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... slow grind.
Is Trivago Stock Finally Ready to Take Off?
After five months of declines, the out-of-favor hotel listings site sees the first signs of a turnaround.
Rick Munarriz (TMFBreakerRick) Dec 8, 2017 at 12:09PM
It's been a brutal rookie year for Trivago (NASDAQ:TRVG) and its investors, but the stock may be bottoming out here. Shares of the hotel metasearch specialist opened 13% higher on Friday after Deutsche Bank analyst Lloyd Walmsley upgraded Trivago from Hold to Buy. He's sticking to his $10 price target, but with the beating the stock has taken lately that represents a healthy 50% of upside from Thursday's close.
Walmsley walked away from a Trivago analyst presentation on Thursday afternoon feeling as if clearer skies are ahead. He feels that the rough bidding environment that has rocked Trivago since its summertime peak will stabilize by the second half of next year, if not sooner. Shares were trading lower for the sixth consecutive month before Walmsley's upgrade pushed Trivago into positive territory for December.
Turning off the "fasten your seatbelts" sign
Trivago is a week away from celebrating its first year of trading, and it's been a turbulent ride. The stock went public at $11 in mid-December 2016, and more than doubled to hit an all-time high of $24.27 in July. The shares would go on to shed more than 73% of their value when they bottomed out earlier this week at $6.45.
Sharply decelerating growth has been the culprit of Trivago's fall from grace. Investors were lulled into complacency after seeing revenue soar 68% and 67%, respectively, in its first two quarters as a public company were rocked hard over the summer when it hosed down its full-year growth outlook. Revenue would go on to rise just 17% in its poorly received third quarter, with its even lower full-year guidance implying just 2% to 15% growth for the fourth quarter. It also warned that a return to top-line growth was unlikely until the latter half of 2018.
Unlike most travel portals that generate revenue off of actual bookings generated through their gateways, Trivago lets other sites, booking agencies, and actual property owners bid for ad placement on its hotel listing pages. The lion's share of its revenue is generated from the world's two largest travel portals -- Priceline.com and former parent Expedia -- and as they began to get smarter about the bidding process during the third quarter, Trivago saw its revenue per referral start to slip.
Walmsley isn't the first Wall Street pro to see Trivago in the single digits as a compelling entry point. Citi analyst Mark May upgraded the stock last month, pointing out that Priceline's Booking.com was going back to displaying regional landing pages on Trivago. If Priceline is starting to spend more on Trivago, it's a safe bet that Expedia will be following suit.
Naturally, where Trivago lands in terms of its wide top-line growth range for the current quarter will dictate if Friday's pop is warranted. Any more color that it can provide on how 2018 will play out will also be huge. Trivago stock has taken a big hit since peaking five months ago, but after five months of negative returns investors may be finally getting a break in December.
In my mind, this is a confirmed reversal.
I haven't seen or heard anything either...
Reverse split?? Did someone mention that??
A little while ago I mentioned I would buy with a confirmed reversal at $7.25
I ended up buying low 6's.
reverse split doesnt help the price so who cares
What are you looking to do?
What what happened here? I was out all morning just saw we hit the 34 and now negative?
Nice flip
Back down now
Did you look for a reentry? A reversal is in place.
I'll hold you to that ...
52wk Range
6.45
What do you think now?
Well .... after telling myself I was going to follow this stock closely for a reversal, I have bought in.
Been watching Rhys for a while now waiting for entry.....im thinking soon it'll be timr
It is funny but TEVA just did that , 15% reversal and confirmation came right after , good analysis!
So , do you think giving up 15% and wait for the second confirmation may be a sign of reversal ?
Thankyou John , I appreciate the info
Its funny because instead of studying technical indicators, I go by feel and look of the chart. Although I do like using RSI as an indicator. I'll take a look at current RSI. I am thinking a dollar move higher from lows will be good enough for me. It will take place soon. I am not going to try and time the bottom, but will give up first 15% profit and wait for confirmation. The goal here will be for a bagger. Although I might bail at $10.00
Trivago: Dissecting The Fallout
Oct. 27, 2017 5:37 Seeking Alpha
Gary Alexander
Summary
Trivago made fresh 52-week lows after its Q3 earnings report showed a deceleration in revenue growth and decline in RQPR, its closely watched metric that tracks its revenue per referral.
Shares originally lost momentum in early September when the company lowered its guidance.
