Selina is like a Tesla Roadster sportscar driving down California's Highway 101 on a sunny day while a malfunctioning hood is popping open and the battery's struggling to hold its charge. Everything's fixable, and the views are great. But repairs are urgent.
Selina was one of about a dozen travel companies that went public last year by merging with blank check companies called special purpose acquisition companies (SPACs). Most have since been in the doldrums.
Selina’s financial update on Monday suggested it had an opportunity to avoid a similar scenario and potentially push its share price back closer to its initial public offering price of $9.75 last October. Its share price has stayed above the $1 a share threshold — and was at about $1.50 per share on Monday.
The big problem? Selina said it lost $198 million and generated only generated $184 million in revenue in the last three months of 2023. That led to a high cash burn for a company that only had cash-on-hand of $47.7 million as of December 31.
In an eye-brow-raising move, the company used its first earnings disclosure as a public company only to release financial results for the last months of 2022. It didn’t report results for the first quarter of 2023 the way all of its peer companies did.
Yet analyst Edward Reilly at EF Hutton was bullish on Selina in a pre-earnings report, citing a few paths the company’s management could take toward right-sizing the business.
“Opening locations that ramp faster in occupancy and deliver more attractive financial performance; expanding existing locations with remodels and incremental leased spaces; and leveraging its brand to receive flexible lease terms with longer grace periods while shifting to variable rent for some new locations,” Reilly wrote.
Selina’s executives made their own case during a Monday earnings call about how they could bring the company to profitability. Here are the top points:
- Boost revenue. As its less mature hotels hit their stride and generate demand, that will help give the company more operating leverage, driving more margin from the same cost. Last year, its Mexican and Central American regions saw average unit-level operating profits, or earnings minus rent, be in the black.
- Lean into direct booking. Direct bookings are often cheaper than ones referred through online travel agencies, which charge commissions. About 55 percent of its bookings last year came direct to its website and app.
- Be savvier about room rates. The company said on Monday it was hiring Duetto, a revenue management software maker, to help it get better at setting rates to optimize supply and demand trends.
- Expand in Asia Pacific. On a positive note, the company only recently began opening properties in Asia Pacific, but these are performing much better than its earlier ones in Latin America.
- Grow the Remote Year brand. The company’s remote-working concierge service seems to be performing OK. It contributed $10.4 million in revenue in 2022 versus $4.5 million the year before.
So what are the risks? Reilly at EF Hutton summarized them. Selina is:
- Still suffering net losses despite a post-pandemic boom in travel. Its free cash flow before debt service was a negative $72.8 million as of year-end.
- Potential dilution from public warrants, private warrants, convertible note warrants, and convertible notes.
- A challenging macro environment, including in the emerging markets where it has many of its properties
In summary, a recently revamped board of directors may be improving the company’s corporate governance, such as instituting cost controls at the corporate level and prompting serious talk about asset sales.
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Photo credit: A space at Selina's hotel in the Chelsea neighborhood of New York City. Source: Selina.