Under WSA’s IPO Scanner: Trivago N.V.

Trivago raised $287 million selling 26.1 million ADRs for $11 each in its IPO

The US IPO market has so far witnessed 105 IPOs being priced, raising a total of $18.8 billion as of December 19th, 2016. So far in Q4 FY16, the US market has witnessed 30 IPOs being priced, raising roughly $6.9 billion. As of December 19th, 2016, 120 IPOs have been filed, of which 19 have been filed in Q4 FY16. Of the total IPOs priced as of December 19th, Healthcare accounted for 42 deals or 40% of the total number of IPOs, raising proceeds of $3.4 billion, followed by Technology with 20% or 21 deals raising $2.9 billion.t1

Company overview

t2Trivago B.V., the German travel site that is majority-owned by Expedia Inc. (NASDAQ: EXPE), was founded in 2005 and earlier garnered funding from London-based HOWZAT Media. Trivago filed for its IPO in early November 2016 with the US Securities and Exchange Commission under the name Travel B.V., a Dutch limited liability company formed to be the holding company for Trivago. Trivago changed its name from Travel B.V. to match its popular web property, before the completion of its IPO.

Led by Chief Executive Officer Rolf Schroemgens, Trivago is a metasearch website that aggregates hotel room availability. Its search engine scours the internet for hotel listings, and organizes them by price and location. Consumers can use the site to search for hotels based on a variety of price, quality, amenities, and user reviews in order to reserve hotel rooms for their upcoming stay. Trivago focuses solely on hotels, which are the biggest revenue-generating segment in the travel industry.

Trivago, unlike other travel websites, is not a platform for hotel booking. Instead, it offers travelers searching options to compare millions of hotels and room prices through its 55 websites and 33 local-language apps. The company earns revenue based on referrals. Customers may click on many hotels, but are likely to make just one booking, at which point the company deems them a qualified referral. The company closely tracks qualified referrals, counting 487 million of them in the 12 months to September 30th, 2016, according to the IPO prospectus. This is roughly the same business model employed by its rivals Kayak.com, Skyscanner Ltd, and TripAdvisor Inc. t3It is pertinent to note that TripAdvisor’s stock has tumbled in recent months as growth has slowed in an industry challenged by the increasing number of hotels that encourage booking directly through their own websites.

Expedia, which paid 477 million Euros ($498.42 million) in 2012 for a 62% stake in Trivago, is also one of the platform’s biggest customers. Trivago’s hotel advertisers pay commission on a cost-per-click basis, which is determined using a bidding process. That allows advertisers to control their own return on investment and the volume of referral traffic Trivago generates for them. Travelers can book a hotel room by clicking through to Expedia, and other online travel agencies.

Financials

Trivago, through a winning combination of TV ads and search engine marketing, boosted revenue to six times as compared to 2012. Trivago’s revenue jumped 59% to €493.1 million ($535.5 million) in 2015. Since Trivago spends heavily on advertising, it also closely tracks its return on ad spend, which is the ratio of referral revenue to advertising costs. So far, its spending has far outpaced revenue generation and the company has yet to turn a profit.

In the nine months through September 30th, 2016, Trivago spent $604.7 million on selling and marketing, $45.6 million on technology and content, and $47.4 million on general and administrative costs, while garnering revenue of $657.4 million. Operating loss widened to $56.5 million, compared to an operating loss of $52.1 million in the year-ago period. Adjusted earnings, excluding taxes and one-time items, were $18.3 million through September. Other key metrics such as return on ad spend (ROA) rose 116.1%, while revenue per qualified referral (RPQR) fell to €1.40 from €1.51 in the year-ago period.

t4IPO details

Trivago started trading on the NASDAQ under the ticker symbol “TRVG” from December 16th, 2016. Shares of Trivago rose as much as 7.6% to $11.83 in its market debut on Friday, valuing the hotel booking platform at about $2.89 billion. The company and existing shareholders sold 26.1 million American Depositary Receipts (ADRs) for $11 each, raising $287 million in the IPO. The company plans to use the IPO proceeds to focus on growth and for strategic acquisitions.

When Trivago filed for its IPO in early November 2016, it expected to sell 28.5 million ADRs priced between $13 and $15 apiece. The company expected to raise gross proceeds of approximately $400 million at a midpoint of $14 per share. JPMorgan Securities LLC, Goldman Sachs & Co. and Morgan Stanley & Co. LLC were among the underwriters for the offering.

Trivago has two share classes; the Class A shares were sold to the public, according to the filing. Class B shares will be held solely by Expedia, which did not plan to sell its stake. Expedia will also remain the controlling shareholder in Trivago after the completion of the IPO, with about 65% of the voting rights.

Recent developments

In March 2016, Trivago announced the acquisition of Base7booking, a cloud-based property management system startup. Base7booking’s advanced cloud platform gives hoteliers access to competitive technology, while Trivago has access to over 120 million monthly travellers worldwide. An integration of both platforms will enable hoteliers to easily connect with millions of travellers and drive direct bookings through their own website.

The Base7booking Cloud-PMS platform offers customized functionalities that help hoteliers to manage their property efficiently via the cloud. It allows hoteliers to operate and communicate with their hotel regardless of where they are. The platform is available in 17 languages, and hoteliers from more than 40 countries are currently operating their property with Base7booking.

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