The search platform is displaying free links to independent hotels to push more direct bookings their way, but how will it ultimately claw back revenue from them when the likes of Hilton and Marriott have far bigger marketing budgets?
Hotel price-comparison website Trivago is giving more prominence to independent hotels in a bid to boost their share of direct bookings.
Offering direct links in its search results isn’t necessarily a new thing, as it already displays rates for properties belonging to bigger chains like Hilton and Marriott, alongside results from Expedia or Booking.com, which also provide their hotel inventory. But in a letter to shareholders published Nov. 2 it revealed it was now trialing how to maximize their exposure.
“We have launched first tests to significantly improve our coverage of directly bookable hotel rates across our platform,” it said as it reported its third-quarter results.
This marks the second step in a three-phase experiment, involving free links, that it hopes will ultimately start generating more revenue specifically from independent hotels.
The development confirms an earlier Skift report that revealed Trivago was looking at adding free links in a similar way to Google. You’ll only see these free links in the U.S. for now, CEO Axel Hefer told Skift in an interview on Wednesday.
“We have launched a few tests — one of them you can see in the U.S. because it’s live on a significant share of the traffic,” Hefer said. “And with those tests and initiatives we are confident we can increase the coverage very significantly in the next 12 months.”
However, he said that it does not mean the share of the “auction” will go up to a very significant number, but rather the coverage of direct rates would significantly increase.
Trivago does not disclose the revenue it generates from direct bookings.
“If you look at direct bookings, obviously you have the chains. That’s easy, we have access to pretty much all the chains,” Hefer added. “The challenge is always on the independent side. The first thing is to get the rates, to get coverage, and the second step is to increase visibility of that coverage and then ultimately increase the revenue that’s generated from those channels.”
Users in the U.S. will see the links in “a placement that didn’t exist before.”
Meanwhile an investor presentation revealed the proportion of revenue generated by Expedia shot up by 23 percent in the three months to Sept. 30, while Booking.com lost 11 percent.
However Hefer downplayed any significance in that shift from its main revenue referrers, saying it was rather because of varying geographic influences for the specific quarter.
“You need to look at the multi-year trend, there’s obviously a lot of noise, particularly last year and the year before, because the regional mix was a bit different,” he said. “Different advertisers were using different strategies. In the summer, and right now, there’s a big push by a lot of participants in the auction to really get in front of their customers, because a lot of people haven’t travelled in the last two or three years.”
Speaking of pend-up demand, Hefer was also bullish for next summer, with the “sentiment” around metasearch likely to play out favorably as households look to economize in the face of rising energy bills and overall inflation.
“Let’s be honest the prices will go up, everything is getting more expensive,” he said. “People will try to optimize their spending, and what can you do?”
The options were taking shorter vacations, which was already playing out in Europe (based on its data), and going to different places. Cheaper destination Morocco is currently a top seller for Trivago.
The third option was to shop around more.
“You can compare prices for the accommodation and then get a better deal,” Hefer said. “And that’s exactly what we do. That’s a lot more on everybody’s minds today than it was a year ago, or two years ago.”
The $20 Million Buyback
Trivago has also bought $20 million worth of shares from Peter Vinnemeier, one of the company’s founders, its results showed.
“We’re looking at different measures to return cash to our shareholders, because we’re sitting on 280 million euros ($276 million) of cash. The acquisition of 20 million shares is obviously a very efficient way to do that … If large blocks are made available, that’s attractive to us, and gives us a very tax-efficient benefit to our shareholders,” Hefer said.
And as seen in the second quarter, impairment charges continue to affect its results. In this quarter a $100 million hit has resulted in Trivago reporting a net loss of $66.2 million, again due to “deteriorating macroeconomic conditions” that include rising interest rates, increased inflation and “more uncertainty in respect of the overall economic environment which led to a shift in the company’s internal priorities.”
At the same time, Trivago’s adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, rose to $33 million for the third quarter, the highest quarterly adjusted EBITDA in its history, and beating last quarter’s record $31.3 million.
The Germany-headquartered company has also reduced its workforce. Hefer told Skift those numbers will be announced at the end of the year.
“It gives us some buffer for more negative scenarios next year,” he said. “We are confident we can reduce our cost base despite the fact inflation will also hit us on our expense side.”
CORRECTION. An earlier version of this article said the share buyback was $200 million.
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Photo credit: Trivago is testing the free links model in the U.S. initially. Trivago