Despite fears of a looming recession, luxury travel has been very strong. However, luxury subscription brand Inspirato has slashed its workforce and downgraded full-year guidance, seemingly hiding deeper issues within the company behind a veil of macroeconomic uncertainty.
Inspirato, the luxury hospitality subscription brand, has cited “ongoing macroeconomic uncertainty” as it made workforce cuts and scaled back its 2022 financial outlook, yet this is at odds with the bullish commentary from other travel companies, especially as regions like Asia reopen for international travel.
This suggests deeper problems at Inspirato, a company which went public in February 2022 via a special purpose acquisition company merger, and saw its stock price soar from $10 to $55 in a week. This induced a short squeeze, and Inspirato is now trading at just $1.30 per share, with the stock down more than 70 percent in the last six months.
Inspirato has not been immune to investor fears of a looming recession, as many hospitality and travel companies saw their stock prices impacted in 2022. While major hotels and online travel agencies such as Hilton, Hyatt and Expedia are seeing a stock rally in the last few weeks, up 10-30 percent year to date on the back of easing inflation rates and strong demand, Inspirato has made cuts to its workforce and brought down its 2022 revenue and EBITDA guidance.
An Outlier in the Luxury Segment
While Inspirato cites this on “ongoing macroeconomic uncertainty,” other travel companies are seeing the luxury segment, particularly hotel chains, leading the recovery. This suggests Inspirato-specific problems.
Founded in 2010, Inspirato is currently unprofitable. It aims to generate $340 million in revenue in 2022, with an adjusted EBITDA loss of $35 million. This is a downgrade of guidance that management gave earlier in the year, namely $350-$360 million in revenue, and an EBITDA loss in the $25 million to $15 million range.
Notably, management’s guidance during second quarter earnings in August included the statement that “the Company anticipates generating positive adjusted EBITDA for the full-year 2023.” However, the company excluded that profitability measure from its third quarter earnings report in December, although co-founder and CEO Brent Handler said during the conference call that the company’s goal is to revert “to positive adjusted EBITDA and (we) expect to achieve greater than $400 million of revenue for full year 2023.”
Overvalued, For Sure
Given the lows of where the stock is trading and the recent slashing of 12 percent of its workforce, Inspirato management is clearly taking desperate actions to maintain costs and prevent a further downgrade to EBITDA consensus and share price.
We also note that Inspirato is currently overvalued on a one-year forward Enterprise Value/EBITDA basis. Inspirato is trading at more than triple the multiple of its online travel peers.
Inspirato interestingly is blaming macroeconomic uncertainty as the key reason for streamling its workforce despite the CEO saying during the third quarter call that “we have significant visibility into our forward-looking calendar. And we look at that and see a fairly robust level of booking activity at really high rates, higher than we would have otherwise forecast.”
Demand also looked strong with occupancy of 81 percent for the third quarter, much higher than what the major hotels and online travel agencies reported. Inspirato recorded 26 percent year over year growth in room nights for that period, and active subscriptions grew 16 percent year over year, higher than the rate seen the previous year.
Inspirato declined to comment for this article.
Inspirato positions itself as a luxury subscription brand, giving affluent travelers exclusive access to 5-star hotels and resorts. Elsewhere, the luxury sector, in particular, is staying very resilient in the face of a recession, with companies like Hyatt, Marriott and Accor leaning more into expanding their luxury portfolios.
Inspirato, though, seems to be struggling to appease the market.
“I think it is clear that this is a company that should have never been IPOed,” said one investor who bought some shares. “They are too small, too fragile and have too high of a valuation.”
The investor contrasted Inspirato’s condition versus the luxury segment.
“In theory, they should be on fire, right?,” the investor said. “Macro trends for high-end luxury hospitality are super hot. The 1 percent are not feeling the crunch and don’t care. This is their bread and butter. I’m not sure why they can’t seem to execute.”
Hiding deeper issues behind a weak story of macroeconomic fears is surely not the route to clear communication with stakeholders. We believe Inspirato’s focus must be on maintaining its cost structure and leveraging its existing portfolio versus expansion into new verticals, such as the company recently did with its launch of Inspirato For Business and Inspirato For Good.
During the third quarter call, management noted that the expansion into these two products had long- term benefits such as “lowering customer acquisition costs” for the core subscription product. However with a third of its salesforce and marketing staff having been transferred to these expanded segments, it begs the question: How much more investment will go into developing the new segments and what will be the impact on the bottom line?
This strategy seems at odds with the company’s “primary focus” on hitting EBITDA break-even in 2023.
As luxury demand, particularly from Asia, continues its robust ascent in 2023, there is the fear that Inspirato may not be able to take advantage, held back by its struggling financials and bloated valuation versus its peers.
— Skift Founding and Executive Editor Dennis Schaal contributed to this article.
Tags: analysis, earnings, future of lodging, hotels, inspirato, layoffs, online travel, online travel newsletter, subscriptions
Photo credit: An Inspirato vacation rental property at a resort in Los Cabos, Mexico. The company has been expanding beyond its core luxury subscription business. Inspirato