been positive signs. For the full year in 2019, for example, adjusted EBITDA soared from 14.6 million euros to 70 million euros.
For 2020, Trivago declined to give specific numbers in its outlook, but the company said it did not expect its industry outlook to change significantly. Trivago is planning to test its marketing efficiencies in the first half of the year, which it said could lead to double-digit revenue declines in Europe as it fine-tunes the strategy and makes adjustments.
It also said it would roll out new products that will help with the integration of its alternative accommodations, including Airbnb, which recently became a Trivago partner. In an interview, CFO Matthias Tillman highlighted Trivago's advantage over Google in alternative accommodations like apartments and Airbnb rentals, noting that Trivago includes both hotels and other listings on its platform, while Google requires users to look at separate search pages for hotels and alternative listings like apartments. Trivago now has 3.5 million alternative accommodations listed on its platform.
Management said it was targeting positive adjusted EBITDA for the first half of the year and aspires to adjusted EBITDA growth for the full year.
In his last comment on the earnings call, Hefer was blunt, saying, "The times are rough, we do have a clear plan, and we are focused on what we can control."
Trivago may have a good product as the biggest hotel meta-search company, and it has key advantages over Google, including its specialization in hotels. But the terms of the industry are being dictated by bigger players like Google, Expedia, and Booking. As long as that's the case, it looks like Trivago will struggle to bounce back.