Trivago NV – ADR (NASDAQ:TRVG) is a stock we covered recently, noting that the stock’s underperformance relative to its seeming growth potential might be simply a function of a string of missed numbers during earnings season. It’s a quaint theory, but one that seems to be increasingly plausible, as the stock launches higher following a strong Q3 report.
Specifically, the company reported its first profit in more than a year at $0.03 per share. That flew in the face of expectations of a $0.01 loss. We know that over 30% of the stock’s float was sitting in the hands of shorts into the report. The company cut costs on advertising, as noted on the call, which accounted for a pullback in topline growth. But the result was profitability. There was proof in that pudding, and it has thus far been a painful one for those short the stock.
Trivago NV – ADR (NASDAQ:TRVG), therefore, has achieved something that may be a bit more interesting than just a profitable quarter and a backhand to shorts in the stock: it has changed the face of its bottom line narrative.
In other words, by demonstrating that it can be a profitable company simply by reducing its investment in topline growth, it has probably given itself a measure of market leeway on returning to unprofitability for the sake of new topline growth in coming quarters.
Rolf Schrömgens, CEO and Founder, “This quarter we continued to focus on our core principles and what has made us successful by optimizing our marketing, improving our traffic quality and putting our users at the center of the experience. We believe we’ve done just that.”
In other words, the flow of events may shift the market’s story for the company from a poorly executing team to a bigger-better-deal play. Once this faith exists – once investors by and large buy into the idea that a lack of profitability is being undertaken for the purpose of driving out its frontiers (Amazon being the best all-time example of this sort of unprofitability) – it becomes a whole lot easier for shareholders to realize capital appreciation during an unprofitable phase.
It seems to us that there is at least a solid chance that a return to higher topline growth and a red number on the bottom line next quarter may well lead to another short squeeze rather than a deteriorating slide.
Axel Hefer, CFO, “Our aim was to return to profitability in a sustainable way by reducing inefficiencies and getting the business back on track. We believe we are now well-positioned moving forward and have adjusted our guidance to reflect our improved outlook.”
A Birds Eye View
Trivago NV – ADR (NASDAQ:TRVG) trumpets itself as a company that, together with its subsidiaries, operates as a hotel search platform.
It offers online meta-search for hotels by facilitating consumers’ search for hotel accommodation through online travel agents, hotel chains, and independent hotels. The company provides access to its platform through 55 localized Websites and apps in 33 languages.
As of December 31, 2017, its hotel search platform offered access to approximately 1.8 million hotels and other types of accommodation worldwide. The company was founded in 2005 and is headquartered in Düsseldorf, Germany. trivago N.V. is a subsidiary of Expedia, Inc.
According to company materials, “trivago N.V. (TRVG) is a global hotel search platform. We are focused on reshaping the way travelers search for and compare hotels, while enabling hotel advertisers to grow their businesses by providing access to a broad audience of travelers via our websites and apps. Our platform allows travelers to make informed decisions by personalizing their hotel search and providing access to a deep supply of hotel information and prices.”