Gary Morrison, the CEO of Hostelworld, expressed his excitement about the company’s trading prospects for 2022, despite the fact that it has accumulated almost €83 million in losses over the past two years. The news was well-received by financial analysts and investors, as Hostelworld’s shares rose 11% in Dublin, valuing the company at €106 million. However, the shares are still significantly below their pre-pandemic levels, as well as their initial public offering (IPO) price in 2015.
Hostelworld’s 2021 results were disappointing, with the company recording only 21% of the net bookings it had in 2019. The steady recovery in business throughout much of 2021 was hampered by the spread of the Omicron variant towards the end of the year. While new revenues increased by 10% to €16.9 million, they were still far below the 2019 level of nearly €81 million. Hostelworld ended the year with a net loss of €36 million, adding to the previous year’s shortfall of €47 million.
Morrison, who joined Hostelworld four years ago, remains optimistic about the future. He believes that net bookings will continue to recover, especially in the absence of any further conflicts or unforeseen events. Currently, weekly net bookings for beds in Central America are nearly double the 2019 levels, while overall continental European figures are at 80% of pre-pandemic levels and even higher in southern countries. However, bookings in Asia and Oceania remain at less than 20% of 2019 levels.
In his role as CEO, Morrison has focused on streamlining operations and reducing costs. He has shifted the company’s marketing strategy to target higher-value customers who are more likely to use Hostelworld repeatedly. The company has also reduced its headcount by a third and cut down on brand marketing in favor of direct marketing efforts. Hostelworld’s marketing spend is now at the equivalent of 50% of revenue, which Morrison believes is the “sweet spot” for maximizing customer lifetime profit.
Hostelworld raised €16.4 million through a share sale in 2020 to help navigate the Covid-19 pandemic. It also secured a €30 million debt facility from HPS Investment Partners. However, the terms of the facility, including an effective minimum interest rate of 9.25% and the awarding of stock warrants to HPS, are costly for the company. Hostelworld should consider refinancing this debt as soon as possible, but it may take another year of solid trading before better terms are available.
Overall, while Hostelworld’s 2021 results were disappointing, Gary Morrison remains optimistic about the company’s future prospects. He believes that as travel restrictions ease and the world recovers from the pandemic, net bookings will continue to recover and the company will be able to attract and retain higher-value customers. However, the company should be mindful of its financial obligations, such as refinancing its costly debt, in order to improve its financial position.