Image source: The Motley Fool.
Despegar.com, Corp. (DESP 1.43%)
Q3Â 2019 Earnings Call
Nov 7, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Despegar Third Quarter 2019 Earnings Call. [Operator Instructions]
Now, I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead.
Natalia Nirenberg -- Investor Relations
Good morning, everyone, and thanks for joining us for the discussion of our third quarter 2019 results.
In addition to reporting financial results in accordance with US generally accepted accounting principles, we discuss certain non-GAAP financial measures and operating metrics including foreign exchange neutral calculations.
Investors should read the definition of these measures and metrics included in our press release carefully to ensure that they understand them. Non-GAAP financial measures and operating metrics should not be considered in isolation as substitute for or superior to GAAP financial measures and are provided as supplemental information only.
Before we begin our formal remarks allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ including factors that may be beyond the company's control. For a description of these risks, please refer to our filings with the Securities Exchange Commission and our press release.
Speaking on today's call is our CEO, Damian Scokin, who will provide an overview of the third quarter and update you on our strategic priorities. Alberto Lopez-Gaffney, our CFO will afterwards discuss the quarter financials and our outlook for the next quarter. After that we will open the call to your questions.
Damian, please go ahead.
Damian Scokin -- Chief Executive Officer
Thank you, Natalia. Good morning, everyone, and thank you all for joining us. On today's call I would like to provide an update on our actions supporting the company's strategic near-term priorities that are positioning the company for long-term growth. Following my comments, I would turn to call over to Alberto for a review of our financial and operational highlights of the quarter as well our outlook for the year. Then we will take your questions.
We are encouraged with our third quarter performance, which reflects continued progress on the strategic initiatives we'll be currently rolling out more than two years ago. Our third quarter financial and operational metrics represent solid results in view of the current environment.
Argentina remains challenging, but with the passing of pension reform in Brazil, we are seeing a more positive environment and our results reflects that. We saw a recovery in our key metrics in the quarter. To put this into perspective, we outperformed the industry. We gained market share. We went back to positive adjusted EBITDA. I think 10 out of 11 quarters since IPO.
Operating cash flow was stronger than prior quarters. We also reported $39.3 million of our share and we are well on our way with our key strategic initiatives as well as the integration of the Viajes Falabella acquisition. We are pleased with the progress we have made in our business over the last several months and with our financial results for the quarter.
Moving onto slide four, I will provide some key data points for the quarter. Our core business is healthy and our team is executing well. Additionally, we are gaining confidence in Brazil, which represents 39% of total company transactions. Following the recent approval of the pension reform in Brazil, we are seeing signs of recovery.
By contrast, we continue to experience volatility in Argentina. Total Packages, Hotels & Other Travel Products accounted for 42% of total transactions. This was flat when you compare with the same period of the prior year, but up 20 basis points when compared to the second quarter of 2019.
We continue to get better at meeting our customers where and how they want to book their travel. We're investing in both our customer facing digital interface through improvements to the search and recommendations of travel products as well as the back-end functionality of our site and mobile app.
These enhancements are aimed at further improving the customer experience. We are also working to increase the frequency of interactions with our customers throughout the travel journey to foster not only cross-selling opportunities, but also to guarantee high service levels. We will describe it in more detail, the new development of Q3 in the following slides.
Our mobile app continues to be a significant tech development providing our customers with a newer more convenient and personalized travel shopping experience, while reducing our direct marketing cost. As a result, mobile now accounts for 39% of total transactions up 100 basis points from the prior quarter and 418 basis points from the same period last year.
We closely monitor net promoter scores as the most relevant sign of customer satisfaction. And in turn, we saw a 150 basis point improvement in our net promoter score during the quarter. Room nights were up 5% year-on-year and up 10% ex-Argentina. While this pace is lower than prior quarters, we are taking steps to get back to stronger growth levels. Our recent agreement with Ctrip is part of these initiatives.
Moving next to cash on -- of transactions and gross bookings on page five. Before getting into details for the quarter, I want to mention that the contribution from Viajes Falabella is included in the research in Argentina, Chile, and Peru for the whole quarter.
