On the Beach, the UK-based beach vacation online travel agency, is adding a fourth source market as it tries to transform itself from a UK to a pan-European business.

This month Denmark will join fellow Scandinavian countries Norway and Sweden alongside the UK, in the On the Beach portfolio and will get its own dedicated website.

Expansion sounds great, the only problem is that as things stand the international businesses isn’t profitable and its revenues are a tiny fraction of what the company makes in the UK.

That’s not to say On the Beach can’t be successful abroad, it’s just that organic expansion is both time-consuming and expensive.

Before On the Beach went public in September 2015, international expansion was one of the objectives it set out in its prospectus.

“The group intends to expand its business model in certain other European markets to address the €55 billion package holiday market opportunity in Belgium, Denmark, France, Germany, Italy, Netherlands, Norway, Spain and Sweden,” it said at the time.

Sweden was the first market On the Beach targeted, launching there in January 2015. The company set aside $4 million (£3 million) for expansion and expected to reach break-even in “two to three years” with a “a payback period of four to five years post-entry.”

Norway launched in December 2016 and while revenue from both these source markets increased by 50 percent in the first half of its 2018 financial year, the company still only generated 2 percent of total group revenue from abroad.

Losses from the international unit increased by 60 percent to $2.2 million (£1.6 million) in the first half of 2018 versus the year-earlier period. The company attributed this “almost entirely” to “marketing investment required to drive branded awareness and share of traffic, which will in turn improve efficiency.”

“I suppose, there’s a number of different strategies, aren’t there, with regards to internationalization,” CEO Simon Cooper told Skift in an interview after the publication of the company’s first-half results. “There’s the money’s-no object approach: Just spend as much as it takes to break a market, but hey it might cost you £100 million [$135 million], and there’s the more slowly but surely approach.”

“And I think that, given we’re relatively recently listed, we needed to reassure our investors that we were not chasing a pipe dream.”

On the Beach’s listed European peers include Lastminute.com Group and eDreams Odigeo, although both of these generate substantially higher revenues.

The company’s focus is selling sun and beach holidays by packaging low-cost flights and hotels.

Buying and Selling

On the Beach has only made one recent high-profile acquisition, buying fellow UK online travel agency Sunshine.co.uk in May 2017.

However, reports surfaced in February that On the Beach had hired investment bankers over fears that one of the big U.S. online travel agents might be looking to take it over.

As of yet nothing has materialized, and Cooper said the story was a little bit wide of the mark.

“It wasn’t to do with any kind of specific activity that led us to think that we were going to be a target. It was just a standard review that a plc [public limited company] would undertake,” he said.

That doesn’t mean that On the Beach isn’t in the market for more acquisitions, but as CEOs often say, they would have to be the right fit.

“What would be true to say, is that, look, we get presented with all sorts of opportunities most of which are miles wide of the mark, but were we able to see value in synergies that we could drive through an acquisition, then why wouldn’t we consider it as potentially a good use of cash that we’re building,” Cooper said.

“Yes, there’s all sorts of things that could fit quite neatly given the model we’ve created and the let’s say ‘mapability’ of the technology. We continue to review. Does that mean that we are actively seeking? It depends on your definition of actively.”

First-Half Results

On the Beach’s share price has been on a tear since it listed in 2015, going from $2.49 (£1.84)-a-share to more than $8.11 (£6.00) in recent weeks, but the share price fell 16 percent after it reported first half results.

Monarch Airline’s UK bankruptcy last year led the On the Beach to losing $1.5 million (£1.1 million) as seat prices across the market increased.

Group revenue in the six months to the end of March rose 19 percent to $61.1 million (£45.3 million) with profit before tax up 9 percent to $14.5 million (£10.8 million).

Although a more cautious outlook probably led to the share slump, analysts covering the company don’t seem too concerned.

“The business has met or exceeded all expectations we set post-IPO, and we remain confident On the Beach has the right model and strategy to be a long-term winner in the growing UK online holiday market,” Mark Irvine-Fortescue, an analyst at Panmure Gordon, said in a note to investors.

And although institutional investor and advisor Numis downgraded On the Beach’s stock, the firm said it remained “supportive of its business model,” highlighting “structural growth in dynamic, short-haul package holidays, its lean cost base and its market-leading, personalized product.”

Photo Credit: Shown are On the Beach-branded cupcakes. The online travel agency celebrated hitting 1 million downloads for its app in April. On the Beach