Momondo Group Is Still Spending Big to Fund Expansion

European metasearch company Momondo Group’s decision to plough money into advertising and marketing to grow the business appears to be paying off.

Not only did the approach substantially boost revenues in 2016 but it also persuaded the Priceline Group to shell out $550 million to buy it.

Steve Hafner, the CEO of Priceline’s Kayak, said recently that the Momondo Group “out-executed” Kayak in brand-building in several European countries and that Kayak hopes to learn a few things about marketing along the way.

London-based Momondo Group, which includes Momondo and Cheapflights, has grown steadily over the past few years and according to recently released accounts generated revenue of $115.8 million (£90.2 million) in 2016 – an increase of 45 percent on the previous year.

At the same time costs increased by 46 percent to $109.3 million (£85.2 million) while Momondo’s pre-tax loss was cut by 22.7 percent to $13.5 million (£10.5 million).

The marketing push certainly played a role in the Group’s website and app traffic jumping 44 percent to 384.4 million for 2016.

The Priceline-Momondo deal is currently subject to regulatory approval but when it closes the U.S.-headquartered company has said it will use Momondo to help it gain traction in markets it had previously struggled in.

“The primary focus of the Board during the year has been on continuing to grow market share for the Group in selected markets,” Momondo said in its strategic report. “The Group has increased investment in marketing activities and personnel across both Momondo and Cheapflights brands.”

“The Group has also increased the number of development personnel during the year and has now successfully changed the underlying technology on the majority of the Cheapflights websites.”

With accelerated revenue growth has come increased costs. Metasearch companies like Momondo spend a huge chunk of their money on marketing through channels like Google. When this is added to other costs it tends to wipe out any profit.

Momondo will be hoping that by forgoing profits the company will be able to achieve a sufficient size quicker than if the focus was on keeping costs down.

The company said there had been “a conscious effort by the Directors to grow the business by increasing advertising expenditure and expenditure on marketing and development personnel.”

A spokesperson for Momondo said: “Yes, it was a good year and most importantly the strong results are a testament to the hard work of our team across the globe and continued investment in our brands. We operate in a fiercely competitive landscape, but by being resolutely focused on building products users love we’ve established a successful business with strong foundations and an exciting future.”

Momondo’s big competition, particularly in the UK, is Skyscanner, which was bought in December by Chinese firm Ctrip.

Skyscanner Holdings Ltd’s latest accounts have not yet been filed but in 2015 they were well ahead of Momondo, so it will be interesting to see if the gap has been narrowed.

In 2015, Skyscanner booked revenue of $153.7 million (£119.7 million) — considerably higher than Momondo Group’s increased 2016 tallies — and made a pre-tax profit of $16.6 million (£12.9 million), indicating that it is at a different stage of its journey than the smaller Momondo. That’s was one of the factors that undoubtedly led Ctrip to deciding to shell out $1.74 billion for Skyscanner last year.