While the contribution from Colombia was only for the month of August and September. Both transactions and gross bookings rebounded quarter-over-quarter and year-over-year. Total transactions were up 5% in the quarter with both air transactions and Packages, Hotels and Other Travel Products, each increasing 5% year-over-year. We have been focusing on a stand-alone packages as a key strategic initiatives and the acquisition of Viajes Falabella was another step in that direction.
As a result of this effort, in the third quarter, stand-alone package transactions increased 26% year-on-year remaining our fastest growing product. Gross bookings increased 26% on an FX neutral basis. An acceleration from prior quarter.
As reported gross bookings were up 8%. Excluding Argentina as reported gross bookings increased 14%. This better than industry performance is reflective of all the initiatives we have rolled out over the past year, including the acquisition of Viajes Falabella.
Importantly, we saw a 21% year-on-year increase in FX neutral ASP. Factors contributing to this includes strong ASPs in Air Brazil and product mix-shift toward higher priced packages partially driven by the contribution from Viajes Falabella. The macro environment has not improved significantly and the political situation has gotten a bit more volatile in many of the countries in which we operate.
Argentina remains challenging, Brazil continues to slowly recover, having recently passed the pension reform, while Mexico's economic growth is slowing. All these factors contributed to a single-digit contraction in the industry gross bookings across the region.
However, reflecting the success of the initiatives, we implemented in the second quarter, we once again performed better than the industry and gained 30 basis points of market share. Excluding Avianca Brasil, our market share grew by 110 basis points.
Moving next to page six, where I will discuss some of our recent business initiatives. Products, services and tech innovation remains a key priority for us and we tried to make each step of the travel experience across all platforms easy and enjoyable for our customers.
Our clients already know Despegar and our associated brand Decolar. And beyond that they trust our brand to give them innovative products, quality, services and expert advice. As shown on this slide, I want to highlight some of the recent developments we have been carrying out to continue building the direct relationship that we have with our customers.
On October 31st, we launched our loyalty program Despegar passport to 100% of our traffic in Brazil, our most important market.
After having introduced and tested with 50% of Despegar visitors in that market on September the 9th. Despegar passport allows travelers to earn points when booking flights, hotels and other travel products with non-air products accumulated higher number of points.
Additionally travelers can continue and earn points in our loyalty program such as credit cards and frequent flyers in the same transaction. Despegar passport has a three tier earnings structure traveler, explorer or global. With those in the global category, having access to exclusive customer care to assist in travel planning and [Indecipherable] support.
We are extremely excited about this new program, which since launch has already accumulated 120,000 members in Brazil. In some, with this loyalty program, we are further enhancing our value proposition and giving customers an additional incentive to purchase through Despegar, while driving cross-selling and boosting customer lifetime value.
Next, I would like to briefly discuss our recent acquisition and two new partnership. Enhancing customer service is a major focus in our business. This is not only enabled by technology, but also by working with new partners.
As a result of all the actions we have undertaken to become the leading OTA in Latin America. We are the partners of choice for other leading companies looking to provide additional products or benefits to their own customer base. The first initiative this year on this front was launched with the acquisition with Viajes Falabella which we have already discussed.
Along with a longer-term strategic alliances with Falabella Financiero. We expect to complete the integration of the Viajes Falabella during the first half of next year and obtain significant synergies from this process, which Alberto will describe shortly. Second, last month we announced an API connectivity agreement with Ctrip, which allows for the integration of Despegar' direct accommodation portfolio in Latin America with Ctrip's platform.
This also enables us to expand our potential customer base beyond our core geographic region into a fastest growing Chinese market. And third, last week we announced a 10-year exclusive co-branded credit card agreement with ICBC in Argentina in partnership with Mastercard.
Now a brief comment about two new services. We continue to invest enhancing the customer travel booking experience by providing different channels and opportunities to interact with Despegar. To that end, we upgraded the technological systems of our call center to aid in the pre-travel stage, while reducing the cost of each interaction by bringing automation to the process.
