After four quarters that CEO Rolf Schrömgens describes as “quite a challenge,” hotel metasearch platform Trivago posted a turnaround in the third quarter of 2018.

The company, which has Expedia Group as its biggest investor, saw a return to profitability in the quarter, although revenue was down.

Net income for the three months ending September 30 was €10.1 million, compared to a net loss of €7.7 million in the third quarter of 2017.

And adjusted EBITDA was €26.6 million in the period compared to an adjusted EBITDA loss of €7.1 million in the third quarter of 2017.

In a call with analysts to discuss the results, Schrömgens says, “In Q2 this year we concluded that the magnitude of these [previous] losses was not in line with our culture any more. We built this company with very little external funding… we were always maximizing our growth potential, yes, but we also aimed not to be dependent on external funding.”

“This led to our decision to raise our marketing profitability targets during Q2. Our aim was to re-balance the business on a higher profitability level and start growing again after that.”

“It was not always easy, but we also learned a lot. I’m happy to right now to say the last quarter exceeded our expectations.”

Consolidated return on advertising spend (ROAS) – a measure of the ratio of Trivago’s referral revenue to its advertising spend – improved to 135.9% in the third quarter of 2018, compared to 110.9% in the same period in 2017.

The company says while the shift in focus to profitability resulted in improvements in ROAS, it also resulted in a decline in revenue and qualified referrals as compared to the same period in 2017.

Total revenue decreased to €253.7 million in the third quarter of 2018 – a decline of 12% year-over-year – compared to €287.9 million in the same period in 2017.

The number of qualified referrals decreased to 189.1 million in the third quarter of 2018, or by 12%, compared to 214.2 million in the third quarter of 2017.

But revenue per qualified referral (RPQR) stayed stable on a year-to-year basis, at a level of €1.32.

“In the third quarter of 2018, we continued to implement measures aimed at optimizing our platforms and product, with the intention of increasing user retention and booking conversion, while reducing the number of click-outs required to ultimately make a booking,” the company says in a statement.

“Since we make these changes by optimizing for traffic quality instead of volume, these changes will tend to have a negative impact on qualified referrals… but we believe they will have a long-term positive impact on RPQR.”

Advertiser revenue

Regarding its advertisers, figures for the third quarter of 2018 are comparable to the same period a year earlier.

Booking Holdings spend accounts for 44% of Trivago’s total advertiser revenue, Expedia Group accounts for 32% and all other advertisers account for 24%.

Schrömgens says Expedia is gaining more share in developed Europe and Booking.com is gaining in North America.

Looking ahead, the company says it wants to drive more competition in the marketplace by providing tools that help small and medium advertisers increase their efficiency and drive conversions and to “reduce conflict and distraction” in the funnel.

“We are constantly trying to empower small- and medium-size advertisers,” Schrömgens says.

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“The problem is always a little bit that it’s quite a long tail of advertisers – we have a couple hundred of them – and first of all you have to convince them, you have to show them your product, you have to show them they can be more profitable, more effective when they use your tools. That is something that is constantly ongoing as we on-board new advertisers on our automated bidding and on our express booking feature.”

But Schrömgens says while Trivago will continue to develop its express booking functionality, it has no plans to offer booking within its platform.

“We clearly want to be an independent player in the market,” he says.

“We want to give you the information and you should be sure you book always with one of our advertisers – with the hotel chain, with the hotel directly but not with Trivago. But just on the user experience it will be easy like booking on Trivago with a very simple interaction. That is something we are really working on right now.”

Tech updates

Part of that improved user experience ties to Trivago’s mobile app, recently updated for both Android and iOS with a redesigned interface and more in-app content. The company reports revenue from mobile websites and app continues to exceed 60% and users are staying in the app longer and consuming more content.

Schrömgens says the company’s profitability is allowing Triavgo to “re-accelerate product development and innovation.”

“Software is always like a very organically grown beast. You develop it over a long time. If you look back at our app software before, that was quite old already. I don’t know actually when we started it but it’s probably close to 10 years ago,” he says.

“With the new app we were able to start on a white piece of paper, started from scratch and that now allows us… to iterate quite quickly and improve quite quickly. And now we are on a different learning trajectory where we can learn and implement quite faster than we’ve done in the past.”

Trivago is also continuing to ramp up its on-boarding of alternative accommodations such as vacation rentals and private apartments.

As of September 30, the company reports it has more than one million alternative properties on its platform, up from about 350,000 in the first quarter of this year.

In addition to adding inventory, Trivago says it is working to personalize the interface to show alternative accommodations to users that are most receptive to that sort of property.

As of September 30, Trivago says it offers access to more than 2.5 million hotels and other types of accommodations in more than 190 countries. Its search platform can be accessed globally via 55 localized websites and apps in 33 languages.