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Despegar.com, Corp. (NYSE:DESP)
Q4 2019 Earnings Call
Mar 5, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Despegar Fourth Quarter 2019 Earnings Conference Call. A slide presentation is accompanying today's webcast and is available in the Investors Section of the company's website www.investor.despegar.com. There will be an opportunity for you to ask questions at the end of today's presentation. This conference call is being recorded. As a reminder, all participants will be in a listen-only mode. 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 thank you for joining us today for our discussion of our fourth 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 definitions 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 maybe beyond the company's control. For a description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release.Speaking on today's call is our CEO, Damian Scokin, who will provide an overview of the fourth 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 for 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, first, I will describe the context in which we closed 2019 after making significant progress on developing a strong competitive position. Second, I will update on Q4 progress on such initiatives and third and last, how they are being reflected in our financial results.

Following my comments, I will turn the call over to Alberto for review of our financial and operational highlights of the quarter, as well as our outlook for the first quarter. Then we will take your questions.

Fourth quarter and full-year 2019 were both challenging and I am pleased with the progress we made executing against our strategy. Let me start by discussing how this year actions tied to our core competencies described during our Investor Day in December. First, we win value proposition for customers and partners. In 2019, we focus our efforts on developing a fair value proposition for our customers, which entails more to-do [Phonetic] benefits.

We have developed a strong portfolio of negotiated rates, we have become a more customer-centric company accompanying the clients through every step of the travel journey and we have developed a broad set of payment alternatives.

On the partners front, we are the clear partner of choice when [Indecipherable] company look for a robust travel-related partner in the region. Examples are many. We will go through some significant ones in the next few slides.

Second, efficient customer acquisition and retention. Due to our continuous investment in branding, we have had many achievements that have not only helped us to better navigate the current industry challenges but also provide us with better margins. A 69% of our traffic comes from unpaid sources.

Importantly, in Q4, 42% of our transactions were done through our mobile platform, which is a more cost efficient and promotes loyalty among our customers.

Third, best-in-class digital product. To maintain our leading position, we know that the user experience has to be exceptional. In this regard, in 2019 [Phonetic] we deployed over 4,600 initiatives that allow us to develop cutting edge capabilities such as gross channel interfaces, bundling abilities and the offering of differentiated shopping experience by segment.

Fourth, rapid as a patient to local market. Local customers allows us to be the first option when a customer is beginning their travel journey as we know and understand what they are looking for.

Hence, we can meet their expectations. We can do this, thanks to our strong local prices as it allow us to react to market dynamics quickly through the creation of agro commercial events.

During 2019, we invested in strengthening our teams in Brazil and Mexico, our portfolio of banking relationships, allowing Despegar to maximize its local impact. Additionally, the understanding of the local markets customers allows us to create a loyalty program that fits the aspirations of the Brazilian customer.

Fifth, low cost delivery model uniquely suited for Latam. Technology allows us to have streamline processes with banks and financial institutions. As a result, we can offer a wide variety of payment solutions to our customers. Additionally, having such processes also translates into extremely low buy failure rates on our side and low cost endeavors [Phonetic].

By way of example of what we have achieved on the payment front in the Argentina region 21% of sales are completed through alternative payment methods. Also we are the only platform that offers Boleto Parcelado purely online in Brazil.

Six, strong financial position to lead industry consolidation. Our strong balance sheet has provided us the flexibility to rapidly adjust to change in macro conditions, as well as to pursue selective acquisition players such as Viajes Falabella and Best Day.

Lastly, we have opportunistically repurchased shares as we felt that pricing that fully reflect the long-term value we see for the company.

Moving next to Slide 4. Throughout 2019 and to-date in 2020, we have continued strengthening our competitive levers. Most importantly, we've expanded our geographic reach and cross platform presence as we announced our decision of Best Day earlier this year. I will discuss this later in my presentation. Also we agreed to develop a new white label through a commercial agreement with Tarjeta Naranja in Argentina. We will continue to drive growth in sales of higher margin packages hotels and other products, each accounting for a greater percentage of our total sales.

Year-over-year, we've grown 18% in package transactions. We opportunistically increased our customer fees in the quarter, helping to drive revenue growth. In turn, we gained market share in street facing [Phonetic] market.

