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Trivago is making less money for every dollar booked as advertisers, including Booking Holdings, tamp down spend, so the Germany-based hotel-shopping engine changed strategy in the second quarter to emphasize profitability instead of growth.
As a result of this drop in revenue from “commercialization,” as officials put it, Trivago reduced its own advertising spend 17 percent to $266.3 million in the second quarter, which means you likely saw fewer of those previously omnipresent TV commercials and digital ads. Until Trivago ran into trouble in 2017, when Booking Holdings backed away from its previous spending levels in Trivago, the company had been known for its outsized marketing spend to spur growth.
Booking Holdings accounted for 49 percent of Trivago’s revenue in the second quarter of 2017 compared with 38 percent in the June 30, 2018 quarter. The 38 percent level in the second quarter, though, was the same as in the first quarter so it appears relatively stable for now.
In keeping with its new profitability drive, which would likely take several quarters to achieve, Trivago reduced its employee ranks 3.3 percent to to 1,566 staffers in the second quarter, and officials said Wednesday they expect that trend to be stable or down for the rest of 2018.
For the second quarter, Trivago’s losses widened 17.3 percent to $24.2 million in the red on $275 million in revenue, a 21 percent drop. Its stock price was down 4.8 percent to $4.09 in early trading; its stock closed at $11.85 on its first day of Nasdaq trading on December 16, 2016.
Trivago officials see improvement in the company’s profitability picture, although they are still forecasting losses for 2018. The company raised its 2018 guidance to an adjusted earnings loss in the $17.5 million to $35 million range, which is an improvement from the $29.2 million to $58.5 million loss for the year that it forecast during its first quarter earnings call.
“We believe we are on a good trajectory,” said CFO Axel Hefer during an earnings call with analysts Wednesday.
Addressing the company’s strategy shift, Trivago CEO Rolf Schrömgens said losses widened to an unacceptable level over the last four quarters because of declining commercialization. In the second quarter, revenue per qualified referral fell 13 percent to 1.3 euros ($1.52).
Schrömgens said Trivago management aims to rebalance the business from its prior growth strategy to profitability, and then to achieve growth after that.
He said the company has been having productive discussions with advertisers — Booking Holdings and parent company Expedia Group each contribute 38 percent to Trivago’s total revenue — about making improvements to improve the platforms advertising efficiencies for them.
“We see that all our advertisers are very engaged, they want to work with us,” Schrömgens said. “We don’t see yet any advertiser stepping up, spending more, being more aggressive.”
Google Hotel Ads
While Trivago has reduced its advertising spend overall, it is increasing its participation in a rival platform of sorts, Google Hotels. Trivago had been testing the platform for several quarters, and ramped up its participation in the second quarter.
Hefer said Trivago’s participation in Google Hotels has had a noticeably positive impact for the company in the second quarter, particularly in the United States.
Looking at the company’s overall position, Schrömgens said there has never been a “silver bullet” triggering the company’s growth and that it has always worked on improving its product and marketing efficiencies. He said growth will continue after Trivago rebalances its business, and achieves profitability.