Can Trivago Stock Bounce Back After Last Week's 29% Drop?

MarketsMotley Fool

The stock that had been one of hottest IPOs over the past year was last week's biggest loser on the Nasdaq exchange. Shares of Trivago (NASDAQ: TRVG) plunged 29.4% last week, sliding after the company hosed down its full-year outlook.

Weaker-than-expected revenue per qualified referral (RPQR) is weighing on its guidance. The online lodging specialist now expects adjusted EBITDA to remain positive but clock in lower than a year earlier. Trivago now sees revenue growth of roughly 40%, down from its earlier target of 50%.

Continue Reading Below

Fasten your seat belts

Most online travel companies would love to be growing their businesses at a 40% clip, but let's frame what Trivago is saying here. Revenue already rose 67% in its second quarter and 68% the period before that. Going from 50% to 40% for all of 2017 means revenue growth for the second half of this year will drop from 36% -- already problematic deceleration -- to a mere 18%. Ouch.

Wall Street pros don't like what they're seeing. Doug Anmuth at J.P. Morgan is slashing his price target from $23 to $16, but he's sticking to his "overweight" rating since even his new price goal represents 46% of upside. Nat Schindler at BofA/Merrill isn't as kind, downgrading his bullish call on the stock to "neutral" and lowering his price target from $22 to $14. The one thing driving the slowdown in RPQR is that advertisers are getting by with lower bids, something that stings Trivago's unique model that relies on hotel operators and other online travel portals to bid for booking placements on its more than 1.3 million property pages.

Trivago has now taken a round trip to nowhere. It went public at $11 late last year, trading as high as $24.27 in July before winding up roughly back where it started. Trivago closed at $10.96 on Friday, so the debutante that had more than doubled just two months ago is now a broken IPO.

It's not easy to win back a market's trust once it's squandered, and now the fear is that Trivago may have to slash its outlook again if its prospects continue to decelerate. There's also the fear that analysts will need to keep whittling down their forecasts as we look out to 2018. Wall Street's currently holding out for 34% revenue growth next year, something that seems challenging since the top line will be growing at a little more than half that clip through the second half of this year.

Last week's sale could still attract bargain seekers in the coming weeks. Investors who missed last December's IPO now have a chance at grabbing it at a similar price. Trivago's relevant and popular, but it needs to make sure this is the last of the downward revisions.

10 stocks we like better than TrivagoWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Trivago wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Trivago. The Motley Fool has a disclosure policy.