Travel IPO

Trivago eases onto Nasdaq

  • Why it matters

    Why it matters

    Travel search sites such as Trivago and tripadvisor are currently experiencing a downturn in users, making investors nervous.

  • Facts

    Facts

    • Since 2013, over 60 percent of Trivago has been owned by the larger U.S. travel portal Expedia.
    • Part of Trivago’s success is based on major expenditure on marketing. In 2016, the start-up spent around €500 million on marketing even though they only have revenues of €585 million.
    • On Friday, Reuters reported that Trivago’s IPO was priced well below expectations, at around US$11 per share.
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    Audio

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Holiday makers on the beach on the Spanish island, Mallorca. Trivago staff get to work there a month at a time. Source: DPA

Five chartered planes took off from Düsseldorf in mid-October, headed for Ibiza. On board: Around a thousand Trivago employees. For three days and nights, they celebrated on the sunny island at the Hard Rock Hotel. The schedule included a GPS scavenger hunt, hiking and partying. Well known DJs kept things upbeat. “We danced non-stop at the pool party for 15 hours,” recounts Perri Rothenberg from the marketing department. “A thousand people have a lot of energy!”

“The miracle of Trivago”, is how Rolf Schrömgens, co-founder and chief executive of the hotel search engine, describes company outings like this. When the IT nerds and the PR people mix on the dance floor, there is better collaboration between departments. Mr. Schrömgens declines to say what the excursions cost: “Our company trips bring a high return on the investment,” he boasts.

Only four years ago, a Trivago excursion had fewer than 300 employees and more of a family atmosphere. But the Düsseldorf-based start-up has grown rapidly and is making an initial public offering, or IPO, on New York’s Nasdaq Friday.

“If everyone is in contact, people learn from each other and are even more creative. People are more productive on Majorca than elsewhere.”

Rolf Schrömgens, Co-founder and Managing Director, Trivago

The new company, Trivago Holding, had hoped to take in as much as $492 million. On Friday though, Reuters reported that Trivago’s IPO was priced well below expectations, at around US$11 per share, as opposed to the expected $13 to $15. It’s thought that the lower prices were due to general market nervousness about travel sites like Tripadvisor and Trivago, who were not doing as well as expected this year. This means Trivago is more likely to take in around $287 million.

Since 2013, 63.5 percent of the German company has been owned by the U.S. travel portal Expedia. Trivago’s founders still hold 36.5 percent. After the public offering along with an increase in capital, they will retain 31.6 percent. But what won’t apparently change is Trivago’s start-up culture. The principle: Individual happiness and creativity rule.

The founders of this unconventional firm are three men who have been friends since they were students: Mr. Schrömgens, 40, Peter Vinnemeier and Malte Siewert, both 42. They all studied at HHL – now the HHL Leipzig Graduate School of Management – in Leipzig. At the end of the 1990s, Mr. Schrömgens, Mr. Vinnemeier and their fellow student Stephan Stubner set up a consumer forum, Amiro, which later merged with the price comparison portal, Ciao. In 2005, the three men founded Trivago, working out of the Flingern district in Düsseldorf. A year later, Mr. Stubner was replaced by Mr. Siewert, who quit his job as an investment banker at Merrill Lynch.

Trivago’s initial business concept was a bit different: Like a “Wikipedia for travel.” But users were most interested in the banners with hotel prices. So since 2008, Trivago has been a Google for hotels. It allows customers to search hotel deals and compares prices at more than 250 reservation portals throughout the world. Trivago earns money by passing users on to reservation platforms and hotels; online travel agencies pay Trivago each time a Trivago user clicks on an offer. Trivago’s biggest shareholder, Expedia, also happens to be one of their biggest customers.

According to the market research firm Phocuswright, a third of all hotel reservations throughout the world are now made online. In 2010, only 22 percent of reservations were made this way. But now Trivago competitors like Kayak, Tripadvisor and Momondo also offer price comparisons.

