Despite A Lackluster Beginning, Here’s Why Trivago Might Be Heading Towards A Better Future

December 22nd, 2016 by Trefis Team
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Though Trivago raised an IPO funding far below its expectations and the company is currently spending a lot on marketing, we believe Trivago has significant future growth potential.

It doesn’t seem like a good year for metasearch engines. First TripAdvisor’s constant problems, primarily with generating more demand for its Instant Booking platform, and now Trivago which was looking for an initial public offering (IPO) and seemed to have received less than expected funding. Investors had valued Trivago at an estimated $4 billion, however, the company had raised only $184 million in net proceeds (after excluding the bankers and owners shares) so far. The year 2016 had been a tough one for internet software and services IPOs. With post poor performances of the IPOs and the investors lack of confidence, the total amount raised by IPOs had declined by 41% y-o-y, so far in 2016, and amounted to around $450 million. Trivago is currently listed on the NASDAQ with the ticker symbol, ‘TRVG.’  In 2012, Expedia had shelled out around $531 million to obtain a 62% stake in Trivago.

Trivago helps travelers in their hotel searches after aggregating hotels from various online travel agencies. It generates its revenues through the OTAs when the customers click on the OTA websites. Expedia is one of its primary customers and along with its other brands, Expedia comprised 35% of Trivago’s revenues for the first nine months of 2016. Priceline and its brands contributed to 43% of Trivago’s revenues during the same period. However, despite a slow start, we believe Trivago has a bright future ahead.

How Does The Future Look For Trivago?

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Trivago is the primary driver to bolster Expedia’s revenues from the advertising and media segment and we currently expect the revenues to grow at a CAGR of ~11% between 2016 to 2023. In 2015, Trivago’s standalone revenue stood at around €490 million, reflecting ~60% year-over-year growth and its adjusted EBITDA reached a few million euros. For the first nine months of 2016, Trivago’s revenues grew by 49% year-on-year to ~$653 million.

However, Trivago’s huge growth comes from its high marketing spend with over two-thirds of its revenues spent on marketing. Hence, it incurred a net loss of $57.8 million for the first nine months of 2016. This is not an unusual trend for fast growing travel companies such as Airbnb or Uber, who, too, have spent a huge sum on marketing in order to gain a fast global reach. Trivago is still expected to grow exponentially in the future and despite the spend on advertising, which is important to carve out a position for itself in the extremely competitive OTA industry, we can expect Trivago to recover its bottom line while continuing to grow significantly in the long run.

As is mentioned in its company filing, over the last twelve months till September 30th, 2016, there had been 1.4 billion visits on Trivago’s websites and mobile applications resulting in close to 500 million referrals, and it offered around 1.3 million hotels in close to 200 countries. According to industry experts, Trivago’s adjusted EBITDA is expected to rise by 142% from around $64 million in 2016 to around $155 million by 2018.

Trivago’s CEO has also recently mentioned that there’s a big problem in the online hotel sphere, the one of matching the right customer with the right hotel. He also mentioned that this issue can be resolved by software. We can expect that the company might be planning on some such customized services to match the right customer with the right hotel and since the company focuses only on metasearch, hence to earn a competitive advantage in this area can definitely go a long way to make Trivago extremely successful in the future.

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