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Trivago shares tumble after the hotel search website issues profit warning

Trivago has experienced a slowdown in revenue per qualified referral of hotels
Trivago makes its revenue based on referrals to hotel booking sites

Hotel search website Trivago (NASDAQ:TRVG) shares plummeted after saying earnings in the third quarter and full year would be weaker than previously expected.

The German company said it now expects annual revenue to be about 40% and adjusted underlying earnings (EBITDA) to be lower than in 2016.

Unlike other travel websites that allow users to make a booking, the group makes its revenue based on referrals. Consumers can compare offers from a number of different hotel providers by using Trivago’s search engine. If they book a hotel using a Trivago search, the company can charge a referral fee.

Trivago said the negative impact on revenue per qualified referral (RPQR) that it highlighted in its second quarter conference had been “more significant than expected”.

“As a result of this impact, we have algorithmically pulled back our performance marketing activities more than previously anticipated, which has resulted in a further slowdown in traffic and revenue growth from those channels,” the company said in a statement.

READ: Trivago lists on Nasdaq, but at a price well below market expectation

The company expects a lower return on advertising spend in July and August, as it was unable to pull back planned television advertising spend quickly enough due to the speed in which the slowdown in RPQR unfolded. This has negatively affected adjusted EBITDA margins over the two-month period.

Other factors weighing on performance include tough revenue comparatives with strong results in summer 2016 along with headwinds associated with the recent weakness in the euro against the dollar and other currencies.

“Although the above factors represent near term challenges, we remain unwavering in our belief in the medium to long-term potential of the business,” Trivago said.

Shares fell 22.97% to US$11.50 each in US pre-market trading.

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