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Trivago began its roadshow and currently plans to raise $428 million in an initial public offering that would tentatively take place around December 15, Skift has learned.
The offering, according to Trivago documents released in connection with its roadshow, would be priced from $13 to $15 per share and would value the company, which would still be controlled by Expedia Inc., at around $5 billion — that’s a tad lower than TripAdvisor’s current $6.9 billion market cap. Those prospective share prices are, of course, subject to change depending on demand for the offering.
Fewer Choices at Expedia, Kayak and Google, trivago says
Trivago states that its mission is: “To be the traveler’s first and independent source of information for ding the ideal hotel at the lowest rate.”
The problem with the “independence” argument is that while Trivago operates mostly independently, it is controlled by Expedia Inc. and would still be controlled by Expedia after the IPO.
And two online travel agencies — rivals of one another — accounted for 78 percent of Trivago’s revenue in the first nine months of 2016. Namely, the Priceline Group somewhat shockingly chipped in 43 percent and Trivago parent Expedia contributed 35 percent of Trivago’s revenue.
Trivago, which enables consumers to comparison shop for hotels, hopes to diversify that revenue based so it isn’t so dependent on these two online travel agencies. It does have partnerships with three other global online travel agencies and 115 regional online travel agencies, plus 150 hotel chains and 7,000 independent hotels.
Among the arguments that Trivago is making to potential investors is that it can become the first hotel-metasearch engine of choice for consumers when compared with “non-comprehensive solutions” offered by competitors it cites such as Booking.com, Hotels.com, Expedia, and TripAdvisor.
As evidence of that — and using a geographically advantageous example, Europe-based Trivago states that it has 5,678 searchable hotels in the French Riviera compared with Kayak’s 2,674 and Google’s 1,234.
A lot of those “hotels” that Trivago takes credit for are duplicate listings because it says there are only 4,800 searchable hotels in the French Riviera.
Kayak CEO Steve Hafner seizes on that point and scoffs at the comparisons. Asked to comment, Hafner says Trivago’s numbers show “that we do a better job of de-duplicating properties and ensuring they’re available for instant booking.”
For its part, Trivago stated its has directed relationships with 220,000 hotels overall, which represent 15 percent of its advertisers.
Other Things We Learned
If U.S. and European television addicts thought they had seen fill of Trivago TV commercials already, then they had better get ready for more. Trivigo stated that among the purposes of the IPO would be to increase its public profile and awareness.
The IPO, if it hits the midrange of its hoped-for pricing, or $14 per share (and this is subject to change when the real pricing takes place on the cusp of the floatation), that would produce net proceeds of $235.4 million.
A chunk of that goes into increased television advertising.
For travel startups dabbling in the consumer space and wondering how they can break into public consciousness, consider the daunting odds: Trivago reported that its advertising costs in 2015 were a gargantuan 88 percent of total revenue. The return on advertising spending by region were 88 percent in the Americas, 131 percent in developed Europe and 114 percent in the rest of the world.
To say that travel startups trying to compete against Trivago’s advertising spend, let alone that of the Priceline Group and others, have an uphill fight is an understatement. You can ask Hipmunk and Room77 about that, too.
While Trivago estimates that its 2016 revenue will jump 49 percent to around $630 million on the back of that vigorous advertising effort, the company’s operating losses have widened slightly. For the first nine months of 2016, Trivago notched an operating loss of about $54 million compared with being in the red some $51.1 million in same period a year ago.
Trivago’s IPO paperwork puts some interesting numbers on the size of the opportunity for comparison-shopping sites and online travel agencies wiring up hotels for consumer-search purposes around the world.
Trivago quantifies the online hotel opportunity at $375 billion, adding that 56 percent of the world’s hotels are independents — not chains — and that online adoption among consumers stands at only 33 percent.
So there is plenty of work to be done in a highly fragmented hotel market as consumers around the globe come online.
Founded in 2005, and employing 1,100 people full time as of the end of September, Trivago aims to reduce its advertising as a percentage of revenue and states that the success of its cost-per click business model is dependent on keeping costs relatively low.
If the IPO is successful, and Trivago makes its stock market debut on Nasdaq, it would have a lot more financial flexibility than it currently has and would likely emerge as the up-and-coming fourth largest publicly traded online travel company behind the Priceline Group, Ctrip, Expedia, and TripAdvisor.
And unless TripAdvisor gets its instant booking problems in order within the next year, then Trivago could be closing in on TripAdvisor market-cap wise fairly fast.