Image source:
What's going on?
German hotel search platform Trivago announced on Wednesday that it didnt think it would earn as much in profit as it expected this year and frustrated investors sent its stock down by over 18%!
What does this mean?
Online travel sites like Trivago and Kayak dont actually book hotels or flights for customers but instead connect prospective customers with third-party travel companies (i.e. you are transferred to a different website). They then collect fees from those companies for each customer referral.
On Wednesday, Trivago said that the revenue it receives per referred customer is declining and that it didnt pull back its advertising spending quickly enough to adapt. As a consequence, its expecting lower revenue growth and lower profits this year.
Why should I care?
For markets: Investors might have concerns about the long-term viability of Trivagos business.
Wednesdays announcement suggests that Trivago is unexpectedly falling behind on its recent progress towards making a profit (its currently unprofitable). The implication is that Trivagos business model may be endangered: unless it somehow finds ways to acquire users at a lower cost or starts earning more revenue per customer again, its facing lower profitability (a.k.a. margins) going forward.
The bigger picture: Trivago may join a list of recent disappointing tech IPOs.
Trivago became a publicly traded company in December (a.k.a. it completed an IPO), and while shares in the company more than doubled in value over the first six months, theyve since come crashing back down to near where they started. However, Trivago is far from being this years biggest tech IPO disappointment high profile IPOs like Blue Apron and Snap are now trading well below their initial IPO price.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
