Trivago: Squeezed by Google

Part of the Portfolio since 2018...

Trivago was a real Düsseldorf success story, and you already know it, because you have seen the advert roughly four thousand times: the hotel metasearch with the catchy jingle and the perpetually rumpled pitchman. For a while it was Germany’s favourite consumer-internet export. Then it taught a generation of investors a quiet lesson about where, exactly, the money goes.

The travel giant Expedia bought a majority of Trivago in 2013. In December 2016 Trivago floated on NASDAQ at $11 a share – already below the indicated range, the first small tell that the public was less enthusiastic than the bankers. It briefly touched around $23 in 2017, and that, essentially, was the summit.

The structural problem is elegant and fatal. Trivago is a thin layer of arbitrage: it buys traffic (overwhelmingly from Google) and sells clicks (to online travel agencies and hotels). On one side sits Google, steadily raising the price of the traffic and occasionally deciding to show its own hotel results. On the other side sits the OTA industry – dominated by Expedia and Booking – which happens to include Trivago’s own controlling shareholder. Squeezed between a supplier that can raise your costs at will and a customer that owns you, there is not much room left for a moat.

So the economics behaved exactly as the position dictated.

Marketing spend devoured the revenue; profitability flickered and faded; the much-vaunted ‘platform’ turned out to be, in large part, a very efficient way of moving money from advertisers to Google. Then 2020 stopped travel altogether, and the shares sank into the low single digits, where they have largely remained.

There is no villain here and no fraud – which is precisely why the museum finds it instructive. Trivago is the specimen of the ‘platform’ that is really someone else’s distribution channel wearing a tech-company valuation. It performed a genuine service for travellers and almost no value capture for its own shareholders, because everything it earned was owed, upstream, to the ad giant it depended on.