Trivago CEO Axel Hefer said the company will focus on those things it can control. But the issue for Trivago and some competitors is that there is so much they can't control, including Google's incursions, the rise of Airbnb, and the whims of major online travel agency advertisers when they cut their metasearch spend.
Growing competition from players such as Google, Airbnb, and Trip.com Group, as well as reductions in marketing spend by large online travel agency advertisers and the potential materially adverse impact of a regulatory decision in Australia all led to a Trivago decline in net income for the fourth quarter.
At the end of an earnings call with analysts Wednesday, CEO Axel Hefer encapsulated how he views the company’s status: “Just to summarize, the times are rough, we do have a clear plan, and we are focused on what we can control,” Hefer said.
In the fourth quarter, Trivago’s net income fell 7.8 percent to $3.38 million (euro 3.1 million), but grew 38.7 percent to $18.76 million (euro 17.2 million) for the full year. An adjustment to Trivago’s legal reserves because of the Australia legal decision, with a court date pending to set penalties, adversely impacted fourth quarter net income as well as adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for 2019. Lower advertising spend in the fourth quarter also took a toll on profitability in the quarter.
Trivago saw its total revenue decrease by 7 percent to $169 million (euro 155.5 million) and by 8 percent to $914.5 million (euro 838.6 million) in the fourth quarter and full-year 2019, respectively. In both periods, Trivago stated that its referral revenue was negatively impacted by a drop in qualified leads.
Advertisers and Marketing Spend
On the advertiser front, brands tied to Expedia Group accounted for less of Trivago’s total revenue in both the fourth quarter (31 percent) and full-year-2019 (34 percent) compared with the year-earlier periods. That was a drop of 6 percentage points in the fourth quarter, for example.
Booking Holdings accounted for an increased share of Trivago revenue, namely 40 percent in both the fourth quarter and full year compared with 34 percent and 39 percent, respectively, a year earlier.
Regarding Trivago’s own marketing plans, it is testing a significant change to its advertising strategy in Europe; the company didn’t provide details but presumably it would lean into performance advertising, and away from its current 50-50 mix of brand and performance advertising. In its earlier days, TV advertising was Trivago’s differentiator, Hefer said.
In the first half of 2020, Trivago plans large-scale tests of a recalibrated marketing mix that would enable the company “to fine tune our strategy and move full steam ahead in the second half of the year,” a letter to shareholders stated. “These tests may lead to a double-digit revenue decline in Developed Europe for the first and second quarter of 2020. In addition, we believe that the Wuhan coronavirus outbreak will have a negative impact on our business volumes, in particular on our Rest of the World segment.”
In other news, Hefer said Trivago is testing a number of new revenue streams, including sponsored listings, and intends to increase its integration of alternative accommodations, although the latter move wouldn’t have a material impact on Trivago’s financials for several years.
In the shareholder letter, Trivago stated that certain 2019 headwinds will likely continue this year. “Google is likely to continue to try to increase its share of total industry profit while large OTAs are likely to continue optimizing their advertising spend and other expenses. However, we believe the positive impact on our business resulting from new entrants, such as Trip.com and AirBnB, will continue but will have a small financial impact on us in 2020.”
During the earnings call, without naming Google, Hefer argued that the metasearch playing field is not level. “It’s also fair to say that by competing with a player that has a very, very large share of users starting every single journey on the platform, that is a key advantage,” Hefer said. “So it will be a tough competition going forward, but we do believe by specializing and developing a tailored product, just specifically for accommodation search. We will continue to have an edge from a user value perspective.”