Skift Take

Newish CEO Gary Morrison hasn’t minced words when it comes to what he sees as the company’s past failings.

What do 50 Cent, Charlie Sheen, and Mariah Carey all have in common? At one time or another, they’ve been featured in advertising for budget online travel agency Hostelworld.

But it seems newish CEO Gary Morrison isn’t a fan — at least in the promotional context. He’s decided to cut the use of high-profile celebrities as part of a wider refresh of the company.

Since taking over last June, Morrison has been trying to figure out how to make a small, niche brand succeed in an overall market dominated by a couple of big players.

While Hostelworld, which raised $201 million (€180 million) in its 2015 IPO, continues to generate plenty of cash — something the investment community loves — revenue and profit took a step back in 2018, and growth remains hard to come by.

2019 as Year of Investment

The answer: a new strategy called Roadmap to Growth, unveiled in November and fleshed out today. The gist is that previously the company had failed to invest in its technology, hadn’t leveraged its data, and had used the wrong type of advertising.

“We started work on a number of initiatives during the second half of 2018, and we look to 2019 as a year of investment to fund the growth drivers for 2020 and beyond,” Morrison said in a statement on Tuesday.

“We anticipate that organic growth will be self-funded from our existing cash resources and cash generated from the business.”

Hostelworld rolled out a free cancellation option for customers last year and plans to make further changes to the way customers can book, such as different currencies and different payment methods. While this might just mean playing catch-up with others, it’s a move in the right direction.

Room for Improvement

Improving its offerings to hostel owners is also part of the wider strategy with planned upgrades to rates and connectivity. Hostelworld also wants to do a better job at connecting with intermediaries, which offer its inventory to others.

Lots of online companies make a lot of noise about utilizing their data, and it seems that Hostelworld has been left behind in this field. The company has “millions of stored anonymized itineraries which provide a rich data source.”

“For Hostelworld, leveraging our data will allow us to target and grow the most profitable customer segments, such as multi-destination customers,” the company said.

And what about those eye-catching celebrity campaigns?

“[W]hilst these generated strong interest on social media, it is difficult to measure the related core business growth and associated returns,” the company said.

“The conclusions of the recent strategic review are that in 2019, these resources would be more productively deployed in investing in our products and systems as previously outlined and that marketing activities will be focused on core customer acquisition.”

A Bad Year

Hostelworld’s 2018 results highlight the need for something to change. Gross bookings remained flat, mostly thanks to the decline in non-core brands such as Hostelbookers. Revenue for the year fell 5 percent to $91.9 million (€82.1 million), with operating profit down 44 percent to $7.5 million (€6.7 million.)

The company’s performance comes at a time when hostels are having something of a renaissance in the travel community, with investment flowing into the budget end of the hospitality market.

Despite the recent struggles, analysts covering Hostelworld remain pretty bullish.

“Our take on this strategy is that it would give Hostelworld an identity which is much more closely aligned with its core market and its young, dynamic customers. We think that the result of the new strategy will be the one feature that was elusive throughout its post-IPO performance — growth,” said analysts at stockbroker Davy in a research note to investors.

Analysts at Numis made a similar point: “The new management identified scope to leverage better its brand, asset base, data, and strength in app development. We expect it to recover market share in time; it has reiterated the target of a return to bookings growth in FY20.”

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Tags: hostelworld, online travel agencies, otas

Photo credit: One of Hostelworld's old celebrity ad campaigns. The company plans to become more focused on core customer acquisition. Hostelworld

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