We also launched bundles, which is a dynamic bundling package technology that it compensate every product that is available at Despegar creating a personalized and complete experience to our customers.
Additionally by leveraging that inside by directing demand toward the suppliers that are not only the ones with whom we have the best commercial agreement, but also the ones that our customers like the most. We believe all this initiative lay the foundation for consistent long-term growth.
I will now turn the call over to Alberto to discuss our financial results.
Alberto Lopez-Gaffney -- Chief Financial Officer
Thank you, Damian, and good morning, everyone. Please turn to slide six for a review of our operations on a regional basis. Overall, gross bookings growth rates recovered across our key markets. Both as reported and on an FX-neutral basis.
Starting with Brazil. Our largest market is accounted for 39% of total transactions. Transactions in this market increased 3%, a reversal from the 14% year-on-year decline in second quarter '19 when we reduced our exposure to Avianca Brasil.
Gross bookings also performed well up 15% as reported and 19% on an FX neutral basis. ASPs were up 16% on an FX neutral basis and 11% as reported, benefiting from higher domestic tariffs and sustained mix-shift from domestic to international travel.
In Argentina, transactions declined 4% year-on-year mainly driven by lower international travel as demand for discretionary spending remains impacted by the recessionary environment. This however was an improvement from the 14% drop experienced in the prior quarter, when we shifted our marketing expenditures to the rebranding campaign.
We also believe customers in Argentina advanced the purchase of their summer holidays in anticipation of potential FX volatility across primary presidential elections last August. FX neutral gross bookings increased 47% and ASPs 51%. As reported gross bookings and ASPs however were down 11% and 8% respectively impacted by the 36% peso depreciation.
Finally, transaction growth also stepped up in the rest of Latin America up 12% pickup from an 8% increase in second quarter '19. FX neutral gross bookings performed quite well up 21% with ASPs up 8%. Reported gross bookings this quarter were up 13% with ASPs up 1%.
Now turning to the P&L on slide eight. Improved performance across key markets contributed to a pickup in the consolidated top line growth rate and revenue margin this quarter. We accomplished this despite ongoing market contraction, which was high-single digits this quarter. FX neutral revenues were up 19% year-on-year and up from the 5% posted in the second quarter as we continue to make progress on our growth strategy.
We also saw strong recovery in as reported revenues, which posted a 9% year-on-year increase, a turnaround from the decline were reported in second quarter '19. This good performance was mainly driven by higher margin packages, hotels, and other travel products, which posted revenue growth of 14%.
Air revenue growth also improved year-on-year showing moderate growth of 1% this quarter, an improvement from the 11% decline last quarter. As a result packages, hotels and other travel products accounted for 61% of total revenues cut from 59% in the second quarter last year, a 290 basis points increase.
Several factors contributed to the pickup in revenue growth. First the initial benefit from the rebranding initiative and new product launches implemented in second quarter '19. Second, the positive impact from Viajes Falabella, which has significant share packages. And third and last we saw a positive mix-shift from domestic to higher margin international transactions.
These more than compensated for the reduction in customer fees and discounts in package transactions that we implemented to support market share growth, lower air supplier volume bonuses, and the FX translation impact. Revenue margin in turn was up 11 basis points year-on-year to 11.2%.
Now please turn to slide nine. Gross profit increased 9% year-on-year to 92 million on an FX neutral basis and 6% as reported. Taking advantage of market conditions to drive further share gains. In this quarter, we continued investing in lower fees and customer discounts on packages. We also stepped up customer financing and installment plans in Argentina, our key tool in driving conversion rates.
This together with higher interest rates resulted in higher installment plan costs. This quarter we also had a higher mix of transactions where Despegar was the margin of record, instead of the airline suppliers, allowing us to offer more attractive customer financing options.
As you know being merchant of record also has a negative impact on our cost of revenue. This quarter, we are also including $2 million impact in cost of revenue from the Viajes Falabella, while this was partly mitigated by efficiency gains in fulfillment, combined these factors resulted in a 210 basis points year-on-year contraction in gross margin to 67.7%.
