This Stock Is Outperforming META The end of the pandemic brought about a reversal in consumer behavior and preference, which became a bane for Meta Platforms, Inc. (META) but a boon for trivago N.V. (TRVG)....
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The end of the pandemic brought about a reversal in consumer behavior and preference, which became a bane for Meta Platforms, Inc. (META) but a boon for trivago N.V. (TRVG). Continue reading….
With the pandemic in the rearview mirror, trivago N.V. (TRVG) is benefiting from consumers' return to pre-pandemic lifestyles accompanied by increasing travel and accommodation expenditures. Hence, it is well-positioned to fare better than Meta Platforms, Inc.(META), which has been compelled to reassess its priorities amid the not-so-virtual reality of macroeconomic turbulence and reversal of consumer behavior.
Facebook-parent META has found the going tough in 2022. With increasing inflation and interest rates and flagging user adoption in its flagship metaverse project, the company's CEO, Mark Zuckerberg, has gone from announcing an optimistic name change in October 2021 to dubbing 2023 "the year of efficiency."
To that end, yesterday, the social-network company announced that it is planning to lay off 10,000 employees this year in addition to the 11,000 it let go last year. This would amount to 13% of the remaining workforce, with some of the cuts in its metaverse division. The company would also close about 5,000 open roles that are yet to be filled.
The stock has gained 41.7% over the past six months because of the above-mentioned cost-cutting initiatives. However, the company's broader and more strategic realignment to AI, accompanied by its much-hyped metaverse projects going on the back burner, has seen its stock down 10.3% over the past year, despite the recent surge.
META's power ratings also reflect the doldrums in which the company is finding itself. The stock has an F grade for Growth and D for Stability and Momentum.
In contrast, trivago N.V. (TRVG), headquartered in Düsseldorf, Germany, saw a reversal in fortunes last year as COVID-19 became endemic in most parts of the world. This led to a strong recovery in leisure travel, which acted as a strong tailwind for the international hotel and accommodation search platform.
Moreover, the surge in inflation also led to significantly higher Average Daily Rates (ADRs) for hotels in many of TRVG's core markets without any notable adverse effects on the pent-up travel demand.
TRVG's stock has gained 20% over the past six months to close the last trading session at $1.50.
Let's discuss what makes TRVG a better investment.
For the fourth quarter of the fiscal year (ended December 31, 2022), TRVG's total revenue increased 17.7% year-over-year to €104.90 million ($113.58 million), driven by higher average booking value on account of average daily hotel rates, which were significantly higher than the prior-year period.
During the same period, the company's operating income increased 34.7% year-over-year to €17.76 million ($19.23 million), while its adjusted EBITDA increased 15.3% year-over-year to €22.60 million ($24.47 million).
As a result, TRVG's net income for the quarter came in at €10.42 million ($11.28 million) or €0.03 per share.
TRVG's trailing 12-month gross profit margin of 97.63% is 96.2% higher than the industry average of 49.77%. Its trailing-12-month EBITDA margin of 12.38% compares favorably to its five-year average of -0.57%.
Moreover, TRVG's trailing-12-month return on total capital of 5.97% is 67% above the industry average of 3.57%.
TRVG's forward P/E of 6.49x is 59% below the industry average of 15.82x. Similarly, its forward EV/Sales and EV/EBITDA multiples of 0.37 and 2.18 are 80.7% and 74.3% below the respective industry averages of 1.93 and 8.47.
Moreover, TRVG's forward Price/Sales and Price/Book multiples of 0.77 and 0.78 compare favorably with the industry averages of 1.19 and 1.78, respectively.
Analysts expect TRVG's revenue for the first quarter (ending March 2023) to increase 19.3% year-over-year to $134.18 million. During the same period, the company's EPS is expected to come in at $0.04. It also has an impressive earnings surprise history of surpassing consensus EPS estimates in three of the trailing four quarters.
For fiscal 2023, TRVG's revenue is expected to increase 16.4% year-over-year to $668.21 million, while its EPS is expected to come in at $0.23. Moreover, both metrics are expected to increase by 7.7% and 8.2% in the following fiscal year to $719.83 million and $0.25, respectively.
POWR Ratings Reflect Superiority
TRVG's fundamental strength is reflected in its overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. TRVG has an A grade for Quality, consistent with its impressive profitability and capital discipline.
TRVG also has a B grade for Value and Growth, owing to its lower valuation and optimistic analyst estimates.
Unsurprisingly, TRVG tops the list of 59 stocks in the Internet industry.
Beyond what has been discussed above, additional ratings for Stability, Sentiment, and Momentum of TRVG can be found here.
Steps in the Right Direction
While continuing to improve its product and strengthen its core value proposition as a traditional online travel agency, TRVG plans to focus more on its growth initiatives. The company is looking to substantially scale up, both from a consumer and a B2B perspective, by offering travelers direct access to the hotel by providing them with better rates, more personalized offers, and direct communication with the service provider.
The hotels partnering TRVG also stand to benefit from the larger intermediary owning the customer relationship, tailoring their offerings, and increasing the revenue they can generate per customer.
Given its strong fundamentals and promising prospects, TRVG could be a better investment than META until the latter manages to engineer a successful turnaround.
How Does trivago N.V. (TRVG) Stack up Against Its Peers?
While TRVG has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its B-rated (Buy) peers from the Internet industry: Expedia Group, Inc. (EXPE); Tripadvisor, Inc. (TRIP); and Travelzoo (TZOO).
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TRVG shares were trading at $1.49 per share on Wednesday morning, down $0.01 (-0.67%). Year-to-date, TRVG has gained 10.37%, versus a 4.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.