Susquehanna Starts trivago N.V. (TRVG) at Neutral

Susquehanna initiates coverage on recent IPO trivago N.V. (NASDAQ: TRVG) with a Neutral rating and a price target of $14.00.

Analyst Shyam Patil highlighted:

• Trivago priced its IPO late last week and the stock started trading on Friday. The IPO priced at $11, which was 21% ($3) below the mid-point of the original $13-15 range. The stock closed at $11.85 on Friday, up 8%.
• Trivago is one of the leading “Big 5” players in the travel metasearch space and is well positioned to capitalize on the secular shift from offline to online accommodations bookings and advertising spend.
• The company’s strong growth (59% in 2015 and 51% in 2016E) has been broad-based across geographies, and driven by aggressive spending on advertising (~88% of revenue).
• We believe TRVG’s “secret sauce” in advertising has been its innovative approach to combining aggressive, yet highly optimized, TV and search advertising. We see this expertise around TV and search differentiating TRVG’s ability to penetrate markets and drive growth and has allowed the company to create a moat in a highly competitive space.
• One of the key questions for TRVG is whether the company can show leverage on ad spend without compromising the current strong revenue growth profile. Our analysis suggests ad leverage is possible given recent respectable and stable incremental contribution margins in the more mature geographies, particularly Developed Europe and the Americas. If current incremental contribution margins remain stable in Europe and the Americas, we believe Europe contribution margins could expand by three points from 2016-2018 to 30%, and the Americas by seven points to 22%. ROW incremental margins are currently negative, but improving. If ROW incremental margins can improve from -10% in 2016 to +5% in 2018, contribution margins could increase by seven points to -6%.
• Our $14 price target is based on a ~4.25x EV/revenue multiple on our 2017 revenue estimate of €1.0b. More broadly, we estimate a fair valuation range of $11-$16 per share, using a 3.5x-5.0x EV/revenue multiple on our 2017 revenue estimate. We believe this is appropriate given Trivago’s 30%+ growth profile, leadership position, large TAM, and ability to scale margins over time and is supported by the precedents/comps (Kayak’s takeout multiple of ~4x forward revenue in 2012, TRIP’s current valuation of ~4x forward revenue, and TRIP’s initial spin-off valuation of ~5x forward revenue). Our bull case is $24 and bear case is $9.

For an analyst ratings summary and ratings history on trivago N.V. click here. For more ratings news on trivago N.V. click here.

Shares of trivago N.V. closed at $12.15 yesterday.

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