In a bit of good news for the tech IPO market, hotel search engine company Trivago has filed for an IPO which could see the company raise up to $400 million. Trivago has not determined the number of shares nor their price, and will list their shares on the NASDAQ with the symbol “TRVG.”
Business Insider among other sources reports that Trivago could debut before the end of 2016, and the company appears to want to debut as soon as possible given earlier reports of a Thanksgiving IPO. Trivago’s debut as well as the upcoming IPOs of bigger companies like Snapchat could indicate a revival of a tech IPO market which has been moribund through most of 2016.
Trivago’s high revenue growth and increasing return on advertising are good signs, but investors have reasons to be concerned about the future state of the travel industry in general. Still, Trivago looks to be a good buy in the near future.
Traveling Up or Down?
In its SEC filing, Trivago calls itself a “global hotel search platform” which helps travelers find their ideal hotel. It was founded in Germany over a decade ago and has much stronger name brand recognition in Western Europe and Canada compared to the United States.
This emphasis on Europe is important given how recent political events could shake up the travel industry. U.S. travel to Mexico could increase given how the peso has fallen to the dollar since Trump’s election, but travel to and from the United States could decrease as Europeans may be convinced that the United States is no longer as welcoming a country.
Travel industry experts indicated a mixed reaction towards the election result, with some suggesting that fears are overblown while others pointing out positive and negative effects of a Trump and Republican administration.
However, this mixed reaction in and of itself points to uncertainty as so many wonder just what precisely will come out of a Trump administration, which is not good for the industry as a whole.
But while there may be uncertainties about the travel industry, Trivago itself has grown a great deal over the last few years. The company’s revenue has increased from €209.1 million in 2014 to €378.7 million in just the first nine months of 2016. It should be noted that Trivago has not actually managed to make a profit during that time frame and its losses have increased from €23.1 million to €51 million in the same time span. While these increased losses may be concerning, taking into consideration accounts receivable factoring, Trivago does not have a debt problem and could become profitable if it was less focused on expanding its growth.
I also like the fact that Trivago intends to use the proceeds collected from the IPO for largely general corporate purposes and to “increase our public profile and awareness.” Further expansion of their search capabilities and ability to pick up both hotels and advertisers is a sign of Trivago’s commitment to growth.
Don’t Forget Expedia (NASDAQ:EXPE)
That last reason to launch an IPO is interesting when investors remember that Trivago is not actually an independent company. Travel company Expedia bought a majority share of Trivago in December 2012 and currently owns more than 60 percent of the company.
This is important because this is not the first time Expedia has placed part of its company in an IPO. In December 2011, Expedia spun off TripAdvisor Inc (NASDAQ:TRIP). TripAdvisor steadily grew in value for the next two to three years, though the stock has struggled since as TripAdvisor has faced challenges trying to go into instant booking.
But even if TripAdvisor has struggled recently, Expedia and Trivago can look at what they have done and use it for their IPO. Trivago is also testing bookings like TripAdvisor and is primarily focusing on making the experience easier for consumers. While TripAdvisor’s struggles may worry investors about Trivago’s efforts, instant booking does have significant potential which could make this pay off in the long term.
A probable buy
This year has been incredibly chaotic and unpredictable, but that has not stopped people from travelling. In fact, experts predict that we will see a record number of travelers for this holiday season partly due to lower fuel prices.
Trivago is popular outside the United States with both users and advertisers, is debt-free, and analysts should feel confident about the travel industry’s prospects in the short-term future. Since the IPO is launching soon, my conclusion is that Trivago could be a pretty good buy over the short term and may very well end up following TripAdvisor’s pattern at the start.
Keep an eye out for general economic news, especially the number of Americans who travel abroad over Thanksgiving and the holidays. That should be a good initial sign for Trivago’s prospects.