In the near-term as we invest in our business to drive future growth. We are experiencing an increase in our cost base. However, we do expect over time to generate synergies and leverage our cost base over a higher revenue. Selling and marketing expenses excluding Viajes Falabella would have been nearly 43 million, which represent an increase of 3%.
This increase was related to telesales and affiliates and were partially offset by efficiencies gained in Direct Marketing. On a per transaction basis and excluding Viajes Falabella, selling and marketing expenses were flat at $16 per transaction and as a percentage of revenues increased 74 basis points to 35%.
Viajes Falabella's contribution to sales and marketing expenses accounted for 3.8 million, which includes the operational cost of its stores and telesales operation. Comparable G&A expenses, excluding a one-time severance charge in third quarter '18 and also excluding Viajes Falabella we are up 35% year-on-year.
Higher costs include export rights tax on services in Argentina introduced in January this year. Higher depreciation and amortization driven by a higher capitalization of our tech and development investments and higher stock-based compensation. This was partially offset by the FX translation impact from currency depreciation in Argentina, where we have the majority of our G&A expenses.
As a percentage of revenues and excluding Viajes Falabella comparable G&A expenses in third quarter '19 were up 457 basis points accounting for 18% of revenues.
Technology and product development excluding Viajes Falabella declined 1%, which reflect additional cloud sourcing expenses as well as an 11% increase in headcount as we introduce new services and functionalities to our platforms. These increases have been largely offset by higher capitalization of these costs aligned to industry standards. As a percentage of revenue and excluding Viajes Falabella, technology and product expenses declined by 23 basis points year-on-year to 13.6% reflecting higher cost dilution in the quarter.
Some of these initiatives include are in automation in our customer care operations, which will contribute to lower cost and enhance customer satisfaction. And we are also in the final stages of developing a loyalty program.
The integration of Viajes Falabella, a process we expect to complete during the first half of 2020 is also expected to drive additional cost efficiencies. As we have just begun the integration process, we are not generating synergies. In fact Viajes Falabella cost per transaction is about five times higher than Despegar's stand-alone.
As we finalized the integration of the two platforms, we will be better positioned to achieve operating leverage. Looking ahead we'll remain focused on streamlining the cost structure to maximize efficiencies and execution. Along this line last month we downsized our cost structure as we completed the development of several strategic projects, which we expect will contribute to reducing operating costs. This measure however is anticipated to impact fourth quarter '19 results as we up [Phonetic] for severance cost in the range of $2 million.
Turning to profitability on slide 10. We reported positive adjusted EBITDA this quarter of $9.4 million more than reverted the 7.3 million loss reported in the prior quarter, which had been impacted by specific one-time internal and external events. Comparable EBITDA however declined 39% year-on-year with a margin of 7% against 12.6% a year ago.
Lower year-on-year profitability reflects the challenging economic environment in Argentina impacted by our strategy of prioritizing top line growth together with macro disruption in the quarter. In this context, we stepped up package discounts reduced lodging and car rental fees and incurred higher installment expenses to drive demand and capture share gains. Higher operating cost and the FX translation impact also negatively impacted profitability in the quarter.
Moving onto the balance sheet and cash flow items on slide 11. Maintaining a healthy financial position is one of our key strategic priorities. Past which has enabled us to invest in the business at a time when others don't have the same flexibility.
And at the same time we can enhance shareholder value as evidenced by a share buyback program that it is in place and we have been executing on. The execution of the buyback underscores Board's view on the depressed valuation of the Despegar shares.
We keep a strong balance sheet with unrestricted cash and cash equivalents of $300 million at the close of the third quarter. This was further supported by strong cash flows from operations of nearly 26 million in the third quarter compared to an outlay of close to 27 million in the same quarter last year.
This good performance was mainly driven by a decline in the receivable balance from better collection turns, higher tourist payables due to higher sales, together with a decline in other assets and prepaid expenses reflecting lower advances to suppliers. We made capital investments of near 6 million this quarter mainly in software and platform development. We also purchased 3.25 million shares in third quarter '19 for a total cost of $39.3 million.
