Why Trivago Shares Plunged 12.9% on Monday

What happened 

Shares of internet travel company Trivago (NASDAQ: TRVG) fell as much as 12.9% in trading Monday as investors questioned how much the company's business will suffer as the COVID-19 outbreak spreads. At 2:40 p.m. EDT today, shares were still down 9.5%, and are down 39.2% in the last month. 

So what

Trivago's shares plunged as the market realizes that the COVID-19 shutdown may last a lot longer than originally expected. Over the weekend, the president of the St. Louis Fed, James Bullard, said that unemployment may reach 30% and GDP could drop 50% if the pandemic continues. Meanwhile, Gov. Andrew Cuomo of New York said the pandemic could last nine months. 

Person clicking on blue booking button on computer.

Image source: Getty Images.

If the economy is hit that hard, it wouldn't be surprising to see the travel industry suffer for quite awhile as well. The problem for Trivago is that it doesn't have much cushion to absorb a drop in revenue and may soon start reporting big losses if revenue drops. 

TRVG Revenue (TTM) Chart

TRVG Revenue (TTM) data by YCharts.

Now what

The reality is that no one knows how bad the travel business will be even a few weeks from now, so investors are jumping ship and looking for safer areas in the market. One thing to watch with Trivago is its operating leverage and how quickly losses begin to mount. Investors should get a good feel for how quickly operations fell off after the next earnings report, which will be out in early May. Until then, travel stocks are in a tough spot in the market. 

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Trivago. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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