Nothing is easy in the travel industry these days.
While restaurant sales have come roaring back, the travel sector, which was among the hardest hit by the crisis, is still operating well below pre-pandemic levels.
Trivago (TRVG +3.00%), an accommodations-booking site operator based in Germany, reports its quarterly earnings before any of its online travel agency peers, so its results offer a valuable early look at the state of the industry. Among the key numbers from its second quarter:
- Revenue was 95.5 million euros, which was up 493% year over year but still down 57% from the second quarter of 2019.
- Adjusted EBITDA came in at 4.3 million euros, beating the company's own guidance, which called for an EBITDA loss.
- Qualified referrals, or the number of clicks on the site to its bidding partners, reached 73.4 million, up 211% year over year but again down 44% going back two years.
Altogether, the results painted a picture of an industry that has emerged from the depths of the lockdown period but is still far from fully recovered. Management noted that its business in some markets, like Germany, was now operating at levels higher than the comparable period in 2019 thanks to strength in local travel. However, restrictions on international travel and a delayed recovery in business travel are hampering the overall recovery.
Image source: Trivago.
Uncertainty ahead
With the delta variant surging in many parts of the world, including the U.S., and vaccination programs still not fully deployed globally, management expects the months ahead will be sluggish for the company. Trivago warned that August and September would be more volatile than June and July because of unpredictability around the delta variant, and it expects a sharper-than-normal slowdown from the summer travel season.
I spoke with CFO Matthias Tillman following the earnings call, and he noted this is a difficult time to travel with so many restrictions, but people are more willing to put up with those hassles to enjoy a week away during the summer. As the fall and winter approach, the share of travelers taking weekend trips or business trips tends to rise -- and those types of trips have been more heavily impacted by the pandemic.
And the company now expects these headwinds to persist into 2022, especially in international and city travel, due to the rising number of cases and the potential need for vaccine booster shots. As such, the rebound in the travel sector will likely come later than many investors had hoped.
Travel trends to watch
Trivago's report also pointed to some noteworthy trends investors in the sector should be aware of.
Alternative accommodations boomed during the pandemic with platforms like Airbnb significantly outperforming conventional hotel chains, but Trivago now sees hotels regaining market share. Hotels can more easily ramp up capacity, especially in areas where they are concentrated like cities and tourist destinations, and they are thus benefiting more from the recovering demand in those areas.
Management expects alternative accommodations' share of the market to decline from last year but to stabilize above pre-pandemic levels. More travelers have now used and become familiar with platforms like Airbnb, and as a greater share of travel shifts to more local and regional destinations for the foreseeable future, this shift favors the home-sharing model. We'll hear more about that trend when Airbnb reports its second-quarter earnings on Aug. 12.
Separately, Trivago's results showed Booking Holdings is now accounting for a majority of the referral revenue on the site -- 60% -- compared to just 39% two years ago. Tillman said Booking had been more aggressive than other bidding partners like Expedia during the pandemic, seeing the crisis as an opportunity to gain market share.
How Trivago is moving forward
Early on in the pandemic, Trivago cut costs by laying off staff and shutting down regional offices, and the company delivered a surprise EBITDA profit during the second quarter, showing it's managing the challenges well.
The company has also launched a local product feature to help travelers who may not have an exact destination in mind discover new places to go. And it acquired Weekend.com, a European online travel agency that specializes in short-term travel-and-accommodation packages.
Looking ahead, the company believes Weekend has significant growth potential, but it's still collecting data. Management is also working on integrating back-end technology with some of its bidding partners, which will leverage fixed costs, help drive traffic, and open up the Trivago platform for cross-selling with partners such as event-ticketing sites.
Management upped its guidance and now anticipates adjusted EBITDA growth for the full year, though revenue may decline sequentially in the fourth quarter in line with seasonality.
For now, online travel agencies like Trivago seem to be in a holding pattern. Until the pandemic fully recedes, travel demand will remain depressed, but the company is maintaining its cash balance, expanding alternative accommodations, and making investments that should pay off when the travel sector returns to health.
