Thursday, February 09, 2023 2:42:34 PM
https://finance.yahoo.com/news/trivago-focusing-booking-tool-fight-173000570.html
Justin Dawes
Wed, February 8, 2023 at 10:30 AM MST·5 min read
Trivago is based in Düsseldorf, Germany.
In an effort to combat the hold that online travel agencies have on the hotel market, Trivago is focusing on building a capability for direct access between hotels and travelers.
“What has happened over the last 10 years is that a few OTAs have gained more and more market share, so the industry is quite consolidated,” said CEO Axel Hefer in an interview with Skift, adding that that means customers have less choice, and hotels have many of their bookings coming through the top OTAs.
“That’s why we believe that is one of the biggest — or the biggest — opportunities in online travel, in a way to dis-intermediate the OTAs, because the OTAs got too big.”
Trivago is a metasearch site for hotels and accommodations, meaning that user search results are compiled from multiple search engines into a single list, allowing users to compare prices. As of the end of 2022, the company offered access to more than 5 million hotels and other types of lodging accommodations in more than 190 countries.
Trivago executives shared info about the direct booking tool in development and other details during its fourth-quarter earnings call on Wednesday.
Total revenue in 2022 was nearly $574 million (€535 million), an increase of 48 percent from the previous year. The company had a record adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $115.3 million (€107.5 million), an increase of 211 percent from last year. Net loss for 2022 was $136.4 million (€127.2 million), mainly driven by the impairment charges recorded in the second and third quarters of 2022 totaling $198 million (€184.6 million). Trivago shares are up 28 percent year-to-date, trading at $1.75 at midday Wednesday.
The company expects to reduce operating expenses in 2023 despite inflation, mainly through job cuts carried out in the second half of 2022. Hefer declined to share details about the job cuts, referring the 20-F filing with the U.S. Securities and Exchange Commission that’s due in late March.
Hotel Direct Access
Leisure travel has increased post-pandemic, but Trivago said it is beginning to see consequences of inflation as travelers search for less expensive options.
“We believe that metasearch is well positioned in this environment as consumers shift their focus to cost savings, and we will focus on improving the user experience and make it even easier for travelers to find great deals on our platforms,” said Matthias Tillmann, chief financial officer for Trivago, during the earnings call on Wednesday.
The company has been testing the direct access tool in eight of its largest markets. It is meant to connect hotels and travelers directly, giving consumers access to direct booking prices, which Hefer said are about 10 percent lower than through intermediaries. For the hotels, the tool means they can generate more revenue, and ultimately offer more individualized services and upsell more easily, he said.
“From a consumer perspective, yes, we can go to the website of the hotels directly. But there is no place where you can basically do that for hundreds of thousands of hotels,” Hefer said.
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.
Trivago is investing upfront in the direct access tool by providing free links to get more hotels to participate. With greater hotel participation, the company expects to generate more consumer demand.
In the eight large test markets, the company said it has gained a hotel participation rate of more than 50 percent through a partnership with data connectivity company UBIO Limited. Trivago has a goal to reach 80 percent hotel participation by the end of 2023. The next step would be to offer the tool to travel agencies.
In the long term, it could have a big impact on the company’s business model.
“Going forward, it might well affect our revenue streams because we might decide to monetize the direct bookings differently than our OTA bookings. But for now, we basically provide them for free,” Hefer said.
Increased Marketing and Other Investment
Trivago spent $366.6 million (€342.0 million), an increase of 37 percent, on selling and marketing in 2022. Executives plan to increase that in 2023 with a strong focus on price comparison.
“Our goal is to grow the business sustainably from our post-pandemic revenue baseline, focusing on high-quality and repeat traffic. And that is more important to us than hitting 2019 revenue levels. And consequently, we will continue to be disciplined with our marketing investments. However, if we do see opportunities to invest to accelerate our growth profitably at the expense of short term contribution, we will do that, even if it means that our margin will temporarily go down,” he said.
“For 2023, we do expect to increase our brand marketing investments. With the benefit of hindsight, we believe we could have invested more last year, in particular during the peak summer period.”
In the fourth quarter of 2020, Trivago testing a new product design in five markets — four in Europe and one in Brazil — on how to more effectively ensure that a consumer is ready to purchase when they click on a link.
In Brazil, that led to a “significant decline in qualified referrals in that country,” Tillmann said. “However, on the flip side, the click-to-book conversion increased significantly in Brazil, which had a positive impact on our revenue per qualified referral.”
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