Trivago claims salvage stock status
So far, few industries have been hit harder by the coronavirus pandemic than travel. Going into his third quarter report, his third update during the crisis, Trivago (NASDAQ: TRVG) investors may have been looking for signs of an inflection point after a dismal second quarter. The action erupted briefly earlier this week after the company posted strong third-quarter results, with shares opening 12.6% more. However, the hotel reservation specialist quickly abandoned most of these gains, without knowing why.
Revenue for the quarter fell 76% to $ 70.9 billion, lower than estimates at $ 81.9 million. But in a challenging environment, the company was able to deliver positive adjusted results EBITDA of 6.1 million euros, down from 11.3 million euros in the quarter last year. This result shows the flexibility of the company’s business model, as the online travel agency significantly reduced its marketing spend, essentially reducing its TV ads everywhere except Europe. This, along with € 20 million in cost reductions around a restructuring earlier in the year, helped deliver Adjusted EBITDA profit.
According to generally accepted accounting principles (GAAP), the company recorded a net loss of 2.3 million euros, or $ 0.01 per share, ahead of estimates of a loss of $ 0.03 per share.
Trivago saw some traction during the quarter in Europe. Trips across the Atlantic have been stronger than expected as coronavirus cases were low over the summer, which has contributed to interest in local trips to nature destinations. However, increase in COVID cases in October slowed down the recovery in Europe. With lower demand in its home market, Trivago now expects negative EBTIDA for the fourth quarter.
Elsewhere, the results are mixed. The Americas have developed favorably since August with a recovery in the United States and Latin America, and Brazil looks relatively strong as summer approaches in the southern hemisphere. In its Rest of the World segment, which primarily includes Asia, demand in Southeast Asia is slowing, while Australia, India and Japan are recovering.
With the increase in COVID cases across much of the northern hemisphere, Trivago will continue to face tough months, but the company expects a recovery by the second half of 2021. There will likely be a recovery substantial progress in containing the pandemic by then, either from a vaccine or treatments, which are expected to spark pent-up demand for travel as the company began to experience it in Europe this summer.
The recovery case
Trivago stock is down 50% year-to-date, underperforming its better-known online travel agency peers, notably Reserve assets, Expedia, and TripAdvisor. That alone gives Trivago a chance to double if inventory can return to pre-pandemic levels, and the company has demonstrated the ability to scale up and down activity based on demand. It was able to generate an adjusted EBITDA result during the third quarter and only saw its cash flow decrease by 2.3 million euros.
However, the company did not stand still during the pandemic either. He made a number of changes and improvements that should put him on a better footing in a post-COVID environment. It introduced a local discovery option for travelers looking to find accommodation options nearby, but are unsure of where they want to go.
Trivago has also reduced fixed marketing, general and administrative costs, which should make it more profitable when it regains its full health, and it has introduced a cost-per-acquisition (CPA) model for advertisers on its platform. , helping them align their spending with Trivago. with their returns because they will pay for actual bookings, rather than clicks.
CFO Matthias Tillman said in an interview that CPA is something his bidding partners have been asking for, and should help increase long-term customer loyalty and align his clients’ interests with Trivago. . The company also continued to expand its list of alternative accommodation and now has 3.8 million people, offering travelers plenty of options other than hotels.
In addition to these drivers, the company might also see less competition from Alphabetfrom Google, which is subject to antitrust surveillance in the United States and Europe. This could increase demand for traditional online travel agencies like Trivago and its peers.
In the five years since its IPO, Trivago has mostly been a disappointment. In fact, the travel stock is now down almost 90% since its IPO, but the challenges of the pandemic will eventually fade away. Trivago has made a number of changes to create a stronger, more streamlined business, and if it can deliver results to back it up in a year or two, the stock could easily double or triple from here.
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