Hotel-search site Trivago said earlier this year it expects to post a loss of $30 million to $60 million in 2018, and its formerly largest client, Booking Holdings, dramatically reduced its advertising spend in the platform during the first quarter.
Yet, with its stock trading at less than $5 per share, Trivago CFO Axel Hefer is saying that the value proposition of its search engine is increasing. Why? Alternative accommodations.
Trivago recently began adding vacation rentals from sister brand HomeAway — both of which are part of the Expedia Group portfolio — and Hefer said when consumers visit the site they are typically aware of the trip type they want to take, whether it is a romantic sojourn or a beach vacation, but many don’t necessarily know the kind of accommodation they want to stay in.
The complexity of these searches ups Trivago’s utility, Hefer told attendees Wednesday at the JPMorgan Global Technology, Media and Communications conference in Boston.
“If anything, our value proposition is increasing through the change,” Hefer said, adding that a significant proportion of consumers will continue to visit the site for the same reasons they always have: to ensure they aren’t overpaying for a stay.
It seems as though Hefer is searching for some positive talking points even as the company navigates its way through the most difficult period since it was created.
That Was Then and This Was Now
The CEO of one competitor characterized the situation at Trivago as a “train wreck,” and predicted that the company will have to make substantial cuts in overhead before long.
After all, it wasn’t two many quarters ago that Expedia was hailing Trivago and HomeAway as the gems and growth engines in the parent company’s portfolio. That was before Booking Holdings trimmed its spend in Trivago so as not to bolster a competitor, and Expedia decided that HomeAway would not meet pre-acquisition profit targets and required increased investments.
While consumers’ increasingly complex searches for hotels, apartments, vacation rentals and bed and breakfasts might make a comparison-shopping engine like Trivago more essential, Hefer acknowledged that the company has hard work ahead of it because the long tail is always at a disadvantage in terms of relevancy, and the data required to ensure this type of inventory is a match for consumers.
You have to deal with it
While parent company Expedia accounted for 38 percent of Trivago’s revenue both in the first quarter of 2018 and the year-earlier period, Booking Holdings’ contribution fell to 37 percent, down from 45 percent in the first three months of 2017.
Commenting on the advertising climate, Hefer said when one of the big online player — like Booking — opts for more profitability and less spend in third party channels, it can impact the entire travel industry and companies just have to deal with it.
While there is a lot of competition among regional online travel agencies and hotels in smaller or developing markets, Hefer said “overall the industry globally is heavily concentrated.”
In other words, Expedia and Booking wield substantial market power when it comes to advertising in metasearch sites like Trivago, Google, Kayak, TripAdvisor and Skyscanner.
Hefer said Trivago is trying to gain market share from other channels, meaning the company is seeking more advertising from hotels to plug the Booking Holdings revenue shortfall.
Under these circumstances, Hefer said it was incumbent upon Trivago to not only make its own marketplace more competitive and to improve its product, but to better communicate the company’s value proposition in order to win more share.
And that’s what Hefer was trying to do at the JPMorgan conference this week.
Photo Credit: Trivago CFO Axel Hefer is looking for the company to counter a revenue shortfall from Booking Holdings by getting more business from hotels. Trivago
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