In total, we repurchased 3.46 million shares during the first nine months of the year at a total cost of $42.2 million. Summing up let's move to page 12. Third quarter results were particularly strong in light of the macro volatility and consequent high single-digit industry contraction.
The low volatility cost for caution in our remarks, our performance allows us to reiterate our Q2 outlook, which pointed toward a cycle upturn. In Q3, which was marked by our client's advanced purchases in Argentina, we managed to opportunistically capture additional profitability.
FX fluctuations and market discontinuities such as the ones taking place in Chile today get counterbalanced by positive signs of traction on key investments in certain areas and geographies. These levers point us to our Q4 level of activity broadly in line with last year's. We'll remain focused on our long-term strategy. This perspective, which drives strong investment is not precluding us from capturing operational efficiencies when possible.
As such Q4 will be marked by some restructuring charges as we lighten up the operations when resources get freed-up as initiatives are deployed. In addition, in the upcoming quarter, our take rate will be impacted by the success of the loyalty program in Brazil.
Last, we continue making progress in the integration of the Viajes Falabella with synergies expected to be materially captured in second half 2020 as we merge our operations. In summary, while we still face external challenges during the third quarter, we continue to see plenty of opportunity for long-term growth. As you heard from our remarks today, we are making good progress across multiple fronts. Our teams are operating with urgency and focus and I'm grateful for their hard work, commitment and support.
In conclusion, we continue to work toward executing on our long-term key business initiatives and we remain confident that our strategic investments are establishing a solid foundation, creating further differentiation and position enough to deliver improving financial results in better economic environments.
Lastly, let me remind you, we will be hosting our first Annual Investor Day in New York City on December the 10th. I look forward to seeing you there. As a reminder [Technical Issues] this concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions.
Questions and Answers:
Operator
Please go ahead Mr. Yruma.
Edward Yruma -- KeyBanc Capital Markets -- Analyst
Hey, guys. Thanks for taking the questions. I guess first I know last quarter as part of the rebranding and the app relaunch you guys had some conversion issues. Maybe you are more a bit [Indecipherable] customers are less familiar with the new navigation. I guess I know you had some positive data points on mobile, but do you think that the customer is fully attuned to the changes you've made? And then second, I know, that you guys are starting to pass along some discounts, putting on the package side. I guess are you seeing the kind of elasticity and demand. Does the discount help with conversion? Thank you.
Damian Scokin -- Chief Executive Officer
Hi, Ed. This is Damian. First part of your question, yes, as you know we track conversion rates in our platform very closely. And we are very happy with the evolution of the conversion rates of the third quarter. We are up in all the three main platforms and that make us certain that the new rebranding effort has been successful and widely accepted by consumers. Can you repeat the second portion of your question?
Edward Yruma -- KeyBanc Capital Markets -- Analyst
Yeah, it sounds like you're starting to invest a little bit in price. I think you said you're offering, I think, more package discounts and that was one of the margin drivers. I guess does -- have you noticed that the discounts improve conversion materially? Is it a competitive response?
Damian Scokin -- Chief Executive Officer
Yeah. So, yes, as you probably know we have been very aggressive on price strategy over the last several quarters. We decide on our pricing tactics on a daily basis product by product, geography by geography not only in response to competitive moves, but also in response to our TCP [Phonetic] models and how we see demand evolving.
Our strategy as we've been stating over the last quarter is to continue being very aggressive on price to gain market share in all products, in all geographies as far as these attains minimum profitability level that we set.
So, this is not the reaction to any competitive move, but rather an explicit strategy that we've been following over the last several quarters and the reflection of that is our market share improvement.
Edward Yruma -- KeyBanc Capital Markets -- Analyst
Great. And one final follow-up if I may. Credit extension to consumers, are you guys seeing any change in trends from some of your partners and given kind of what interest rates have done. Has it cause you to change maybe the payment terms that you're offering? Thanks so much.
