Trivago (NASDAQ: TRVG) announced fourth quarter results on February 9 and, as expected, the numbers were gloomy as the hotel reservation platform continues to experience unprecedented disruption in the travel industry from the pandemic. A resurgence of virus cases in Europe and North America in the fourth quarter caused revenue to fall 79% to € 32.3 million ($ 39.2 million). In the end, the company reported an adjusted EBITDA loss of 3.4 million euros in the quarter, compared to a profit of 18.4 million a year ago.
Yet these challenges were widely expected. The good news for Trivago investors is that vaccines are being rolled out around the world, and the company anticipates a strong recovery in the travel industry in 2021. The stock has more than doubled since then. Pfizer and BioNTech announced the positive results of the vaccine last November, but there is still plenty of benefit if the travel sector rebounds strongly, as many expect.
Let’s take a look at three key factors for Trivago to watch as a potential recovery plays out this year.
1. Pivot towards discovery and inspiration
Traditionally, Trivago’s strength in online travel has been “at the bottom of the funnel” – users come to the site when they have planned a trip and want to find the best accommodation deal. In order to develop the business and complement this strength, the company is focusing more on discovery and inspiration, giving ideas to travelers who want to get away from it all but don’t know where they want to go, a component of the trip. which appears to do better than pre-planned trips during the pandemic.
The company introduced a local search feature last year to help travelers find destinations near them, offering suggestions for romantic weekends and getaways on its home page. And he plans to update the tool in the second quarter and expand it to new markets.
Trivago also made an acquisition in January, buying Weekend.com, a small three-year travel startup with fewer than 20 employees. Weekend.com sells packages in Europe, combining flights and hotels, an area Trivago sees as an opportunity. In an interview, Trivago CFO Matthias Tillman said the acquisition would not increase the company’s revenue in 2021, but that it “fits perfectly into our product roadmap” because the company is focusing more on getaways.
2. The question of “repressed demand”
The travel industry’s biggest mystery these days isn’t the trajectory of the pandemic, but what the industry will look like once it’s over. Many, including Trivago, expect a wave of pent-up demand lead to a sharp increase in the travel industry starting in the summer.
Although the company gave no indication, it did note that the search booking window has increased to around 10 weeks, a sign that travelers are planning much earlier than usual. He also said demand was strong in the southern hemisphere in countries like Australia and Brazil, where it is now summer and travel season is at its peak, giving the company optimism that it will see a similar recovery this summer in Europe and North America. , especially since many travelers will have had the opportunity to be vaccinated by then.
Management believe that nature and local travel will return first and hope that continental travel to Europe and international travel will also recover if that is safe.
In a letter to shareholders, management said: “We are confident that we will provide our users in the second half of 2021 with a much stronger value proposition than before the pandemic”, through its investments in its local travel product and new features for advertisers.
3. An improving cost structure
Trivago has made a number of decisions over the past year to reduce its fixed costs in order to be as efficient as possible during the pandemic and to maintain its cash flow. The company closed regional offices and laid off employees, measures that reduced general and administrative costs by 26%, or 14.6 million euros, in 2020. As a result of the restructuring and A lease renegotiation at its headquarters in Düsseldorf, Germany, the company expects to save 25 million euros in office and personnel costs compared to 2019.
Tillman said overhead costs in 2021 would be even lower than in 2020, giving the company more money to invest in areas such as technology and products, including Weekend.com, and new opportunities advertising as the company shifts its advertising spending from traditional linear television.
With the travel industry looking set to rebound later this year, market share will stand to gain in the industry like never before. It is crucial for Trivago to capitalize on the opportunity, especially since its performance was lagging before the pandemic. With its investments in local travel and discovery, new advertising products and a leaner cost structure, the company appears to be well positioned for a rebound.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.