Trivago’s marketing and product optimization efforts in the
past year are paying off as the metasearch site grew its referral revenue in June
compared to one year earlier, while its advertising spend was lower in the same time frame.
The second quarter of 2019 was Trivago’s fourth consecutive
quarter of year-over-year improvement in profitability. Net income for the
quarter was €5.9 million, compared to a net loss of €20.7 million in the second
quarter of 2018, while total revenue decreased slightly, to €223.4 million, compared
to €235.0 million last year.
Trivago also saw a significant improvement in adjusted
EBITDA in the quarter – to €18.5 million compared to an adjusted EBITDA loss of
€17.7 million in the second quarter of 2018.
“We think that the last four quarters is now our revenue base
as well as our profitability base, and from now on we expect revenue to grow,
we expect absolutely our profitably to grow, but we also want to keep on
investing so that we can accelerate growth over time,” says Trivago founder and CEO Rolf Schrömgens.
The number of qualified referrals declined by 26%, to 131.3
million, in the second quarter of 2019 compared to the same period a year
earlier, spread nearly equally across the company’s three segments of the
Americas, developed Europe and the rest of the world. But revenue per qualified
referral, a reflection of the quality of traffic being referred to advertisers,
jumped to €1.67 in the second quarter of 2019, up 28%, compared to the same
period in 2018.
And this increase is coming in tandem with a drop in the
amount Trivago is spending on advertising.
In the second quarter of 2019, selling and marketing expense
decreased by €46.7 million, or 21%, year-over-year to €180.8 million, of which
€169.7 million, or 94%, was spent on advertising.
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This resulted in an improvement in ROAS - return on advertising spend, which is a ratio of referral revenue to advertising spend - to 129.6% in the most recent quarter compared to 110.1% in
the same period last year.
“Specifically in our performance channel, we are trying to
buy traffic way more targeted than we did in the past. We are buying less
visits, but we are buying more qualified visits,” Schrömgens says.
“The second impact ... is the product improvement. We are trying
to massively increase the engagement on Trivago. We try to engage people into
doing their research on Trivago, give them more details around the hotel, more
images, more reviews and also more details when it comes to rates, so that user
makes more of their decision on Trivago before they go to an OTA and finally
book.”
Schrömgens says in the second half of 2019, advertising spend
will increase to draw more users to the improved product. So going forward, growth
in adjusted EBITDA, rather than profitability, will be a more accurate metric
of success.
Product development
Trivago has also changed bidding options in its marketplace
to add more flexibility. In June the company launched the first two new bid
modifiers – “time to travel” and “length of stay” – in test markets and is now
rolling them out across the platform.
“When you have something like 'time to travel' you usually have
high correlation with holiday hotels, holiday travelers and so on because they
usually book way more in advance,” Schrömgens says.
“And if you have then a specialized OTA who is very
focused on that travel and long stays, they are able to bid more aggressively
than they were able to bid before because they have a very good user experience.”
Schrömgens says these new bidding dimensions are enabling niche
advertisers to be more competitive and should ultimately improve the total
number of bookings and also improve the user experience.
Revenue from Trivago’s two main advertisers – Expedia Group
and Booking Holdings – remained relatively flat. Expedia accounted for 35% of revenue
and Booking Holdings 39% in the second quarter of 2019, compared to 38% for
both in 2018.
But Schrömgens says the company has seen movement from smaller,
local OTAs.
“In several markets we have local OTAs that are currently gaining confidence in
the marketplace and therefore being more aggressive, going in with higher bids,”
he says.
Responding to a question from analysts about Trivago’s
alternative accommodations inventory – which currently stands at 1.8 million
units – Schrömgens says rather than adding more listings, the priority is to
make the existing inventory more productive.
“One of our principles is aggregation and comparing prices,
and comparing prices on a larger inventory base is generally more difficult
because if the inventory is very long tail you have less overlap,” he says.
“What we are trying to do is to get more than one offer for
alternative accommodations, to have a higher density of advertisers so that we
offer a real price comparison and a real aggregation for our users. That is
something we now want to also focus on. And then of course it’s not only aggregating
prices, but it is also aggregating reviews, aggregating images and so on, so
users can be sure that on Trivago they get the best overview.”
On July 9, Trivago announced it has hired James Carter, formerly
a Google engineering director working on the Hotel Ads product, as its new head
of hotel search.
When asked whether he has concerns about Google’s continual development
of its travel products, Schrömgens says, “Google has to do that because I think
their product, in general, their general search product, is not very suitable
for travel. So if they want to stay competitive, I think they have to move. ... It’s
been happening since 2010.
"I think it’s true that we are seeing this more intensely
in the last two years. We have noticed that, and now this guy who does it for them
works for us.”