Shares in Trivago fell sharply on Wednesday after the hotel-search platform lowered its full-year guidance due to a slowdown in revenue from hotels and other travel companies.
Trivago, which went public in December, charges hotels for the referrals it provides to theirwebsites. It now expects annual revenue growth to be around 40% and adjusted EBITDA to be lower than in 2016 but remain positive.
The company said the slowdown in revenue per qualified referral (RPQR) that it had predicted in its second-quarter earnings call had been more significant than previously expected.
“As a result of this impact, we have algorithmically pulled back our performance marketing activities more than previously anticipated, which has resulted in a further slowdown in traffic and revenue growth from those channels,” Trivago said.
In trading Wednesday, Trivago shares dropped 16.3% to $12.14, bringing its losses since mid-July to nearly 50%. The initial public offering was priced at $11 per share.
As of June 30, Trivago’s platform offered access to more than 1.8 million hotels in over 190 countries. When a user clicks on a hotel displayed in the search results, it charges the hotel for the referral.
According to BBC News, the company “has been spending heavily to establish itself as a go-to travel search site, akin to a hotel-focused Google, that allows users to compare prices across different platforms.”
“Revenues increased by more than 50% year-on-year in 2015 and 2016, but the company faces stiff competition, including from internet giants, which attract a large share of online advertising money, and non-hotel options such as Airbnb,” BBC News said.
Trivago currently spends 92% of its revenue on advertising. Because the slowdown in RPQR happened so rapidly, it was unable to pull back quickly enough on planned television advertising spending, resulting in overspending that cut into profit margins in July and August.
Despite the near-term challenges, “we remain unwavering in our belief in the medium to long-term potential of the business,” Trivago said.