Hostelworld Share Discussion Threads

[lomax99] 16/8/2019 17:11

Potentially interesting non-exec appointment, Evan Cohen, the other day. Added a few more today.

[thomshrike] 10/8/2019 17:11

2 reasons for lack of revenue growth:
1. A technical one: the introduction of the free cancellation option from mid-18. Revenues are only booked when the booking is effective, so that some revenues are booked in the following fiscal year. No impact on CF.
2. Loss of market share due to tech debt of core IT platform. The user interface lacks some key functionalities. Hence the company embarked on a significant IT investment program that, according to mgmt, should enable it to grow in line with the market from 2020 onwards. So this is in essence a turnaround story. Note that Airbnb is not a key competitor (quite different segments).
The stock is very cheap. Any sign of return to growth should lead to material re-rating.

[topvest] 10/8/2019 16:55

Interesting business this and was looking to buy for recovery. I've successfully done this once a couple of years ago. I'm not sure though about the lack of revenue growth. It must be running hard to stand still if it can't grow its top line with a c£40m marketing spend!
Makes you wonder whether it's losing out to Booking.com and Airbnb?

[jimmywilson612] 02/8/2019 10:52

I thought the primary currency HSW held was in euros, is that not the case?
I read that 14% of bookings were from UK residents.

"The Group’s primary operating currency is euro.
The Group also has significant sterling and US
dollar cash flows. In 2018 the average US dollar
to euro exchange rate weakened by 5% and the
average sterling to euro exchange rate weakened
by 1%"

[thomshrike] 01/8/2019 17:11

Bear in mind that HSW reports in EUR, so I'm afraid it's the opposite (although the impact should be limited).

[jimmywilson612] 01/8/2019 16:40

Recent sterling weakness will hopefully help make full-year figures easy to attain too.

[thomshrike] 01/8/2019 16:24

Note that, despite the company capitalizing some of the IT costs, and even before we see the benefits of that increased investment in IT, the stock is trading at 10% FCF yield.
My central scenario is that H1 numbers will be ok (but not more than just ok) and that FY guidance will be reiterated. Extreme weather in Europe is typically seen as a threat to travelling flows, but we already had very hot weather in Europe last year anyway, so that would be embedded in comps. The market will also hear more color on the progression of their IT development efforts.

[jimmywilson612] 01/8/2019 15:54

Ahh really? I thought it would have been the other brands they had. We live and learn. Fingers crossed for decent half year report on the 21st August.

[thomshrike] 01/8/2019 13:24

Hi Jimmy, according to HSW's annual report, goodwill currently only concerns the Hostelworld brand. This is not amortized (but is subject to impairment reviews). Bear in mind though that the company capitalizes part of its IT costs, so that you will always see that being amortized over the years (even more so now that those costs have been growing thanks to the revamping of their core IT platform).

[jimmywilson612] 01/8/2019 12:03

Hi Thom,

Many thanks for your comments & educating me on the tax situation.

In relation to the intangible write down (most associated with HostelBookers & Hostels.com I assume) - They have hit the statutory profit by £10M over the past couple of years - do you know how much longer they plan on writing these down?

[thomshrike] 01/8/2019 11:13

Hi Jimmy, thank you for sharing your write-up, much appreciated.
To your point on taxes, I remember hearing the company saying that their future tax rate would be in the 10-12% range. I see brokers using 11%.
To your point on the write-up about stagnating bookings growth, bear in mind that HSW sees the hostel industry growing at a nice pace - c. 3-4% per annum. It is in fact a growing category. HSW bookings have been stagnant due to market share loss. IT efforts are exactly targeted at creating the conditions to grow in line with the industry from 2020 onwards. Broadly speaking many users choose their hostels at Hostelworld and then do the reservation at booking.com or others, due to a better quality user interface. HSW's platform needs to catch up.

[jimmywilson612] 31/7/2019 15:49

Here's my take on the company:

hxxps://jimmywilson612.wixsite.com/ukstockwatch/post/hostelworld-hsw

In a nutshell - agree with most of what has been said her - good cash generative business operating in a good niche. Will be interesting to see their tax bill however since they closed their Luxembourg office and, assuming having to route their profits through Ireland - will be facing a bigger tax bill than previous years. However, priced very attractively even when this is considered.

[masurenguy] 31/7/2019 13:40

I certainly agree - and the most recent broker shareprice forecasts, announced last month, were 300p from Numis and 260p from Peel hunt.