Third, we have also made progress on our mobile strategy, increasing 466 basis points our percentage of sale from our mobile app.

Fourth, we are focused on continuing to provide an excellent value proposition for our customers. To that end we launched our loyalty program in Brazil during the fourth quarter. And subsequent to quarter end, we launched our co-branded credit card with Banco Santander in Brazil. Overall, we are encouraged with the progress we have made in successfully executing on our key strategic initiatives. Even when we take into account the volatile macro environment, we have been operating in -- during the past two years.

Moving next to a discussion of transactions and gross bookings on Page 5. The fourth quarter was not without these challenges, including social unrest in Chile, which curtailed travel to and from that country and the ongoing recession in Argentina. The implementation by the Argentine government of the new 30% tax on international travel purchases also impacted gross bookings in that country.

The impending start date of this tax in Argentina led customers to accelerate their travel purchases a share of this tax implementation, driving strong growth in transactions in that country. I think, we have been able to do successfully in the past, we were also able to make adjustments to respond to this changing market condition and opportunistically act on our business levers, continuing into a strong increase in gross bookings and revenues in Argentina.

Total transactions were up 7% in the quarter with air transactions and packages, hotels and other travel products increasing 6% and 7% respectively year-over-year. The growth in non-air was driven by an 18% increase via stand-alone packages. Once again, our fastest growing product. This key strategic initiative is also benefiting from the Viajes Falabella acquisition and while the Best Day acquisition is closed, we expect this to be an important contributor as well. Gross bookings increased 26% on an FX neutral basis as reported growth bookings were up 6%. This better than industry performance is reflective of the success we are having by staying focused on our key strategic initiatives, even as we face challenging market conditions.

Moving next to Page 6, where I will discuss some of our recent business initiatives. The significant event for us during the fourth quarter was our first Analyst Investor Day where we outlined an acquisition criteria and our key strategic initiatives. Since then, we have been very busy and the New Year has only just begun. On the next two slides, I am going to discuss a few of our recent events and how this further improves our strategy.

Starting with Best Day. This will be our second largest acquisition to-date, as we have already held a conference call to discuss the transaction, on this slide, you can see the key points about Best Day.

Today, I will discuss how this fits into our overall strategy. As outlined at the Investor Day, Mexico and Brazil are key focus markets for us. On the B2C front, Best Day is the second most recognized travel brand in Mexico, after the sale. So not only we could expand into an important market, but we will also be acquiring a well-recognized brand, further strengthening our leadership in terms of brand awareness. We will also gain approximately 190 kiosks as we continue to build out our cross-platform.

The company's strategic fit with Despegar is extremely high. Best Day's B2C business model is in line with Despegar. Best Day is primarily an online company with approximately 70% of sales generated from this channel and 95% of revenue is generated from Taj Hotels and Other Travel Products. Additionally, we are very excited about gaining expertise in destination services and ground transportation from Best Day and potentially rolling this out to other markets where we already are seeing the high profit growth.

Well, with regard on Best Day, have growing B2B business with very little mobile app providing the opportunity for both companies to leverage each other's strengths. Best Day's B2B business is largely a white label services web platform for major travel vendors and online hotel aggregator, servicing travel agencies worldwide. This is a unique core competitor at Best Day. Taking into account Despegars' already strong presence and product offering and combining investor expertise in in-destination services and wholesale hotel offerings, we are clearly enhancing our value proposition.

Similarly, at the Investor Day, we also spoke about our company delevers. Let me talk about how Best Day will further strengthen them.

First, our value proposition to customers will enhance and increase our inventory and add new capabilities and product offerings. Second, we gained instant legal local market knowledge of the key Mexican market particularly related to in-destination services. And third, Best Day will benefit from Despegar's low-cost delivery model which is customized to meet the unique need of the LatAm Travel, further leveraging Despegar's operating scale.

We are extremely pleased with this acquisition. Not only that, Best Day complement our existing business, it provides growth opportunities via new products and services.

Additionally, we expect to achieve operational synergies. This is a significant milestone in our consolidation strategy and in our vote to continue expanding our operations in Mexico.

