Don't be surprised if Despegar makes and acquisition or two in 2023. That's baked into its plans.
Despegar is increasing its product and geographic diversification but its net loss widened a tad in the fourth quarter because of weak travel demand and higher expenses.
On the upside, the Argentina-based online travel agency, which has Brazil as its largest market, saw travel recovering in the first two months of 2023.
In the fourth quarter, Despegar recorded a net loss of $15.2 million, compared $13 million a year earlier, on $145.5 million in revenue, a 17 percent jump. Revenue — some of it propelled by acquisitions — reached 2019 levels although gross bookings amounted to only 82 percent of pre-pandemic marks.
The company upped its selling and marketing expense 34 percent to $46.2 million in the fourth quarter, and that was partly responsible for increasing operating expenses. Selling and marketing expense in the fourth quarter was 31.7 percent of revenue, a lean percentage compared with 45.7 percent for Booking Holdings and 52.3 percent at Expedia Group.
In the fourth quarter, usually its strongest, Despegar saw international passenger volumes decline 12 percent in Mexico compared with the third quarter. In Brazil, gross bookings in the fourth quarter were similar to the prior quarter, and rose 44 percent year over year.
Despegar’s take rate, or commission, in the fourth quarter was 12.5 percent, which surpassed its 12 percent long-term target.
In the area of revenue diversification, Despegar saw Mexico and Brazil generate 56 percent of its gross bookings in the fourth quarter of 2022 compared with 51 percent during the fourth quarter of 2019. Package revenue stood at 31 percent in the fourth quarter compared with 22 percent during the comparable pre-pandemic year.
Despite weak demand in the fourth quarter, CEO Damian Scokin told analysts Thursday that “over the last two months, we’ve seen demand levels rebound strongly. And therefore, we are expecting first quarter revenues to increase around 40 percent versus last year and almost 20 percent versus 2019.”
Despegar’s 2023 guidance is to generate revenue between $640 and $700 million, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in the range of $80 to $100 million. These forecasts do not include the impact of any potential acquisitions.
Despegar has been active on the merger and acquisitions front in recent years, and Scokin said the companies likes to buy one to two companies per year.
Referring to ongoing merger and acquisition conversations, he said: The company is “extremely excited about one or two of them, at least.”
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Photo credit: CEO Despegar Damián Scokin is shown here hosting an all-employee meeting in Buenos Aires in December 2019. The company is seeing travel demand accelerate so far in 2023.