The Trump bump could help Trivago's IPO prospects although tech stock IPOs haven't done particularly well this year. You'd think that Trivago and Expedia are going to make this IPO happen although they might not get a rousing pricing sendoff.
Salt-and-pepper hair with a scruffy beard to match, a worn button down and piercing blue eyes — that’s the Trivago Guy, also known as Tim Williams.
Having made the German-based travel-search site famous in the U.S. through an aggressive TV advertising campaign, Williams now finds himself a key part of the pitch to potential investors in the company’s IPO: Trivago is using the competitive advantage it has won through successful ad campaigns as a marketing hook.
It could be a tough sell. Success in the online travel industry comes down to who can find the most efficient way of persuading consumers to make your website the first place they go to search for travel deals. Trivago, which is going public via newly-formed company Travel BV, has had a winning combination of TV ads and search engine marketing, boosting revenue six times what it was when Expedia Inc. bought a majority stake in 2012. But most of that is being plowed right back into more advertising, keeping profits low.
“I think what is an issue is they’re spending roughly 90 percent of their revenue on advertising,” Shyam Patil, an analyst at Susquehanna Financial Group LLP, said in an interview. The company hasn’t been clear yet about when it will cut back on its marketing budget and whether it will be able to keep up the blistering growth rate if it does, he said.
Trivago increased revenue 59 percent in 2015 to 493.1 million euros ($535.5 million). Of the $657.4 million Trivago has pulled in so far this year, it spent $604.7 million on marketing. Adjusted earnings, excluding taxes and one-time items, were $18.3 million through September.
The company is expected to keep increasing revenue at more than 30 percent a year, Patil said. That makes it a decent growth stock, especially in a year when few technology companies hit the public markets. With most of Trivago’s revenue coming from travel giants Expedia and Priceline Group Inc., it’s also a way to invest in the thesis that there’s still plenty of room for online travel firms to expand.
Travel BV is aiming to raise up to $427.9 million, marketing 28.5 million shares for $13 to $15 apiece, according to the deal prospectus. The company plans to price its IPO on Thursday and list its American depositary receipts on the Nasdaq Friday under the symbol TRVG.
Trivago will have two share classes after the offering. The company plans to sell Class A shares to the public, according to the filing. Those shares are currently held by Trivago management including Rolf Schroemgens, Peter Vinnemeier and Malte Siewert. Class B shares will be held solely by Expedia, which doesn’t plan to sell its stake.
The valuation of four times revenue might be a bit steep for investors, Patil said.
Trivago is a metasearch website, which means it scours the internet for hotel listings, organizes them by price and location, and gets a referral fee when users click through to the original listings. It’s roughly the same model employed by Kayak.com, Skyscanner Ltd. and TripAdvisor Inc.
During the global recession, Trivago spent big on TV advertising, learning which ads work best and which to drop. Its “secret sauce” is the combination of the TV campaigns and optimizing its websites to show up higher in Google search results, Patil said. Competitors have tried to replicate its methods, but haven’t had success to the same degree, he said.
Trivago has “done a great job of building a pretty good product and then marketing the hell out of it,” Steve Hafner, the chief executive officer of Priceline-owned Kayak, said at a conference in November. “It will be interesting to see how they manage their growth trajectory as they pull back on marketing.”
Trivago focuses solely on hotels — a decision the company made early on and has stuck with. Hotels are the biggest revenue-generating segment in travel. Hafner, who has pushed Kayak deeper into hotels from its previous focus on flights, said accommodations account for less than 20 percent of visits to Kayak’s site but more than half of its revenue.
Kayak isn’t the only company crowding Trivago in hotel search. Scottish flight metasearch company Skyscanner is expected to deepen its presence in hotels now that it’s owned by Chinese online travel giant Ctrip International Ltd, which bought it for $1.7 billion in November, Patil said.
“You make your money on hotels, that’s why it’s so irritating to see someone like Trivago come along and really push aggressively on marketing,” Hafner said.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley are leading the offering.
To contact the reporters on this story: Gerrit De Vynck in Toronto at email@example.com, Alex Barinka in New York at firstname.lastname@example.org. To contact the editors responsible for this story: Jillian Ward at email@example.com, Molly Schuetz, Andrew Pollack
©2016 Bloomberg L.P.
This article was written by Alex Barinka and Gerrit De Vynck from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo credit: Actor Tim Williams appearing in a Trivago TV commercial. The hotel search company spends 88 percent of revenue on advertising and could potentially make its stock market debut on December 16, 2016. Trivago