The company has shed more than 60% of its value from its mid-summer highs and is trading 20% below its IPO price of $11.
Given that Trivago's punished share price already prices in an armaggedon scenario, its risk-reward profile is compelling. The company is still growing, albeit slower than originally anticipated.
As of late, there seems to be no end to the bad news for Trivago (NASDAQ:TRVG), the Dutch-based travel company whose business model centers around pumping maximum spend into advertising and earning referral fees when users complete purchases on third-party travel sites. At present, after a precipitous >30% decline post-Q3 results, Trivago seems to be finding a bottom - especially after its stock has gotten sliced by two-thirds since summer.
Amid the doomsday chatter, investors are forgetting that there's value in Trivago's brand, which has gained momentum among travel bookers. Its referral count keeps climbing up, especially in the key Rest of World segment. The decline in revenue per referral (3% y/y as of Q3) is more than offset by the 20%+ growth in referrals.
Don't count Trivago out yet. While catching a falling knife is always a risky play, the risk-reward profile of Trivago looks extremely compelling as the stock is getting punished for its lower forecast. A stronger-than-expected travel season or sudden uptick in users can be all it takes to push Trivago's performance over its already low expectations and send the stock back over the edge.
Recall that just a few months ago, Trivago's stock was climbing on investor enthusiasm for its growth post-IPO. The company went public in December 2016 at $11/share and quickly shot up to twice that value. Now, with its market cap sinking below the $2 billion mark, Trivago looks vastly undervalued for a company that's at a $1 billion-plus revenue run rate and expanding its profitability metrics alongside growth.
Q3 Wrap
Trivago's results weren't all that bloody, and certainly not one that merited a 30% stock decline.
The company reported revenue of €287.9 million, up 17% y/y from 3Q16. It's true that this represents marked sequential deceleration from 2Q16's growth of 67% - without any context, this large of a drop would certainly merit a huge selloff.
But this is old news. Trivago in an early September press release already announced a cut to guidance that sparked a selloff. The company already cut its revenue guidance to +40% y/y for FY17. Trivago's Q3 revenue results put its year-to-date revenue at €853.8 million, up 46% y/y, still tracking ahead of its full-year guide of 40%.
Note also that this full-year guide of 40% was only reduced from a prior guide of 50%, last affirmed in a late July press release. While a guidance drop certainly merits some level of selloff, a 10% guidance cut shouldn't spark a 60% stock decline.
To hit 40% growth for FY17, Trivago would need to post €1,055.9 million in full-year revenues - or an incremental €202.1 million in Q4 - this represents only 19% y/y growth over 4Q16 revenue of €169.2 million. At first blush, this seems like a highly attainable target.
Trivago did drop its guidance even further (but only slightly) along with its Q3 release, now expecting 36-39% growth for the year. To achieve the midpoint of this guide, Trivago only has to post €183.2 million in 4Q17 revenues, or only 8% y/y growth. This macabre scenario is probably unlikely, and the company has probably cut guidance in a classic "kitchen sink" maneuver to reset the bar low - similar to General Electric (NYSE:GE) in its earnings release last week. The company has plenty of room to exceed its new 36-39% guidance and even go beyond its prior 40% guidance.
In other news, the company did swing to an adjusted EBITDA loss of €7.1 million, down from a gain of €6.3 million in 3Q16. This was primarily driven by a 4% increase in sales and marketing expenses as a percentage of revenue; Trivago is spending $0.95 of every dollar of revenue on ads. Because the company's business so heavily centers around advertising to acquire users and clicks, I would view this as investment, not a deterioration of operating performance.
The company has still generated €15.3 million in positive adjusted EBITDA in year-to-date 2017, though this is slightly down from €16.3 million in the prior-year quarter.
Key metrics are still holding up, though not as good as expected
To capstone the deceleration in revenue growth, we have to turn to Trivago's revenue components. The company is still generating positive referral growth - 20% y/y - though this is down substantially from Q2's growth rate of 59%, driving the bulk of the deceleration. On the other hand, revenue per qualified referral, RPQR, is declining slightly.
Whereas Trivago in the past was driving growth via increases in both referrals and revenue per referral, its growth now heavily anchors on sheer referral volumes, largely a function of site visitors, clicks, and advertising spend. Trivago is spending more and more on advertising, which should drive more traffic growth, though its advertising efficiency is down. The company's return on advertising spend (ROAS) metric declined to 111% in Q3, down from 115% in 3Q17.
