Trivago Stock: A Long and Winding Journey to Stability (NASDAQ:TRVG)
trivago AG (NASDAQ:NASDAQ: TRVG) is a Germany-based meta-search platform for hotels and other accommodation services. As a subsidiary of Expedia Group, it focuses on the United States, Germany and the United Kingdom. It supports travel agencies and hotels through its 53 localized websites and apps in 31 languages. As of 2021, it serves more than five million hotels and other accommodation services worldwide.
Now it is reaping the fallout from the strong rebound in travel with an influx of customers. Revenues and margins are growing with a stronger financial position. Yet he should not be complacent due to macroeconomic pressures. Competition with other meta-search platforms is also tighter. This may be the reason why the stock price remains hammered. Nevertheless, it still does not look too cheap, but investors can still consider its potential.
The past two years have been difficult for the travel and hospitality industry. Pandemic fear and restrictions have hammered the growth potential of most businesses. Demand dropped drastically, leading to lackluster performance. As such, it is no surprise that trivago NV has not avoided disruptions to its operations.
Today, trivago NV is showing more promising prospects as the pandemic fears an ebb. The easing of restrictions and the economic rebound allow revenge trips around the world. Thus, its operations are rebounding with last-quarter operating revenue of $152 million, up 34% year-over-year. Thanks to increased mobility around the world, resulting in a strong rebound in travel activity. Indeed, the pent-up demand for travel also benefits advertising and meta-search platforms like TRVG. It is timely as it coincides with trends this quarter due to seasonal factors. As travel spend increases in Q2 and Q3, qualified referrals show 15% year-over-year growth. Better bidding momentum stems from its strong bidding with a 31% increase in revenue per qualified recommendation.
When it comes to its competitors, it is a bit difficult to compare it to its peers. Its business model takes the form of a website that compares hotel and accommodation prices. It earns from its major partners using its pay-per-click (CPC) advertising business model. Over 80% of its referral revenue comes from Expedia (EXPE) and Booking Holdings (BKNG). It also offers paid business models for hotel manager products.
Its peers are also meta-search platforms, but some reserve websites with meta-search platforms. So it makes the competition tighter and a bit overlapping. Fortunately, earnings appear to be more stable than many of its peers. Its revenue growth is also above the market average of 13%. Likewise, its market share of 7.6% is higher than 6.9% in the same quarter of the previous year.
Along with the industry’s impressive return, TRVG is also benefiting from its better asset management. Despite larger operations due to greater demand, he keeps his costs and expenses manageable. It’s a nice move amid the sustained price increase. It’s also good preparation for another potential economic downturn as inflation escalates. The operating margin of 0.17 is well above that of the previous quarter since the start of the pandemic.
Potential risks and opportunities
Although leisure and business travel continue to increase, the company must watch out for inflation. Rising prices combined with geopolitical unrest in Europe could affect the travel industry. Nor should it minimize the potential impact of the potential Monkeypox outbreak. Fear of the pandemic, combined with high market volatility, may affect its performance. Travel and leisure is a popular trend, but it might not be as high as expected if prices rise again. Today, inflation seems to be calming down to 8.5%, but it could still rebound to 9-10%.
Increasingly tight competition is another potential risk to consider. Although its revenue growth and market share are better this year, the market landscape is dynamic. Also, Google is another bigger competitor to watch out for. I didn’t include it in the pie chart in the previous section, but its platform also competes with trivago NV
Even so, TRVG appears to be wiser than it has been for the past two years. It devotes the second half to improving the reasonableness and flexibility of its pricing to improve user retention. It is also improving other aspects of its marketing strategy, such as its display ads and its Weekend product. This can improve the consistency of its marketing approach and user engagement to generate more leads. However, macroeconomic pressures are also affecting the value of its intangible assets, which are vital to its core business. This gives impairment charges of $90 million, resulting in a net loss of -$64 million, the lowest value of last year. However, this also reflects the company’s conservative approach to better value its core activities. EBITDA is $28 million as it focuses on actual transactions. This is the highest amount of last year. Excluding the impairment, net income will be $25.9 million.
Liquidity is another attribute that it continues to improve. It has stable cash levels with a substantial increase in receivables. Intangible assets are much lower due to depreciation, which affects their value. At the same time, the borrowings are also stable, which allows the company to cover them using only its cash. Net Debt/EBITDA will be a negative value because it has more cash. The ratio will still be low at 1.5x even if we disregard cash. He earns more than enough to cover the loans. But again, one needs to be careful as macroeconomic pressures affect the value of its key assets, which affects its viability.
The travel hype remains evident amid inflation. Hotel bookings rebounded this summer. It reached pre-pandemic bookings, showing a recovery. Today, fall shows no lull in travel, as many Americans are still on the go, domestic or international. In a survey last month, demographics did not affect their willingness to travel. The same survey indicates that many fall travelers expect to travel almost twice as much this year as last summer and almost three times as much last fall. Another recent survey shows that more than 50% of Americans are planning fall trips of at least four nights. Meanwhile, 33% plan to take fall trips of at least five nights.
The share price of trivago NV is still in a downtrend despite the travel boom and better fundamentals. This may still make sense since the macroeconomic risks and pressures remain evident. At $1.51, the stock price is 33% below the starting price. But, the price is still reasonable with a slight understatement, not too cheap. The PB Ratio of 0.83, the Price/Cash Flow Ratio of 8.82 and the EV/EBITDA of 7.69 adhere to this. Investors can still consider the stock as travel continues to rise. Still, they must assess how long it can sustain its rebound amid inflation. To better assess the price, we can use the DCF model and the EV/EBITDA.
Growth rate to infinity 4.8%
Common shares outstanding 360,176,000
Share price $1.51
Derived value $1.57
Net debt -$192,000,000
Common shares outstanding 360,176,000
Share price $1.51
Derived value $1.52
Both models show the stock price to be reasonable with potential undervaluation. There could be a 1-4% upside over the next 12-18 months. Even so, interested investors may still have to wait for a better entry point.
At the end of the line
trivago NV proves its resilience and durability with a solid rebound from its low. It has better fundamentals and marketing strategies to face tighter competition. Yet inflationary pressures remain a challenge despite the travel hype. The share price sticks to its fundamentals after weighing the risks and growth prospects and remains reasonable. The recommendation at this time is that trivago NV is on hold.