No one saw that Argentina's economy would take such a bad turn this year. But Despegar, based in Buenos Aires, is making moves to weather the storm after its market valuation has been slashed in half.
This year the Argentine currency has lost about half of its value against the dollar. That’s been a headwind for Despegar, Latin America’s largest online travel agency, which is based in Buenos Aires.
Many Argentines switched their travel plans away from destinations whose cost suddenly became more expensive, such as Miami and Santiago de Chile, preferring vacation spots within their country. The smaller transaction sizes have hurt Despegar’s revenue in its home market.
On Thursday, CEO Damián Scokin told investors on a call that the company expected further industry deterioration in the fourth quarter.
Brazil is the other largest market for Despegar, where it sells under its Decolar brand. That country saw its expected growth in gross domestic product for the year trimmed by at least a percentage point — cooling travel sales.
Since March, shares of Despegar dropped about 48 percent to $16.65.
On Thursday Despegar reported third-quarter results that showed the recent Argentine currency crisis had trimmed its growth modestly rather than drastically.
In the three months to September 30, Despegar’s revenue fell 9 percent, year-over-year, to $121 million.
When it came to net income, a measure of profit, the company reported a loss of $1.5 million, a sharp about-face from having reported a $12.3 million net income gain it collected in the same period a year earlier.
Management’s call Thursday with investors included the debut of Alberto López Gaffney, appointed chief financial officer last month to replace Mike Doyle, who left to work at Nextdoor, a social network based in California.
As of July, the company began reporting its financial results in U.S. dollars because the Argentinian peso has had a three-year cumulative inflation rate greater than 100 percent, confusing some foreign investors, López Gaffney said.
Despegar has chosen to continue investing and thinking long-term.
“We have been made significant investments that have had the impact of increasing our market share and improving post-travel customer satisfaction scores,” Scokin said Thursday. “We were able to accomplish this when many other competitors were suffering the impact of the economic turmoil.”
Despegar is taking steps to try to diversify its markets so it has less exposure to the rising or falling performance of any given one. It has a presence in 20 countries and is preparing to add another as-yet-unnamed one in the Caribbean.
The early results are promising. In the third quarter, excluding Argentina and Brazil, the company’s volume of transactions, gross bookings by total dollar amount, and revenues rose 22 percent, 22 percent, and 26 percent, respectively.
The company is also offering new products. This year it tip-toed into the sale of tours-and-activities products. It now provides about 7,000 activities from more than 250 destination services suppliers across Latin America.
Promisingly, Despegar continues to invest in its tech, rather than focus only on marketing. For example, this fall it opened a fifth office in Argentina, this time in Córdoba, with a plan to hire and train 100 developers over the course of two years.
In the third quarter, software engineers provided fixes that improved the customer experience. These included the addition of the ability for shoppers to be able to buy a round-trip flight with different accommodations in different destinations, all in one purchase session. Another fix was the giving users the ability to book transfers from an airport to any destination rather than only to hotels sold by Despegar.
Skift Research’s September report “The State of Online Travel Agencies 2018 Part III: India and Latin America” noted that some investors suspect that Expedia Group is eyeing Despegar as an acquisition target. The conglomerate owns about 14 percent of the company’s shares. It also provides Despegar with hotel and other lodging products for all countries outside Latin America.
At Skift Global Forum in New York in September, Expedia Group CEO Mark Okerstrom said he respects what Despegar is doing in Latin America, but also wants to expand his Expedia and Hotels.com brands in the region.
“Listen, we have a minority position in Despegar, as you know,” Okerstrom said. “We’re on their board. We’ve got a great relationship on the supply part of the business. We’re also building big businesses in Hotels.com and Expedia in Latin America.”
Okerstrom added that “at some point, if the time is perfect and the price is perfect, we would look at it [buying Despegar]. But we’re only going to do something if it’s additive to the platform. Again, we really believe in these global brands that we’ve got, Expedia and Hotels.com, particularly, HomeAway, so we don’t need to buy anything.”
With shares of Despegar at $16 in early morning trading Thursday — which is well below the $26 share price the company debuted on the public markets at in September 2017 — it may be hard to think Despegar’s price could get much more attractive than it is now.
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Photo credit: The top image is of someone doing a bicycle tour of Buenos Aires, Argentina, and passing along colorful La Boca district. Inset is an image on an office wall of the logo of Despegar, the largest online travel agency in Latin America, which reported its earnings on Thursday. Buenos Aires City Tourist Board