Trivago hampered as advertisers focus on profitability despite travel demand

Trivago said it has made progress on its strategy in the first quarter of 2023 despite the “volatile macro-environment.”

The Germany-based hotel metasearch company said progress was made in each of its goals of increasing value in the product for advertisers and users, boosting the coverage of its directly bookable rates and investing in the brand.

Investment in the brand will increase in the second quarter with a change in messaging to reflect the current market conditions and the consumer desire to save money.

The directly bookable rates initiative is seen as a big opportunity for the company, with coverage expected to be 80% by the end of 2023. 

Trivago does not expect any financial impact from the initiative this year and is unlikely change its messaging to market it until next year.

Speaking to PhocusWire, Axel Hefer, CEO of Trivago, said: "To advertise a feature it has to be visible so you need a minimum coverage before you can actually change your messaging. That’s how we’re approaching it, ramping up the coverage. At 50% only every other traveler sees the feature so it does not really make sense to advertise it aggressively. Once you’re at 70/80% then you’re in a different ballpark. For next year it’s an alternative message that we’re preparing but for this year we’ll stick with the main message which is to compare prices."

He also said that metasearch is in a maturing market.

"In a maturing market you see consolidation and product differentiation. Whereas in a growing market even undifferentiated product can grow very nicely by differentiation in market strategy or by superior sales effort. I would say up to 2018, 2019 and 2020 pre-pandemic we were in a high-growth market. Now if I fast forward the next five years we think will be more product differentiation driven and our biggest initiative is obviously the hotel direct connect because we see value that is currently untapped from a user perspective. We also see the opportunity to clearly differentiate our offering from other metasearch providers because it’s quite an investment and not that easy to replicate."

The company announced revenue of €110 million in Q1, up 9% from the same period in 2022.

Referral revenue increased 11% to €109 million versus €98 million year over year while net income was €10 million compared with an almost €11 million loss year over year.

Adjusted EBITDA dipped 12% to almost €19 million compared with €21 million in Q1 2022.

Returning on advertising spend decreased almost 16 percentage points to 168.2% for the quarter.

In a shareholder letter, Trivago said that its auction has not had the seasonal upswing in monetization that it experienced last year as “advertisers have shifted their focus from volume to profitability in their advertising campaigns on our platforms, leading to softer bidding dynamics compared to the prior year, particularly in Americas. As we continue to focus on profitability, we have adjusted our performance marketing activities, which has led to a drop in traffic volumes in Americas.”

Hefer said the focus on profit isn't really a concern.

"It’s going in waves. It’s like at the capital markets you had huge growth two years ago and then in very volatile uncertain times, you have a lot of focus on profit. It’s something you need to manage. Thankfully we’re not a startup where many are now struggling to shift from rapid growth to being profit focused. We are profitable and have a very strong balance sheet so if there’s a huge focus on growth that’s great, if there's a strong focus on profitability it’s not so good, it’s a bit of a headwind."

Trivago also said in the letter that its ongoing testing of products that add value for customers has resulted in “changes in user and click-out behavior, particularly in Americas.”

It will no longer be reporting qualified referrals or revenue per qualified referral metrics going forward, as it believes they won’t provide a true picture of the business.