Trivago (TRVG -4.60%) reported reported fourth-quarter earnings on Feb. 9, and as expected, the numbers were grim as the hotel-booking platform continues to endure an unprecedented disruption in the travel industry from the pandemic. A resurgence of virus cases in Europe and North America in the fourth quarter led to revenue plunging 79% to 32.3 million euros ($39.2 million). On the bottom line, the company reported an adjusted EBITDA loss of 3.4 million euros in the quarter, compared to a profit of 18.4 million a year ago.
Still, those challenges were widely expected. The good news for Trivago investors is that vaccines are rolling out around the world, and the company anticipates a strong recovery in the travel industry in 2021. The stock has more than doubled since Pfizer and BioNTech announced successful vaccine results last November, but there's plenty of upside left if the travel sector rebounds strongly, as many expect.
Let's look at three key factors to watch for Trivago as a potential recovery plays out this year.
1. Pivoting to discovery and inspiration
Traditionally, Trivago's strength in online travel has been at the "bottom of the funnel" -- users come to the site when they have a trip planned and want to find the best deal on accommodations. In order to expand the business and complement that strength, the company is focusing more on discovery and inspiration, giving ideas to travelers who want to get away but don't know where they want to go, one component of travel that seems to be doing better than pre-planned trips during the pandemic.
The company introduced a local search feature last year to help travelers find close-to-home destinations, offering suggestions on weekend and romantic getaways on its homepage. And it plans to update the tool in the second quarter and expand it to new markets.
Trivago also made an acquisition in January, purchasing Weekend.com, a small three year old travel start-up with less than 20 employees. Weekend.com sells package deals in Europe, combining flights with hotels, an area that Trivago sees as an opportunity. In an interview, Trivago CFO Matthias Tillman said the acquisition won't be accretive to the company's revenue in 2021, but it "fits nicely into our product road map" as the company focuses more on getaways.
2. The "pent-up demand" question
The biggest mystery in the travel industry these days isn't the trajectory of the pandemic, but what the industry will look like once it's over. Many including Trivago are expecting a wave of pent-up demand to lead to a surge in the travel industry as early as the summer.
Though the company did not give any guidance, it noted that the booking window on searches has increased to about 10 weeks, a sign travelers are planning much further ahead than normal. It also said that demand was strong in the Southern Hemisphere in countries like Australia and Brazil, where it's now summer and the travel season is at its peak, which gives the company optimism that it will see a similar recovery this summer in Europe and North America, especially as many travelers will have had the opportunity to receive the vaccine by then.
Management believes nature and local trips will return first and is hopeful that continental travel in Europe and international travel will recover as well if it's safe to do so.
In a shareholder letter, management said, "We are confident that we will provide our users in the second half of 2021 with a much stronger value proposition than before the pandemic," through its investments in its local travel product and new features for advertisers.
3. An improving cost structure
Trivago has made a number of decisions over the last year to slim down its fixed costs to be as efficient as possible during the pandemic and maintain its liquidity. The company shut down regional offices and laid off employees, moves that helped reduce general and administrative expenses by 26%, or 14.6 million euros, in 2020. As a result of the restructuring and a lease renegotiation at its headquarters in Dusseldorf, Germany, the company expects to save 25 million euros in office and personnel costs compared to 2019.
Tillman said that overhead costs in 2021 would be even lower than in 2020, giving the company more money to invest in areas like technology and products, including Weekend.com, and new digital advertising opportunities as the company shifts ad spending from traditional linear TV.
With the travel sector looking set to rebound later this year, market share will be up for grabs in the industry like never before. It's crucial for Trivago to capitalize on the opportunity, especially since its performance was lagging prior to the pandemic. With its investments in local travel and discovery, new ad products, and a slimmer cost structure, the company looks to be well positioned for a rebound.