Shares in Trivago climbed more than 7% on their first day of trading after the hotel search website priced its initial public offering well below expectations.
The offering raised $287.1 million at a price of $11 per share. Trivago had indicated a range of $13 to $15 per share.
In trading Friday, the stock rose 7.7% to $11.85 after reaching as high as $12.43. Trivago’s largest shareholder is Expedia, which has a 63.5% stake.
“The underwhelming pricing of the Düsseldorf, Germany-based company’s offering reflects some concerns among investors, in a challenging year for technology IPOs, that it may be too reliant on a few online travel companies for its revenue,” Reuters said.
According to the IPO prospectus, Trivago posted revenue of $425.6 million in the nine months ended Sept. 30, making much of its money from online travel agencies, which pay for each click a customer makes on their hotel offers. Its platform has offered access to some 1.3 million hotels in more than 190 countries.
The company went public amid a tepid IPO market, with the total amount raised by IPOs down 42% so far this year, according to Thomson Reuters data. Proceeds raised by internet software and service companies such as Trivago have fallen 41%.
Skift reported that some investors have questioned whether Trivago was spending too much on marketing — 88% of revenue — and suggested it should cut its hefty advertising spending to boost its bottom line.
“Hotel booking is a tough, competitive segment, with Priceline already commanding a huge chunk of the market, and Trivago will surely feel the need to keep up its brand recognition through marketing,” The Motley Fool said. “We shouldn’t expect that ad spend to go down, and these expenses will continue to hamper profitability.”
In the IPO, Trivago sold around 26.1 million shares, fewer than the projected 28.5 million. Rival TripAdvisor has seen its stock tumble in recent months.
The hotel-search industry “has been challenged by the increasing number of hotels that encourage booking directly through their own websites,” Reuters noted.