Llike most of the travel industry, Trivago (NASDAQ:TRVG) was hit hard by the pandemic as revenues fell sharply from pre-pandemic levels. The stock is mostly unchanged from two years ago, but the company has made significant progress in cutting costs and restructuring its business, though those changes have been overshadowed by COVID challenges.
In its fourth quarter earnings report, the company rebounded from the depths of the pandemic a year ago and posted strong earnings before interest, taxes, depreciation and amortization (EBITDA) margins. Revenue increased by 176% to 89.1 million euros, although it was still down 43% compared to the fourth quarter of 2019. The adjusted EBITDA margin also reached a record for the specialist in accommodation reservations at 22%, with an EBITDA reaching 19.6 million euros.
While the market has mostly forgotten about Trivago – the stock barely budged on Wednesday’s report – 2022 could mark a comeback for the hit travel stock. Here are three reasons.
1. The pandemic could finally be over
There are signs that 2022 could be the year in which the COVID-19 pandemic ends, or at least becomes endemic, meaning it is treated as part of normal everyday life. Evidence shows that the omicron variant is less severe than earlier strains and that an increasing percentage of the world’s population is vaccinated or has acquired natural immunity.
Restrictions on travel and policies like masking are also starting to be relaxed. A number of US states have started lifting masking mandates, and the UK could lift all virus restrictions as early as this month. Several EU countries have also said they are scrapping entry requirements, such as testing negative, if you are already vaccinated.
Trivago said it saw a direct link between lifting restrictions and bookings on its platform. Often travelers don’t want to deal with the inconvenience, such as testing or even quarantine, that has been required to travel.
While the company didn’t give specific guidance, it said growth improved in January compared to December and expected that trend to continue in the first quarter. Although the company is optimistic about labor shortages impacting the recovery, it is optimistic about the spring and summer ramp-up.
2. Costs have been significantly reduced
Record fourth-quarter EBITDA margins are a promising sign for the company as the travel market recovers. Trivago has significantly reduced its cost base over the past two years, laying off staff and reducing office space. It has also made its marketing more effective, and these measures should lead to wider profit margins as the travel industry rebounds.
In a normal environment, most of the company’s revenue is spent on sales and marketing expenses, which are expected to increase later in the year, but general and administrative expenses and technology costs are expected to remain relatively in line with market levels. fourth quarter of 2021, so the business will gain operating leverage as revenue grows.
The company predicted that total operating expenses would be below 2020 levels, which is good news for the company’s long-term profitability.
3. New professions are emerging
While Trivago will still be primarily an accommodation booking service, the company has launched B2B services that monetize the data it generates from travel searches. The company is in the early stages of developing this business, partnering with companies like Huawei and an online ticketing platform, among others, in what it calls metasearch as a service.
Along with Huawei, the Chinese tech giant uses Trivago to power its online hotel reservations, and Trivago shares booking revenue with it. As this grows, it should be a higher margin line of business, as it leverages Trivago’s technology infrastructure already in place and allows it to tap into a new customer base.
Trivago categorizes this activity as “other income”. It only recorded 5.4 million euros in other revenue in the fourth quarter, but that figure is expected to accelerate this year and could be a major profit driver in the future.
Trivago has been trading in the penny stock range for several years now and has missed some of the tailwinds to recovery that other travel stocks have had. However, based on current Q4 EBITDA, the stock trades at just 11 times EBITDA, making it surprisingly affordable, especially as its earnings will rise again this year. If Trivago can also generate earnings growth, the stock should rise this year.
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