Despegar Finds Acquisition Bargains in Latin America’s Hard-Hit Economies

Despegar is hanging in there performance-wise, has high hopes for a pending acquisition of Viajanet at what might be considered an attractive price, and is investing in Brazil and Colombia to pick up market share.

Argentina-based Despegar, which does business in its largest market, Brazil, through its Decolar brand, intends to buy flight online travel agency Viajanet for $15 million based on a collapsed airline market — at half of Viajanet’s $30 million in 2019 revenue. Despegar expects the deal to close in late June or early July.

During its first quarter earnings call Thursday, officials discussed diversifying Viajanet’s product mix — its gross bookings are about 98 percent for Brazilian domestic flights — by cross-selling from Despegar’s supply, removing costs through synergies, and improving Viajanet’s performance marketing.

In addition to leaning into marketing in countries that are seeing the largest travel recoveries, Despegar, which operates in 20 markets, primarily in Latin America, reached a agreement in January to acquire 51 percent of “Brazil’s leading vacation rental channel manager,” Stays, for $3.1 million. Despegar expects that deal to close in the second quarter.

Despegar unit Koin entered into a partnership this month with Movii, a fintech company in Colombia, to expand a buy now and pay later offering in the country. This could help Despegar make inroads in Colombia, which has a substantial e-commerce scene, because access to credit cards there is limited.

Despegar Chief Financial Officer Alberto Lopez Gaffney told analysts Thursday that Despegar intends to lean into marketing activities in countries that are seeing the most aggressive travel recoveries.

In the first quarter, Despegar spent $30.5 million in selling and marketing, up 98 percent from the year-ago period.

Several of Despegar’s key metrics remained well below pre-pandemic 2019 levels, and these included gross bookings (69 percent), transactions (74 percent), and room nights (57 percent). Despegar stated that the airline industry in the region is operating at 66 percent of the first quarter of 2019 level.

Still, Despegar recorded its second consecutive quarter of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the black at $6.8 million in the first quarter, compared with $20 million in the red a year earlier.

On a GAAP (generally accepted accounting principles basis), however, Despegar in the first quarter narrowed its net loss to $30.9 million compared with a net loss of $37.6 million a year earlier, on revenue of $112.4 million, a 117 percent jump.

Despegar has other challenges, too. Although its gross margin in the first quarter was more than 9 percent, the acquisition of flight online travel agency Viajanet, as well as increased marketing expense, would pressure that margin level in coming quarters.

Flight online travel agencies would be expected to have significantly lower margins and take rates that more well-rounded peers such as Despegar. In the first quarter, Despegar generated 60 percent of its total revenue from travel packages, hotels, and “other” revenue.