[thomshrike] 31/7/2019 13:35

That is correct. One could envision some negative impact from the decline of the GBP given some demand elasticity from their UK users (14% in 2018), but I would expect that to be minimal.
So yes, as they report in EUR, multiples are deflating in tandem with the GBP and are getting abnormally low.
I think it's unsustainable that the stock remains at these depressed levels for much longer. As the company finishes their investment phase, after the summer the stock is ripe for some takeover speculation.

[masurenguy] 31/7/2019 13:03

I think that's a very credible view, thomstrike. With last years eps of 16p - after circa £2.6m in deferred revenues being taken into account - they are currently on a PER of around 10.5 and were also in a net cash position of circa £24m at the end of 2018. Since they are Irish based and report in Euros they will not be negatively impacted by the falling £ at the moment either.

[thomshrike] 31/7/2019 11:31

Note that earnings comparisons are impacted by revenue deferrals after the introduction of the free cancellation option (a CF comparison would be more accurate). I think that one of the reasons for share price weakness is exactly the fact that unknowing investors ignore that fact.

[masurenguy] 31/7/2019 09:24

"Fidelity’s special situations star (Alex Wright) ramped up his stake in international bed booking website Hostelworld from 1.8% of shares to 5.18%, worth £8.5m, at a price of 173p.

How have the shares performed?: Hostelworld has slumped almost 60% from a high of 418p in April 2018 and currently trades at its lowest point since mid-2016.

What does the company say?: Earnings slumped by a fifth in 2018 following a mid-year warning of slower revenue and discounting in an ‘increasingly competitive’ market. In a recent update the group said it was experiencing continued ‘softness’ and flat bookings. Following a major review, it is currently focused on a programme of internal investment.

What’s the outlook?: Following a board room overhaul, 2019 was billed as a year of delivery but the share price implies backers are reserving judgement on a series of changes, such as cancellable bookings, designed to restore growth. Four out of five brokers rate it a buy on a 272p price target.

David Campbell, Citywire, 29/7/19

[aishah] 22/7/2019 13:26

FIL Investments International at 5.18% holding

[thomshrike] 15/7/2019 10:37

Hi m_kerr, here are my two cents:

HSW's USP is indeed not price but rather the following:
- on the perspective of the hostel: (i) the hostel wants to have visibility on search engines within the OTO. They prefer to be, say on the London search page, #3 at HSW as opposed to #654 at booking.com. booking.com has no incentive to invest in giving them visibility, because why would they route users from a 200 GBP room to a 20 GBP bed (when they charge their fee as a %)? (ii) HSW provides help to hostels with things like booking management system.
- on the perspective of the user: (i) if you are looking for a hostel, it is much easier to navigate a focused platform like HSW; (ii) the features of their app allow for more social interaction around the hostel and with people staying there.

The problem with HSW today is not brand awareness or having a competitive edge. The problem is that the tech debt of its core IT platform does not allow the company to convert users as much as they should. There are many people who look up hostels at HSW and then convert at booking.com. Why? Different features like promotions (or until recently the option for free cancellations) or speed of use (payment, etc). Hopefully HSW will be able to catch up with peers. They are doing sizable investments as we speak, especially with their team in Porto, Portugal.

At 10% FCF yield, I think it is worth the risk. But that's only my opinion. Hope it helps.

[m_kerr] 11/7/2019 23:48

still haven't pulled the trigger yet as i'm not yet fully convinced. they seem to charge roughly the same as the other rivals like booking.com (who are also about 400 x the size). what's to stop them being crushed by the bigger competition? i don't see an impenetrable market position like google, right move etc.

[aishah] 11/7/2019 22:26

So price will be depressed until SLA are done with their current disposals

[thomshrike] 11/7/2019 19:10

From what I hear:
- business continues to be in line with guidance.
- revamping of core platform going according to plan.
- Standard Life Aberdeen continues to sell. I hear that their decision to sell is unrelated to current performance of HSW’s business.
- buyers are being sought out by brokers to absorb this volume. We saw that again today, with a large block. There is still some way to go though. SLA should by now still own 7-8% of the shares (but it is not clear either that they will exit completely).
- incremental buyers are now value investors, as the stock is down to 10% FCF yield. Support should be stronger around these levels.
All IMO.

[aishah] 11/7/2019 15:47

Drift continues with a bit of volume today. What does the market know?

[thomshrike] 03/7/2019 15:57

You might remember that the company mentioned some softness in Europe on their press release at the time of the AGM (31-May). But interestingly I heard from channel checks that volumes have picked up after that.

[aishah] 03/7/2019 14:02

Perhaps the hot weather in Europe is having an effect here.