Damian Scokin -- Chief Executive Officer
Yes. As you know the volatility of some of our markets particularly in Argentina has significant increased interest rates on consumer loans and credit cards. Therefore, we adjusted our offer and that's a major headwind to our value proposition. Since we have the most comprehensive -- we have the most comprehensive payments and financing offer in Latin America. In spite of that, we achieve significant growth in a very peculiar context.
And additional data points that may give you some color is that we continue to grow in our payment methods in all geographies and we're particularly happy on how Boleto Parcelado has been performing in Brazil. As you probably know, we are the only online company that transact online with Boleto Parcelado which is a widely used means of payments in Brazil.
Edward Yruma -- KeyBanc Capital Markets -- Analyst
Great, thanks so much.
Operator
Thank you. And the next question comes from Eric Sheridan with UBS.
Eric Sheridan -- UBS -- Analyst
Thanks for taking the question. Maybe two if I can. You showed good progress on mobile and on selling packages. Could you just reframe for us what are some of the investments you're making in terms of driving greater level of penetration in both of those. Maybe think through like what we might see as a long-term goal in terms of percentages or packages where transactions via mobile and how that could improve the overall cost structure and conversion on the platform longer term? Thanks so much.
Alberto Lopez-Gaffney -- Chief Financial Officer
Yes. Eric, thanks for your question. We are extremely happy how mobile is performing. As you all know this is key not only in terms of a closer relationship with the consumer, but also for developing lower cost sources of traffic. We not only increased our installed base on the app.
But we are also very happy on the metrics of in travel use of our app. We're seeing that going up significantly. We have seen in many of the success story there are a lot of responsibility for that. The product has done a great job upgrading our app. We're offering more features and services and our traffic sourcing strategy has been evolving and obtaining a lot of efficiencies in directing traffic toward our app.
It's not only mobile, if you also look at the mix in between app and responsive, our app share within the mobile spectrum is much higher than in the past. So, that's another reason to be significantly happy about that.
In terms of long-term target our current levels was in the mid '30s. As we mentioned, we believe there is ample room for growth in Latin America perhaps even more than in developed markets given the higher penetration of mobile devices as access points to web services.
That is more than in developed markets. As per packages, that's also we believe a strong success story because that has shown strong growth and still there is ample room for further potential growth.
It doesn't represent a significant portion of the overall gross bookings of Despegar. We believe we can even double the current volume of packages we sell in the next couple of years. We'll get things run right that's continue to trend we've drawn over the last few quarters.
And but that [Indecipherable] the stories behind the success in packaging is again plenty of different efforts [Indecipherable] sourcing has been doing a great job. Also our ability to steer traffic though was the most promotional packages. And our ability to steer and acquire traffic though was those are the type of products has improved over the last, I would say, two quarters.
Eric, Alberto joining here. The only thing that I would add is within packages also we are nicely growing the packages that we actually have, of course, some inventory risk. Okay, and I think we believe that's --it's still at very low levels, but as you know that, as we have mentioned in prior calls that has much higher attractive profitability and we continue to run in those products with particularly high occupancy factors, OK.
Let's recall what we did last summer. Latin American summer with 99% occupancy factors. We run some also some packages from Brazil to Chile also to Argentina in the summer, in the winter period, and that had also occupancy factors above 90%.
So, I think, that's not only when it comes to drop inventory that is growing nicely, but from a very small base, but also packages as a whole, I think, that progress has been noteworthy.
Operator
Thank you. And the next question comes from Brian Nowak with Morgan Stanley.
Brian Nowak -- Morgan Stanley -- Analyst
Okay. Thanks for taking my question. I have two. The first one understanding Google is always a dynamic animal. Your sales and marketing trends, your sales and marketing per transaction in the quarter ex-Falabella was really strong at flat. Were there any changes or adjustments that the team had to make from an SEO or SEM perspective in the quarter to kind of keep it flat. I know there's always sort of a noise as to what's going on in the Google ecosystem. I'm curious to hear your where you are at this point. And then the second one, on the loyalty program, 120,000 sign ups in a month is a pretty good number. I'm curious to hear are you seeing new people and new customers come to the platform or is it mostly sort of your existing base and how should we think about sort of sizing the take rate impact as we go into 4Q and 2020 from that?
