Trivago Takes A Trip From Overweight To Equal-Weight At Morgan Stanley

Trivago NV - ADRTRVGBrian NowakTrivago's stock rating from Overweight to Equal-Weight with a price target slashed from $22 to $12. Triavgo's business model is currently undergoing a transition in which Trivago's new mandated landing pages only allow online travel agencies to show the hotel property searched for as opposed to a "search results" landing page, which was previously used and generated higher return on investments for OTAs, the analyst highlighted.

Trivago's new landing page will likely prove to be a near-term headwind for revenue per qualified referral and generate slower than previously expected revenue growth, Nowak continued. In fact, a slower revenue growth profile will give the company less incremental dollars to re-invest in advertising and improve its overall business.

Meanwhile, Trivago is likely seeing cases of "reduced branded marketing efficiency" in various development markets, especially in the U.S. Similarly, this will likely generate a slower than expected growth profile moving forward.

These two negative headwinds, coupled with the company's decision to focus on acquiring fewer, higher quality referrals, are reason enough to prompt a downgrade as it will lower the company's earnings power and revenue.

Until Trivago can consistently deliver top and bottom-line revisions an Equal-Weight rating is justified. Nevertheless, a bearish rating is inappropriate as Trivago remains one of the best positioned companies to drive incremental travel ad dollars online within the very large $55 billion travel ad market.

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