Advertising is hugely important in this competitive market. “Television advertising was one of our best decisions,” Mr. Siewert told business people in London. In the first nine months of 2016, Trivago invested almost half a billion euros into marketing, and they only have revenues of €585 million ($612 million). There was a net loss of €51.5 million.

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The founders of Trivago: (from left) Rolf Schrömgens, Malte Siewert and Peter Vinnemeier. Source: Trivago

“The Trivago brand is known throughout the world; the IPO should go well,” says Michael Buller, head of the German Internet Travel Marketing Federation. “The founders of Trivago are brave and they want to play at the very top. They have succeeded in an area that only the Americans have dared to, so far.”

Just like two-thirds of its workforce, Trivago was always quite international. Still the company tries to keep as many employees as possible in one location, Düsseldorf.

“If everyone is in contact, people learn from each other and are even more creative,” believes Mr. Schrömgens. There are offices in Leipzig, Amsterdam and on the Spanish island of Majorca too. Those who’ve been with the firm for a year are allowed to “work where others vacation” for four weeks. As Mr. Schrömgens, who often spends time on Majorca, notes: “People are more productive on Majorca than elsewhere.”

Each employee may take as much vacation as they want, as long as performance is maintained. A colorful office landscape, rooms for music, sports and knitting as well as free beer and snacks are supposed to keep employees happy about coming to work. The founders sit in the middle of a large space. Over 40, they are among the eldest at Trivago where the average age is 29.

“The more jobs people had before, the more difficult things are,” Mr. Schrömgens suggests, meaning that Trivago prefers to hire flexible individuals who have not been formed by other corporate cultures.

There are hardly any titles or hierarchies at Trivago. Performance goals are not prescribed. Each person receives a bonus budget to dispense to colleagues on other teams. Mr. Schrömgens is convinced that, “the person awarding the bonuses is happier than those who receive them.”

For a long time, Trivago was growing, moving under its own financial steam. Only some €1.4 million in venture capital came from outside sources such as Germany’s Samwer brothers, who founded start-up funder Rocket Internet. In 2010, U.S. investor Insight Venture Partners bought 27.3 percent of the company for €42.5 million. Four years ago, the travel site Expedia spent €477 million on a controlling share of Trivago; the founders remained onboard as managers.

Thanks to Expedia, Trivago has been able to become more aggressive. It seems likely that Trivago’s founders are fairly ambivalent about the IPO the Americans are insisting on. Of course, it will provide Trivago with more capital and the founders with cash. But on the stock exchange, they will also have less freedom.

“I tell my people to make mistakes, to waste money sometimes, to try out new things,” Mr. Schrömgens said at a March 2015 meeting of the Entrepreneurs’ Organization, a global network for entrepreneurs. “But when you’re publicly listed, then stability suddenly becomes much more important. That’s a big problem.”

The launch is expected to grow Trivago further. At the moment, a Google-style campus is being built in Düsseldorf’s MedienHafen, or “media port” in English, area for up to 3,000 employees.

“The story of Trivago reads like a screenplay – but the film is being made in Düsseldorf, not California,” says Uwe Kerkmann, head of Düsseldorf city’s Office of Economic Development. He says Düsseldorf is proud of Trivago’s expansion and that the city hopes its growth will attract other start-ups.

The heads of Trivago have actually been involved in the start-up scene for years. Their investment company, Monkfish Equity, supports young enterprises like Delivery Hero, Hello Fresh and Moebel24. “We’ve already invested more than €100 million and made successful exits,” says Mr. Schrömgens.

Bidding farewell to Trivago would be difficult for the founders though. As late as this spring, Mr. Schrömgens stated that, “we can still imagine continuing this for a very long time.” Unfortunately whether they like it or not, the founders no longer have the power to make that final decision: When a contracted grace period expires, Expedia has the right to buy them out.

 

Katrin Terpitz covers companies and markets at Handelsblatt in Düsseldorf. To contact the author: terpitz@handelsblatt.com

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