Damian Scokin -- Chief Executive Officer
Good. Let me take the. Brian this is Damien. Let me take the part the question. Yes, we are facing the same challenges that other colleagues have referred to recently. And as you put in mind [Indecipherable] Google is evolving constantly and so we are in reaction to that. Our marketing team has been extremely effective in leading with the new SEO challenges that the Google post to all of us in terms of how they display the results. And our team has been extremely effective in increasing other sources of unpaid traffic particularly direct and our effectiveness of our email and push notification has significantly grown. We know that we operate in a very dynamic environment at every quarter posts new challenges ahead of us. I'm really happy on how the team reacted to these.
And also we are happy because I think that these are related to rely more on other non-paid sources of traffic is a reflection of the strength of the brand in Latin America. Keep in mind that more than 50% of our traffic is coming from the traction of our brand generates.
And I will leave to Alberto for the second part of your question.
Alberto Lopez-Gaffney -- Chief Financial Officer
Sure, Brian. In order to address your question on take rate an immediate outlook on that. What we stated is number one we are in the cycle etc. I think it's very promising where we are. I think we reiterated that Q2 was at the bottom of the cycle.
I think Q3 performance was particularly good. If you actually look at take rate, what has been the performance during the full 2019, we were actually at 60 basis points take rate loss vis-a-vis '18, OK. That was the case in first quarter, that was the case in second quarter as well.
And we actually had a particularly strong take rate in this Q3 even beating what was the take rate in Q3 '18 by 10 basis points. As we look into Q4, OK I think one thing is that we mentioned it on the opening remarks is that we have very successfully launched the loyalty program in Brazil.
As you all know based on the accounting for the loyalty program, OK, we expect to have, let's say, a loyalty deferred revenues in the ballpark of around $2 million in Q4 and that already hit your take rate in approximately 20 basis points or slightly higher than that.
So, we believe that including that impact from loyalty, I think, we should be better than what we actually achieved in Q1 and Q2 that we actually saw those 60 basis points loss vis-a-vis last year, OK. Q3 again was particularly strong and in some geographies we actually saw particular in Argentina. We saw our clients advancing some purchases and we were able to opportunistically adjust our pricing as Damian pointed out. We look at electricity on a weekly basis. We look at our transaction volume and gross bookings on a daily one. And so we -- that's part of the revenue management team and that allows us to capture a very attractive take rate in Q3.
So, hopefully, with this I gave you a bit of -- even though we do not as you know we do not provide specific guidance certainly in these volatile times in the region, I think, it merits to provide some additional color on Q4.
Brian Nowak -- Morgan Stanley -- Analyst
Great. Thanks, guys.
Operator
Thank you. And the next question comes from Rodrigo Nistor with Itau.
Rodrigo Nistor -- Itau -- Analyst
Hi, good morning. Well, actually, Alberto just answered my question. I wish I was wondering if you're seeing any kind of short-term positive impact on the money Argentina the restrictions to access the FX markets and then I wanted to know if you could give us that how much it was the impact from Falabella Viajes in your revenue and result? Thanks.
Alberto Lopez-Gaffney -- Chief Financial Officer
Rodrigo, Alberto here. Good morning and thanks for your question. With regards to the breakdown of Falabella, we tried to be particularly accurate on our statements as we actually analyze the cost structure from sales and marketing, G&A and tech and content.
Just to so that the investors and the analyst community would actually have a very good read about on how the cost structure of the company and the potential for operating leverage in the future was actually performing. The idea would be that actually going forward, OK, I think, you guys will use this base in order to forecast our model.
So, I think, we would rather just given that we have -- we believe that we share a lot of information with the market, I think, we will fall short Rodrigo on actually looking at the specific contribution for Viajes Falabella.
I think that overall just in relative terms are not to get into specific numbers. You see a company that has an attractive take rate in Viajes Falabella. And as you know like two-thirds 65% approximately of the overall gross bookings of Viajes Falabella was packages and that was one of the key reasons we actually drove our decision to acquire such a great platform.
