The Argentine economic crisis continues to drag on Despegar, but the online travel agency's continuous investment in mobile is setting it up for long-term growth across the continent.
A healthy performance in mobile bookings in Mexico and Colombia helped offset weakness in Argentina for Despegar, enabling Latin America’s largest online travel agency to prevent a decline in year-over-year revenue growth and avoid layoffs.
In 2018, the Argentine company reported $531 million in revenue, which was flat year-over-year growth. However, if you factor out a fluctuating exchange rate, revenue was up 19 percent, according to financial reports filed on Thursday.
Despegar only generated net income of $19.2 million, a year-over-year decline of 59 percent. But some may credit the company with eking out any profit despite an unforeseen economic and political crisis in its home market of Argentina.
Argentina’s crisis worsened in the last months of 2018, and its economy may not hit bottom until this spring, said Despegar’s executives on a call with analysts. In response, the company has trimmed its sails in the storm. It has cut its commissions, run sales for consumers, and slashed its marketing expenditure in Argentina.
Despegar saw better results in other markets, driving 10 percent year-on-year growth in Mexico and 61 percent year-on-year growth in Colombia.
A Bet on Mobile
The mobile revolution in Latin America may not be happening at the same breathtaking speed and scale as in China. However, many millennials in South America are embracing mobile devices as their primary internet device at a rapid pace. Despegar has been riding the trend by investing heavily in its mobile offering.
In 2018, Despegar saw ongoing growth in mobile transactions, up 34 percent, year-over-year. Mobile accounted for 36 percent of all of the company’s 10.4 million transactions last year. Customers aren’t just booking flights on their smartphones. Sales of vacation packages via mobile apps doubled year-over-year, for example. All other categories of products grew at double-digit rates.
Despegar rolled out features for its mobile app last year that included expanded notifications in WhatsApp, one of the most popular messaging services on the continent, to receive notices of check-in availability and alerts for the right airport baggage carousel for luggage pick-up. The company also made its flight search tool on mobile more flexible, such as by making it easier to find cheaper flights through alternative airports.
Weakness in the Argentine peso and the broader macro environment is out of management’s control, but it still hurts.
“Perhaps the most important impacts are coming through on take rates and gross margin,” said Senior Research Analyst Seth Borko of Skift Research.
The take rate fell to 11 percent in the fourth quarter of 2019, compared to 11.6 percent in the adjusted fourth-quarter figure of 2017. Gross margin fell to 62.5 percent in the fourth quarter, down from 74.7 percent in adjusted fourth-quarter 2017.
“Argentinians cut back on travel which hurts supplier volume bonuses,” said Borko, analyzing the financial report. “Those that do still travel switch to domestic trips instead of international which carry lower selling prices and commissions.”
The one silver lining to this is that as a large public company, Despegar can stay the course during this down-cycle and hopefully emerge in a stronger position in years to come.
Borko also noted that this is the first quarter that Despegar has offered the ability to book tours online.
“It’s still early innings, but this mimics strategies being pursued (to varying degrees) at Expedia, Booking, and TripAdvisor,” said Borko. “It shows to me that the push to bring tours and activities inventory online can be a worldwide trend.” Skift Research initiated coverage of Despegar last year.
Expedia Group remains among one of the travel agent’s largest shareholders. Despegar depends on Expedia for hotel-booking services outside of Latin America. In the long run, the company, which operates as Decolar in Brazil, hopes to benefit as Latin America’s economies continue to develop.
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Tags: argentina, decolar, despegar, earnings, expedia, online travel agencies
Photo credit: Damián Scokin, CEO of Despegar, speaking at a travel industry event. In 2018, Despegar, Latin America's largest online travel agency, reported $531 million in revenue, which was flat year-over-year growth. Yordi Muñoz Rivera / Despegar