Moving next to Slide 7, where I will discuss two recent commercial agreements. Partner of Choice, being known as such is strategically important for us, we have spent over two decades investing in building our brand and evolving into a leading OTA in LatAm. This leadership position is not going unnoticed by other leading companies and we are the Partner of Choice when they are looking to balance and enhance their products or services to customers, which is the same for us.

During the fourth quarter, we launched Passaporte Decolar, our loyalty program in Brazil, our largest mark. Passaporte Decolar has many unique characteristics versus our loyalty program. Some of the key advantages include, first [Phonetic] belong to the buyer and not to the passenger, allowing for faster point accumulation in a single account. Bonds can be converted into any product that is part of the extensive inventory sold at this payout. There are no blackout dates. Recently, we improved the loyalty benefits even further by partnering with Santander and Visa Despegar to make a co-branded credit card and adding even more benefits to our loyalty members.

Using the co-branded card, loyalty members can accumulate points three ways with one purchase, on the credit card to purchase at Despegar [Phonetic] and with airline hotel membership program. Additionally, utilizing our strong IT capabilities, we were able to make signing up for these new cards as simple as one pick on our website.

Even before making this product travel purchase, our Loyalty Program has been well received by customers. And to-date, we have already accumulated more than 430,000 members in Brazil. Given the success of the program, we plan to introduce it across our other key markets over time.

As a quick note, we have included links in the powerpoint presentation with a short video showing how easy it is for customers to obtain the co-branded cards with Santander and [Indecipherable] in our website.

Additionally, the commercial agreement I want to talk about Tarjeta

Naranja. This a 10-year agreement with Tarjeta

Naranja which is a leading branding proprietary credit card issuer in Argentina and a subsidiary of Grupo Financiero. We will provide a white label online marketplace to Naranja to jointly still [Phonetic] our current products. We gained access to over five million potential new customers that were not our natural customer base. Along with the potential new clients, we are expanding our business across channel platform.

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 8 for a review of our operations on a regional basis. Overall, we reported higher gross bookings growth rates across our key markets, both as reported and on an FX-neutral basis. Brazil, our largest market which accounted for 39% of total transactions performed well, taking into account the 7% depreciation of the Brazilian real in the quarter and the result in mix-shift in Packages from international to domestic.

Note, the country experienced a reduction in international air capacity in the fourth quarter. Transactions in this market were up 2% year-on-year with FX-neutral increases of 7% in gross bookings and 5% in ASPs. On an as reported basis, gross bookings and ASPs declined low-single-digits reflecting the currency depreciation.

Next, Argentina. While the country remains impacted by their overall recessionary environment, customers in Argentina advanced travel purchases this quarter in anticipation of our new 30% duty on residents international travel spend that became effective toward the end of December. These helped drive our 13% year-on-year increase in transactions.

On an FX-neutral basis, gross bookings were up an impressive 81% year-on-year with ASPs increasing 61%, reflecting our flexibility to rapidly increase fees under positive market conditions. As reported, gross bookings were up 13% and ASPs 1%, impacted by 37% peso depreciation.

The impending tax duty drove advanced purchases in Argentina in the fourth quarter, pulling sales forward. As a result, we expect to see some contraction in this country in the first quarter. Finally, the rest of Latin America reported an 8% increase in transactions with FX-neutral gross bookings up 12% and ASPs rising 24%. Reported ASPs rose 1% year-on-year, while reported gross bookings were up 9% in the period.

A lead performance in Mexico further supported by currency appreciation in the region was partially offset by weaker growth in Chile, given the social unrest experience in the country that also drove an 8% currency depreciation.

Now turning to the P&L on Slide 9. FX neutral revenues were up 34% year-on-year in the quarter despite ongoing market contraction, which was low-single-digits this quarter, as reported revenues were also solid, up 10% year-on-year. The strong advance sales in Argentina this quarter was one of the drivers behind the robust revenue performance during the period. We continued to drive higher margin revenue mix with the share of Packages, Hotels and Other Travel Products increasing a 100 basis points year-on-year to 63% of total revenues and with higher revenue per transaction in non-air.

Let me also call out the 30 basis points improvement in revenue margin this quarter, which reached 11.4%, the highest level of the past seven quarters.

