Trivago increased its guidance for the full year after “positive signs turned into strong signals” as the group looked to quality over quantity.
The company said that it was continuing to invest “significantly” in direct business with hotel companies, but that it was a “long term effort”.
Rolf Schrömgens, Trivago’s CEO & managing director, said: “In Q3 2017, we experienced a drop in our commercialisation as our core advertisers adjusted their performance targets. We see significantly less for every euro booking volume that we generated for them. As this directly affected our bottom-line, we were expecting losses for the first half of this year that sums up to nearly EUR40m.
“This year, we concluded that the magnitude of these losses was not in line with our culture anymore. We’ve built this company with very little external funding and remained close to positive Ebotda through all these years. We were always maximising our growth potential, yes, but we also aimed not to be dependent on external funding. This led to our decision to raise our marketing profitability targets during Q2.”
The company said that it continued to implement measures aimed at optimising its platforms and product, with the intention of increasing user retention and booking conversion, while reducing the number of click-outs required to ultimately make a booking.
“Since we make these changes by optimising for traffic quality instead of volume, these changes will tend to have a negative impact on qualified referrals… but we believe they will have a long-term positive impact on revenue per qualified referral.”
A 12% fall on the year in qualified referrals led to a 12% drop in revenue to EUR253.7m. Net income for the three months was EUR10.1m, compared to a net loss of EUR7.7m in the third quarter of 2017. Adjusted Ebitda was EUR26.6m in the period compared to an adjusted Ebitda loss of EUR7.1 in the third quarter of 2017.
The CEO said that based on the results of the rebalancing of its advertising, the company was increasing its guidance and now expected adjusted Ebitda to be zero to minus EUR10m for 2018, with revenues “down” year-on-year.
Schrömgens said: “The last quarter exceeded our expectation. The positive signs that we carefully talked about in the last earnings call turned into strong signals.”
The group remained reliant on its core advertisers, with Booking Holdings accounting for 44% of total advertiser revenue, Expedia Group 32% and all other advertisers 24%. The CEO said that Trivago was working on tools to make itself more attractive to SMEs.
The CEO said: “Will we continue to depend on our two largest partners? I think for the foreseeable future, yes, we will. We are obviously doing various things to overall decrease our dependency on our largest advertisers. But in the short to mid-term, we will continue to depend on them.”
In line with other booking platforms, Trivago said that it was working with alternative accommodation providers. Schrömgens said: “While we are very excited about the opportunity, we are also approaching the project with a gradual increase. We are carefully scaling the exposure of alternative accommodation within our listings.”
Looking at the meta-search group’s direct relationship hotels. Schrömgens said that Trivago would continue to invest “significantly into our relationships and into the support of individual hotels direct and also hotel chains direct. So that definitely stays to be one of our focus areas. It’s not something that changes quarter-over-quarter but it’s more a long term project and a long term effort.”
The CEO reiterated that Trivago had no plans to offer booking itself. He said: “We clearly want to be an independent player in the market. We want to give you the information and you should be sure you book always with one of our advertisers – with the hotel chain, with the hotel directly but not with Trivago.”
Looking at Google hotel ads, Schrömgens said that Trivago saw it as “an opportunity…because we are underrepresented globally in that channel”. CFO Axel Hefer added: “Strategically, Google has always been one of our competitors … they have recently made some changes to their product as have we, so we don’t see a significant change in the value proposition pace of them versus us recently. We see it as an opportunity by increasing our share in the channel to reach our fair market share.”
HA Perspective [by Katherine Doggrell]: Expedia Group CEO Mark Okerstrom told analysts that he was “optimistic” about the metasearch engine, in which his OTA was a shareholder, and that it was “making good progress in adjusting its business model to reflect the new industry dynamics”.
As we heard at the recent Hotel Distribution Event, hosted by Hotel Analyst, the new industry dynamics are threatening to squeeze out the metasearch sites – those that remain- as the OTAs and the hotel operators are both bent on achieving the scale which gives the consumer plenty to look at when booking.
With Google Hotel Ads offering a place for metasearch engines to spend their cash, the threat is that they are paying to play and their USP is vanishing behind them. Should Google purchase TripAdvisor, the role available to Trivago is likely to disappear completely.