However, the counter side on that is clearly that we actually have a much heavier cost structure and that is going through the whole integration of Viajes Falabella that we are making material progress and we expect to capture in the second half of the year, a relevant synergies on this front is payment. Our view that the online business is by far the best operating model as we start capturing all the operating leverage.
So, that when it comes to the Viajes Falabella. Would you please remind me of the first part of the question because that's the same that I already addressed it based on the response to Brian or is there anything specific that you would like to need to address?
Rodrigo Nistor -- Itau -- Analyst
Yes.
Alberto Lopez-Gaffney -- Chief Financial Officer
I mean the first part of the question, sorry.
Rodrigo Nistor -- Itau -- Analyst
Sure. If you relate that the purchase of travel and packages in Argentina to the restrictions to access the FX market and if that's what's driving the short-term positive impact there in your opinion?
Alberto Lopez-Gaffney -- Chief Financial Officer
I think that I'm sorry I now recall you also asked about capital controls etc you know. And so first and foremost on capital control, I think, it's important that -- important to highlight as you mentioned the topic as a whole. For the investment community understand that today Despegar is facing no restriction whatsoever to access the FX market.
And so far all the communications by the Central Bank, OK, are actually if anything you have an indirect incentive to travel because through your credit card you can actually do all your purchases. That's one way to access developed market is by buying goods and services. So, from that perspective, I think, we feel OK.
Certainly the name when it comes to Argentina on buying patterns in Argentina clearly we see in the region by particular in some market discontinuity [Indecipherable] the election. It has been a continuity and I think Argentinians are very avid on looking at what would be the quotation for dollars today vis-a-vis the future on how they can actually exercise or actually increase the purchasing power.
Today, the name of the game, I would say that if volatility is very hard even though we do acknowledge that in particular in the month of October there was some advanced purchases. A little bit we also found that during the month following the August election. But I think it's, I think, maybe I'm tempted to say maybe too soon to tell, OK.
What will be the consumer behavior in Q4 and Q1 next year. And I think that's pretty much all of you. I think that's very hard to predict. We actually see, I don't think that the strength of Q3 was just based on the advanced purchases by Argentina. I think overall the company had a very strong performance despite an industry again in Q3 the industry contracted as a whole.
Rodrigo Nistor -- Itau -- Analyst
Okay, thank you.
Operator
Thank you. [Operator Instructions] And the next question comes from Kevin Kopelman with Cowen and Company.
Emily DiNovo -- Cowen and Company -- Analyst
Hi. Thanks for taking my question. This is Emily on for Kevin. I think a lot of my questions have been answered, but could you give us some more color on this -- your inventory sharing agreement that you entered into with Ctrip?
Damian Scokin -- Chief Executive Officer
Yes, basically the agreement allows Despegar to put on Ctrip's platform all of our inventory. We are currently the online as to [Indecipherable] the online the only travel agency in Latin America offering that to the Chinese market. This will be gradual because obviously we have to translate all our inventory into mandarin, but we are extremely excited about the potential of this agreement.
Emily DiNovo -- Cowen and Company -- Analyst
Thank you.
Operator
Thank you. And at this time I would like to return the floor to Damian Scokin for any closing comments.
Damian Scokin -- Chief Executive Officer
Thank you, Operator, and thanks everyone for joining the call today. As usual if you have any further questions please do not hesitate to reach to us. We'll be happy to follow up. Thank you very much and looking forward to see you again in our next call. Take care.
Operator
[Operator Closing Remarks]
Duration: 52 minutes
Call participants:
Natalia Nirenberg -- Investor Relations
Damian Scokin -- Chief Executive Officer
Alberto Lopez-Gaffney -- Chief Financial Officer
Edward Yruma -- KeyBanc Capital Markets -- Analyst
Eric Sheridan -- UBS -- Analyst
Brian Nowak -- Morgan Stanley -- Analyst
Rodrigo Nistor -- Itau -- Analyst
Emily DiNovo -- Cowen and Company -- Analyst
