First Free Story (1 of 3)Join Skift Pro
On the TV screen, your local Trivago actor hawking the brand may flash an occasional smile, but the countenances are much more stern these days among the managing directors running the Germany-based hotel-search site.
These are, after all, sobering times filled with ample introspection about prior strategies from Trivago. Chief Financial Officer Axel Hefer told analysts at an investor meeting several weeks ago in New York that the hotel-search site’s revenue outlook is “very tough,” with flat to negative growth numbers expected over the first half of 2018. Things could get a tad better in the second half of the year when the year-over-year comparisons aren’t as onerous.
Trivago had implemented a series of backend changes in the first half of 2017, and its largest customer, the Priceline Group — which had accounted for 47 percent of Trivago’s revenue in the first nine months of the year — ended up severely curtailing its advertising spend.
Expedia Inc. controls the publicly traded Trivago, and the search site’s tailspin in the form of an $8 million loss in the third quarter, compared with $6 million in profits a year earlier, wasn’t good news.
Still, PiperJaffray said in a research note Wednesday that Expedia could benefit from Priceline’s pullback in marketing on Trivago in the fourth quarter. That’s because fewer bidders in Trivago’s auction could result in lower customer acquisition costs for Expedia.
“Said differently, it may be that Expedia is able to drive more traffic for the same dollar spend if fewer bidders are competing for traffic through metasearch engines,” according to the PiperJaffray note.
The note, written by analysts Michael Olson and Yung Kim, said PiperJaffray’s estimate that Expedia will report flat room night growth in the fourth quarter compared to the third “may prove slightly too low” because of increased marketing investment in Expedia and sister brand Hotels.com. In the third quarter, Expedia’s room nights sold climbed 16 percent compared with the year-earlier period.
Trivago Yearns for Stability
Hefer, the Trivago CFO, visited Skift’s New York offices December 8, a day after the the company’s analyst meeting in New York, and he spoke about what transpired last year, and how things look for 2018.
Asked what the Priceline Group’s reduction in marketing spend through Trivago means for Trivago’s future, Hefer said: “I think in the long term it doesn’t mean anything because for the long-term vision, we don’t plan for one advertiser having 50 percent anyhow. For 2018, we need to work harder for every percentage point of growth.”
Hefer said he didn’t believe the Priceline Group was trying to hurt Trivago because of its Expedia ties.
“You can’t rule that out,” he added. “It’s a business.”
Looking back over the last couple of years, Hefer said the impact of “one advertiser” — meaning Priceline — being responsible for such a high percentage of Trivago’s revenue “was greater than we thought both on the way up and the way down.” He argued that Trivago has more balance now.
Hefer said that in hindsight, it’s clear Trivago should have rolled out its platform changes differently. Early in 2016, Trivago began pushing online travel agency advertisers to guide consumers to landing pages on their sites for the specific hotels that the consumers were looking for instead of to pages listing numerous hotels. Trivago assigned lower scores to advertisers whose landing pages weren’t following these guidelines, and that meant their listings weren’t displayed as prominently on Trivago.
“Knowing what we know today, obviously we would have done some things differently,” Hefer said. “That’s always the case. I think one key thing that we obviously realize is that the volatility that we had in the business wasn’t really good for us. That’s pretty obvious.”
Trivago’s stock was trading at $7.35 per share Wednesday afternoon compared with $23.66 on June 26.
Marketing Versus Product Innovation
Trivago has been known for its outsized marketing spend, especially for TV. In 2016, the company took 87 percent of revenue and used it for marketing. The rap on Trivago from critics is that it over-emphasized marketing to the detriment of product innovation.
Hefer wouldn’t agree with that assessment, but he did say: “I think we really need to be even more focused on rolling out product innovations that help conversion and help overall usability. On the marketing side, we need to be even faster on testing new channels, challenging what we currently do and optimizing further.”
He continued: “It doesn’t fundamentally change what the levers are. The levers are the same. It’s just that we have a headwind, obviously. It’s different than when you have a tailwind. It is a bit harder.”