We get it, startups often have to accept substantial losses in order to quickly expand a particular business. But given the size of Culture Trip's revenue and the market in which it operates, it's difficult to see why investors have pumped more than $100 million into the business.
After taking in $102 million in funding you’d assume that travel media website Culture Trip would be well on the way to building a substantial business, but that’s not the case — at least according to its most recent set of consolidated company accounts.
In the year to the end of September 2018, The Culture Trip Ltd generated only $659,000 (£515,000) in revenue — a 44 percent improvement on the previous year’s total. Despite the growth, that figure that seems hard to square with its lofty external backing.
Unsurprisingly, given its ambitions, the business also posted a substantial loss of $30.3 million (£23.9 million) a 159 percent increase versus 2017.
“The increase in losses arising in the year is the result of the group’s continued investment in its product, technology, content, sales, and marketing teams, and their strategic activities,” the company said.
Having received such a significant amount of external investment the company should be able to keep going for the foreseeable future.
The directors’ report, however, makes it clear that the business is reliant on a further $30 million tranche of Series B investment, which depended “on certain obligatory conditions which are yet to be concluded”. Culture Trip “is in the advanced stages of concluding these matters.” (Although the accounts cover the year to September 2018, they were signed by director and founder Kris Naudts on September 30, 2019 — three months late.)
The accounts don’t disclose exactly what conditions the company needs to hit.
“There’s probably a lot of smoke and mirrors. To the outside world it’s been a bit of a darling with the press but the reality is very different,” said a person familiar with the company, who spoke on the condition of anonymity.
Online Travel Agency Play
Culture Trip has done a good job making its content visible via Google with many searches for cities and activities throwing up links to the site but how profitable can a media business based on aggressive SEO and the sheer volume of content, be in 2019?
The company made clear it wanted to pursue other revenue-generating options more than a year ago when it announced plans to create an online travel agency business.
In July, it announced the hiring of industry veteran Andy Washington — who had worked at Expedia and Lastminute.com — to head up the new venture as senior vice president.
The most recent set of accounts don’t include any booking revenue, so we’ll have to wait until next year to see how that side of the business is doing but the optics aren’t great.
Other C-suite executive have also left the business in the last year including chief marketing officer Michael Fox and chief revenue officer Richard Soule.
Problems related to high staff turnover and frequent shifts in strategic direction were revealed in an explosive investigation into the company by Wired magazine.
Those issues might be one of the reasons why the company recently announced the expansion of its human resources team under new chief people officer Karen Kesner, who joined from Booking.com.
During the year in question, Culture Trip’s workforce increased 87 percent to 191 people with wages salaries and other associated staff costs increasing 114 percent to $15.8 million (£12.5 million). That works out at just under $83,000 (£65,426) per employee.
Naudts founded Culture Trip in 2011. The company competes with other travel media websites including Lonely Planet and claims to have close to 20 million unique monthly visitors.
In a statement Andrew Whitehead, finance director at Culture Trip, said: “Culture Trip has had a record year and is growing rapidly. The business is where we forecast we would be at this point, which sees us investing heavily in continued global growth.
“That growth will come via further investment in our product; branded content, an area which has grown exponentially in the past six months and delivered record deals for our business; and via our OTA offering which only just launched last month and is showing huge promise.”
UPDATE: This story was updated to include comment from Culture Trip.
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Photo credit: Kris Naudts, founder and CEO of Culture Trip. The company has taken more than $100 million in investment. Culture Trip