Trivago’s Returns Take a Hit as Company Invests in Direct Connection Tool

Trivago is continuing to focus on investment into the company, sacrificing some return on investment in the short term for what it’s aiming will make the company more competitive in the future. 

Overall, return on advertising spend in the first quarter of 2023 decreased by 15.7 percent to 168.2 percent compared to the same period in 2022. Still, the company had €111 million ($122.6 million) in total revenue last quarter, an increase of 9 percent, as travelers continue to make bookings despite economic uncertainty. 

“Good quarter — not spectacular, not terrible, just good,” said CEO Axel Hefer.

Trivago is a metasearch site for hotels and other accommodations, meaning that user search results are compiled from multiple advertisers into a single list, allowing users to compare prices. As of the end of March, the company offered access to more than 5 million hotels and other types of lodging accommodations in more than 190 countries.

Trivago makes most of its revenue when users click on hotel and accommodation ads within its website, referring them to one of the company’s advertisers. Trivago regularly facilitates auctions through which companies bid for ad placement. Booking Holdings and Expedia Group, which is Trivago’s controlling shareholder, are Trivago’s dominant advertisers.

The company is trading at $1.20 per share, down 12 percent year to date.

One of the main investments that Trivago is making is in a direct access tool meant to connect hotels and travelers directly, giving consumers access to lower direct booking prices. For the hotels, the tool means they can generate more revenue, and ultimately offer more individualized services and upsell more easily.  

“In maturing markets, you see typically consolidation and product differentiation. So the competition will be much more product differentiation/innovation based than it has been over the last 10 years. And that’s, from our perspective, the biggest opportunity in the market for a meta player. That’s why we are going after it with big investments,” Hefer said.

The company has been testing the tool in its largest markets and expects to reach 80 percent coverage this year. Then, features and related marketing will be released next year. 

“Next year will be exciting, but this year is a lot of foundational work and foundational investment,” he said.

The company is also focused on increasing marketing investment this year, including by pushing those investments earlier in the year than it had previously. 

“We remain optimistic about our ability to ramp up our brand marketing investments in the upcoming month in order to further grow our brand base and traffic,” said Matthias Tillmann, chief financial officer for Trivago, during an earnings call on Wednesday. 

“With that, we expect a decrease in return on advertising spend and contribution in the second and third quarter year-on-year as we continue to invest into future branded traffic growth.” 

Travel bookings are still strong, though travelers are trending toward booking shorter stays or cheaper destinations as prices are inflated. Because of that uncertainty, advertisers are focusing more on profit in the short term. It’s expected that monetization levels during the summer season this year will be lower than they were in 2022, most likely resembling the patterns from 2019.