Guggenheim: If You Like TripAdvisor, You Might Also Like Trivago

The bullish case for global hotel search platform Trivago NV - ADR TRVG is based on its parroting of recent successful strategic undertaken by rival online travel platform Tripadvisor Inc TRIP undertook in 2018, according to Guggenheim.

The Analyst

Jake Fuller upgraded Trivago from Neutral to Buy and set a new $5.50 price target.

The Thesis

TripAdvisor took action in to rationalize its ad spend and cut costs, which led to EBITDA improvement with minimal revenue impact, Fuller said in the Tuesday upgrade note. (See his track record here.) 

TripAdvisor managed to cut "inefficient spend," and Trivago is now taking similar action with "a lot more" to cut, the analyst said. Trivago's ad spend accounted for 80 percent of revenue in 2018 versus TripAdvisor at 41 percent back in 2017, according to Guggenheim. 

The Street may not be fully appreciating Trivago's ad spend reduction, which started in mid-2018, Fuller said. 

Consensus estimates are calling for ad spend as a percentage of revenue to move higher from 68 percent in the back half of 2018 to around 75 percent. In addition, the Street is assuming the EBITDA margin will move back down from 13 percent in the back half of 2018 to 7-8 percent.

If Trivago succeeds in cutting ad spend by 15-20 percent with a 50-percent return on ad spend, the company could generate EBITDA of 95-115 million euros ($106.5 million to $128.9 million), the analyst said. This represents a "viable" scenario and implies upside versus management's guidance of 50-75 million euros.

Price Action

Trivago shares were surging by 8.98 percent to $4.37 at the time of publication Tuesday. 

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