Hostelworld meets earnings expectations but warns of coronavirus impact

Online accommodation booking platform Hostelworld said its earnings for 2019 were in line with guidance, but warned uncertainty over the coronavirus outbreak could cost the business up to €4 million in the first quarter of 2020.

The company, which focuses on the global hostel market, said the year had started with positive momentum, but noted that trading had been hit by the outbreak since late January, with the impact on global travel demand reducing bookings.

“The current climate is difficult,” chief executive TJ Kelly said. “It’s an evolving story.”

In a statement, Hostelworld said it had observed a “material reduction” in bookings and an increase in marketing cost as the coronavirus had spread. “Given that the depth and duration of the virus outbreak is impossible to forecast at this time, we are unable to calibrate its effect for the balance of the year; however, if near term trends were to persist to the end of March we estimate the impact to EBITDA to be in the range €3 million to €4 million for Q1’20.”

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That would assume the current trend in the infection rate continues; any sign of a significant increase in that would render that estimate inaccurate.

However, keeping a tight control on costs would help the group remain resilient despite volatile market conditions, Hostelworld said.

The company was reporting its results up to the end of 2019, with full year net revenue falling 2 per cent year on year to €80.7 million and bookings down 5 per cent overall. But the company pointed to a pick up in business in the second half of the year, with revenue for the six-month period up 6 per cent compared with 2018, and bookings also showing a pick-up in pace. Mr Kelly said the increase in business in the final months of the year showed its growth strategy, which is about halfway through the plan unveiled by Hostelworld, was paying off.

Average net booking value was €11.97, up 3 per cent on 2018’s figure, which cancellations were €9.3 million, up from €5.5 million in the same period a year earlier, but in line with expectations as the impact of the global rollout in July 2018 was reflected.

Operating costs were flat, but marketing costs increased to 41 per cent of net revenue.

Adjusted earnings before interest, tax, depreciation and amortisation were €20.5 million, compared with €22.5 million in 2018. Adjusted earnings per share were 15.5 cent.

"Following the group's return to growth in 2019, I see significant opportunities to build a broader catalogue of experiential travel products beyond hostel accommodation. These types of experiences may include opportunities to study, work or volunteer abroad, with hostel stays featuring as part of an extended itinerary. Our research would also suggest that this market is very fragmented, with many different marketplaces and business models," chief executive Gary Morrison said.

“Overall, the group sees significant potential for the further deployment of capital to enhance future growth through both organic and inorganic investment opportunities.”

Mr Morrison said the board had taken the decision to rebase the dividend policy, with a payout of between 20-40 per cent of adjusted profit after tax. That would he said, “enable investment in organic and inorganic opportunities and increase shareholder return in the medium to long term”.