The coronavirus pandemic has been nothing short of a disaster for the travel industry.
Business and international travel have essentially ground to a halt, as offices have mandated work-from-home policies and citizens of countries like the U.S. have been banned from traveling to much of the world.
It's an unprecedented crisis for travel industry businesses, including airlines, cruise lines, and hotels, as well as online travel agencies like Trivago (TRVG +0.71%) that depend on demand for accommodations. Trivago is in a better position than peers like airlines with high fixed costs, as much of its spending typically goes to marketing, but its results for the second quarter were still deeply affected by the pandemic.
Revenue in the quarter fell 93% to 16.1 million euros ($19.05 million) as both bidding partners and travelers pulled back on spending. Trivago recovered some demand as the quarter progressed and certain parts of the world began to reopen their economies. The company slashed sales and marketing spending by 93% to 12.8 million euros, but it still reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of 14.4 million euros, compared with an 18.8 million-euro profit last year. On a per-share basis, the company lost 0.06 euros per share.
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A bumpy road ahead
The travel industry may be facing even more uncertainty than it did in the depths of the crisis, as individual markets have responded differently to reopening. Trivago management continues to expect a high degree of uncertainty as it sees travel demand following the trajectory of the health crisis, which is unknown.
After lockdowns across much of the world in March and April, the company did begin to see a recovery in markets like Germany, New Zealand, and parts of the U.S. as they started to reopen. Demand for nature-focused leisure trips has been strong as travel interest has shifted to destinations close to home and away from cities, with travelers choosing to limit their exposure to the virus. In Germany, for example, where the company has seen a relatively robust recovery, local nature trips have recovered by 75% from April to July, and management said it was tracking toward a full recovery in that category. However, city trips have been slower, seeing a 58% recovery, while international trips are only 44 percentage points above where they were in April.
In the U.S., however, a recovery that began in May plateaued in mid-June as the country experienced another wave of outbreaks. Transportation Security Administration throughput data also resembles that plateau, as air passengers have been down about 75% through July, and the recovery Trivago saw in May and June essentially fizzled out.
Making adjustments
Trivago isn't sitting still during the pandemic. CEO Axel Hefer struck a positive tone on the call, saying that despite the challenges from the crisis, he also sees it as an opportunity. He called the pandemic a catalyst to focus on customer needs and improve product.
The company's investments in alternative accommodation selection are one improvement that is paying off. It now has more than 3.8 million listings for places like apartments, vacation rentals, and guesthouses, partnering with sites like Airbnb and VRBO. In the second quarter, more than 20% of bookings were for alternative accommodations.
It's also beta-testing a local travel product that will add an element of discovery to searches, giving users suggestions for destinations within a certain radius of their homes. The product should be a good fit for travelers looking to escape densely packed cities during the pandemic or who are interested in a long-term rental to ride out the crisis.
Similarly, the company is also giving new options for bidding partners by adding sponsored listings and display ads in the second half of the year, a new line of business that CFO Matthias Tillmann said could eventually reach a double-digit share of revenue. It's also giving advertisers the ability to bid on its marketplace on a cost-per-acquisition basis rather than based on qualified referrals, connecting advertiser spending more closely to customer bookings.
Finally, the company has taken steps to reduce fixed costs: closing offices in Amsterdam and Leipzig, Germany; selling a deployment center in Spain; and reducing head count. It said those moves would lower costs by 9.4 million euros, and it reiterated a goal of lowering head count and related expenses by 20 million euros, which will significantly improve profitability if the business makes a full recovery.
A long slog
Trivago also maintained its guidance for the year, saying that revenue would fall more than 50% and that it would have a significant adjusted EBITDA loss. It's clear that the travel industry is at the mercy of the pandemic, and demand won't fully recover until the crisis reaches some kind of end or fades enough that people feel comfortable returning to normal levels of travel, including internationally and for business.
Still, Trivago isn't just playing defense here. By slimming down and adding new product features for travelers and advertisers, the company could emerge from the crisis in a stronger position. With the stock now below $2, the upside potential for investors willing to wait out the storm could be substantial.