Key Takeaways
It's fairly clear that Trivago's growth is no longer in its prime. Both of Trivago's major growth drivers - referral growth and RPQR expansion - have seemed to suddenly "switched off."
RPQR will probably never return to its full glory, as Trivago's largest advertising partners - Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE) are targeting less spend on third-party platforms. In Trivago's earnings deck, the company notes:
We believe our financial performance in Q3 2017 was negatively impacted by our largest advertisers having changed their profitability targets on our marketplace. As a result, we expect to see less revenue concentrated in our largest advertisers in Q4, negatively impacting our near-term revenues and profitability.
While these third-party agencies may not be willing to pay as much for a referral now, Trivago can still drive growth through increased site traffic and higher referral counts. This metric relies on internal execution, not the whims of third-party advertisers. As long as Trivago can continue to herd more users to its site (it's certainly spending enough on ads to achieve good traffic results), it should still be able to see top-line growth, even if the growth falls short of what was seen in quarters past.
Trivago's EV/FTM revenue valuation - at a huge discount to Priceline and still 20% below Expedia - prices in further fundamental deterioration that hasn't showed any signs yet of materializing:
Given that Trivago is still growing - albeit at a slower rate - it should still have room to outperform its targets and see some revival in its stock price, though a return to the $20 mark is probably unlikely.
Going forward, assuming Trivago can post Q4 revenues that exceed its new, lowered guidance bar, the company should be able to achieve revenue valuation at least on par with Expedia (2.3x), implying a price target right in the $11 range, its IPO price, a value it should be able to reclaim without too much effort.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
yviktor8
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good article. 11 seems right for a target. Just bought in and will probably continue to add.
27 Oct 2017, 06:00 AM Report Abuse Reply0Like
zrauf
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I'm surprised you made no mention of mgmt saying on the earnings call that there could be potentially no growth, or negative growth for the first half of 2018. The growth story is in serious question.
27 Oct 2017, 07:54 AM Report Abuse Reply0Like
dutchref
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Mgmt said they had not completed their budget yet. Thus, there could be no growth, little growth, or negative growth until the second half of 2018. Yet, everything has a price. Is $7.5 a good price? They have no debt, and $250 net cash. The stock trades at a meager 2 times sales. This stock as you know is explosive. It could be bought out in an instant at $15. It has a world wide following and it could have a massive and long runway for years to come. Time to make your bet. Long/short/no position.
28 Oct 2017, 11:38 AM Report Abuse Reply2Like
22023171
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They did clarify in the call growth would not be negative but could be in the low to high single digits.
30 Oct 2017, 03:52 PM Report Abuse Reply1Like
Stokz
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Question is, how low will it go? Do I hear 5?
27 Oct 2017, 03:34 PM Report Abuse Reply0Like
AmitaiR
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Good article, thank you. Unfortunately I held TRVG into earnings. Thought all the bad news is priced in. Mistake. Cut my losses and am on the sidelines for now. I do agree this was likely the kitchen sink quarter.
29 Oct 2017, 01:54 PM Report Abuse Reply0Like
warelf
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Please don't compare Trivago to Priceline on relative valuations as there is no way Trivago is ever going to reach Priceline's profit margins - nor will Expedia for that matter.
PCLN desrves its higher multiples - Trivago should concentrate on simply making profits - even if that is 6 months away!
All the revenue growth in the world is not going to help if Priceline & maybe Expedia refuse to bid more on performance based marketing - thereby lowering rates for everyone by reducing competition. That is why RPQR is falling and may continue to fall
30 Oct 2017, 04:14 PM Report Abuse Reply0Like
Retrostar
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I agree this stock feels like it's going to $3
31 Oct 2017, 06:27 PM Report Abuse Reply0Like
Stokz
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I'm a buyer at 3
08 Nov 2017, 07:41 AM Report Abuse Reply1Like
Bryan Simis
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RPQR is also perhaps at least in part falling because they are getting more % of referrals from ROW, which has a lower RPQR.
01 Nov 2017, 06:19 AM Report Abuse Reply0Like
Baron Chen, Contributor
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Don't forget that Expedia owns 60% of this thing
Hey John how you doing ? What is the best indicator to verify a real reversal ?, like this stock ?, Stochastics? Or SMA or EMA ? , Thankyou
I think more like 6.25
It will make someone money. Confirmed reversal may have moved to $7.25 from $7.50
This is a POS
As I remember, I am looking for a rconfirmed reversal.
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