Hostelworld Group reports a 9% decrease in EBITDA to €20.5 million for the full-year in 2019 and estimates an EBITDA loss of €3 million to €4 million in the first
quarter of 2020 due to the COVID-19 coronavirus.
In an interview with PhocusWire, Hostelworld CFO TJ Kelly says that demand has dropped since January and cancellations have increased.
The company reports a reduction of bookings from
free channels and an increase in paid marketing to offset the decline.
“For those bookings that were being made and for customers that we were acquiring, the cost-per-click [CPC] inflation became pretty significant because there were less clicks,
less demand and an increasingly competitive market for those clicks, so fewer customers and increased competition for those customers,” says Kelly.
The financial hit from COVID-19 comes as Hostelworld is trying to recover from a revenue decline
of 2% in 2019 to €80.7 million.
Hostelworld brand net bookings fell by 5% year-over-year in 2019, with an 8% decline in the first half of the year.
In the second half of 2019, bookings declined by only 1% and increased by 1% in
the fourth quarter.
“What we saw in H2 was a kind of recovery, in terms of looking at net bookings performance, and including in that was a return to positive growth in Q4,” says Kelly.
Roadmap update
In 2019, Hostelworld announced a “Roadmap for Growth” strategy to improve its core business.
The Dublin, Ireland-based company says it is on track with initiatives such as improving the core search experience and migrating the website to
a progressive app, with remaining elements from other initiatives rolling out in 2020.
“I think what was particularly pleasing for us was that we anticipate returning to growth in 2020,” says Kelly.
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“We actually
saw the fruits of some of the labors of the work in the Roadmap drawing positive, year-over-year net bookings in Q4.”
Operating costs were flat compared to 2018, despite the investment in the Roadmap for Growth.
One of those investments
included the acquisition of guest management system Tipi, which later rebranded as Goki.
“We see
significant opportunities ultimately to strengthen our core OTA business and to build a broad catalog of experiences beyond just the hostel accommodation,” says Kelly.
For 2020, Kelly anticipates it will be an “incubation year” for
Goki as it builds a base with hostels.
“Net neutral in terms of profits or revenue we get where it’s covering operating costs for this year and really in 2021 it will drive more significant growth."
Marketing
In 2019, marketing costs rose by 41% net of revenue, due in part in part to CPC inflation and more paid advertising.
In order to lower its marketing spend and increase its high customer lifetime values, the company is relying
on rich data sources and ramping up its campaign activity.
“We are willing to bid up somewhat on CPCs because we're now targeting and we're building our capability around it, but we are now targeting high customer lifetime values, albeit
because the market is so distorted right now,” says Kelly.
“We very pleased with our progress on it.”