Revenue drops for Trivago as challenges from Google, Coronavirus escalate

Axel Hefer, CEO of Trivago, wants to “challenge” the way business is done with Google after the Düsseldorf, Germany-based company posted disappointing financial results.

Revenue for Trivago declined by 8% to €838.6 million for the full year in 2019.

“Google is continuing to put pressure on the whole industry by trying to extract more and more profit,” Hefer says in an interview with PhocusWire.

“We need to challenge the way we are dealing with Google and the level of spend that we're having on those channels to see if it is really incremental or is Google just selling us our own customers over and over again?”

In a February 11 letter to shareholders, Trivago says it has “been negatively impacted by the slowdown in industry growth, growing competition and the reduced spend of large OTA advertisers.”

“We believe that the slowed industry growth has led to a lower share of first-time users of online travel websites, reducing the value of metasearch leads to the large OTA advertisers.”

The company also writes that the recent Wuhan coronavirus outbreak “will have a negative impact on our business volumes” in 2020.

“The last couple of weeks clearly have not gone in a good direction,” says Hefer. “If this continues at the current pace, it could be a very significant headwind for the first two quarters.”

Hefer says the impact will be felt “in markets that have very close business ties with China.”

In a call to discuss earnings, CFO Matthias Tillmann says that the company adjusted its advertising spending levels in Asia and could quickly ramp up spending if the situation improves.

Financial performance

Trivago writes that its strategy to “adjust and optimize marketing spend significantly” in the face of “new market dynamics” has simultaneously “led to a decline in revenue” and a “significant increase in profitability.”

Revenue for the fourth quarter of 2019 dropped 7% year-over-year to €155.5, missing analyst expectations of €162.73.

In January, an Australian court ruled that the metasearch company misled customers on hotel room rates.

Trivago changed its display and advertisement practices in Australia in order to comply.

“As we expect a fine for historical non-compliance in Australia to the new guidance, the resulting increase in our legal reserves has negatively impacted net income and Adjusted EBITDA for 2019,” the company writes.

Adjusted EBITDA fell by 33% year-over-year from €27.6 million to €18.4 million in the fourth quarter, with net income nosediving by 72% year-over-year down to €3.1 million.

Referral revenue in America rose 4% in the quarter while declining by 11% in developed Europe and 13% in the rest of the world.

The company lowered its selling and marketing spend by 9% to €107.1 million in the quarter.

Outlook

Trivago anticipates similar industry dynamics in 2020.

“Google is likely to continue to try to increase its share of total industry profit while large OTAs are likely to continue optimizing their advertising spend and other expenses,” Trivago writes.

In 2020, the company plans to introduce alternative revenue streams for advertisers, recalibrate its marketing mix and improve its alternative accommodations product.

Despite the headwinds, Hefer has a positive outlook for metasearch.

“Metasearch from our perspective is serving the undecided traveler,” says Hefer. “That is somebody who is not sure which OTA he wants to go forward with because he's price conscious or wants to have transparency.”

Hefer also believes that the definitions of “different accommodation types will get increasingly blurry” in the next few years, and metasearch can help users distinguish between different lodging options.

As some metasearch websites integrate instant booking capabilities, Hefer says that Trivago is going “in a slightly different direction.”

“Google is very clearly pushing further down and trying to capture a bigger chunk of the user journey, which strategically is a very significant threat to the OTAs and our core partners.”

Hefer adds: “We want to jointly with our advertisers optimize the user flow because in the end, from a user perspective, you don't care whether the website that you see is hosted by Trivago or hosted by Booking or hosted by Expedia, as long as it is a very integrated experience.”

Finally, Hefer says that he “wouldn’t rule out” a connected trip strategy that involves the integration of other travel-related services.

“It's not the core focus as of today because we've got quite a few other projects that are closer to the core value proposition that we want to implement, but it is an interesting thought and I think it can make sense.”