Our strategy to drive growth in higher margin stand-alone packages, the positive impact from Viajes Falabella with higher ASPs and our agile and flexible approach to managing profitability in Argentina contributed to this good performance.

These more than compensated the reductions in revenue margin resulting from the implementation of our loyalty program in Brazil and lower air supplier volume bonuses.

Now please turn to Slide 10. Gross profit as reported was up 14% year-on-year, reaching slightly over $94 million and was up 34% on an FX-neutral basis. Gross margin increased 222 basis points year-on-year, reaching 64.7%. While we selectively increased customer fees this quarter, the benefits were partially offset by our initiatives to increase customer financing and installment plans in Argentina to support growth, a key lever in driving conversion.

By contrast, financing costs benefited somewhat from lower average interest rates in the country. This quarter, we also had a higher number of transactions where Despegar was the merchant of record versus airline suppliers, which enabled us to offer more attractive customer financing options.

In addition, cost of revenue for the quarter includes a $1.9 million impact from Viajes Falabella. Note, in early February, we outsourced a significant portion of our customer service activities. We expect this initiative will allow us to obtain important sales in our cost of revenues going forward.

Moving on to our operating expenses. We are increasingly adapting our cost basis to change in market dynamics. In the near term, as we grow the business, we are adding expenses, Viajes Falabella acquisition for example. But at the same time, we are streamlining other parts of the business.

Over time, we expect these cost savings and synergies to become more apparent. Selling and marketing expenses, excluding the operation of the Viajes Falabella as well as the one-time severance charge of $0.5 million [Phonetic] this quarter. Sales and marketing expenses would have increased 5% to $45 million. This increase was mainly due to the launch of our Loyalty Program In Brazil, partially offset by efficiencies in direct marketing.

On our per transaction basis, excluding these one-time charge, selling and marketing expenses increased nearly 7% year-on-year to $17.2 million and as a percentage of revenues were up a 133 basis points to 34%. Viajes Falabella contribution to certain margin expenses accounted to $4.1 million, which includes the operational cost of its stores and telesales operations.

Comparable G&A expenses were up 14% year-on-year. This number excludes a $2 million one-time bad debt charge, $700,000 in severance charges in the quarter, as well as $3.2 million in G&A expenses at Viajes Falabella. The higher cost reflects the export rights, stocks and services in Argentina introduced in January 2019, partially offset by lower personnel expenses. Excluding extraordinary charges and as a percentage of revenues, expenses were up 269 basis points, accounting for 16% of revenues. Finally, technology and product development excluding a one-time $1 million severance charge at Viajes Falabella declined 1%.

As a percentage of revenue and excluding the one-time charge, technology and product expenses declined by 21 basis points year-on-year to 12.1%, reflecting higher cost dilution in the quarter.

Of note, fourth quarter '19 results do not reflect the expected synergies from the Viajes Falabella acquisition as the integration process is expected to be completed during the first half of 2020. So far, we finalized the technological integration of the platforms of both Despegar and Viajes Falabella in Argentina and Peru. Therefore, a 100% of Despegar's Hotels inventory is available on lease to Viajes Falabella platform while also introducing new features. This development will allow Viajes Falabella to better serve customer needs. As we finalize the integration, we will be better positioned to achieve operating leverage.

Moving on to profitability on Slide 11, and despite the challenging environment, comparable adjusted EBITDA was $12.5 million in fourth quarter '19, down 10% year-on-year with a margin of 8.6%, almost 200 basis points lower than the same period of the prior year. Taking into account $2.2 million in severance charges across the business from the streamlining of our operating structure to drive future cost savings and $2 million in non-recurring bad debt charges related to Avianca Brasil, as reported adjusted EBITDA declined 40% in the period to slightly over $80 million.

As a reminder, with respect to Avianca Brasil, we rolled out part of our exposure back in second quarter '19 and we've still pursued full recovery of the guaranteed amount. I'll now update [Phonetic] near-term challenges which have impacted our financial results. We continued to execute on our strategic priorities to better position the company for the long term.

That finishes my comments about our fourth quarter sales and earnings performance. Now let me change subjects and maybe just a few comments about our balance sheet and cash flow. Please move to Slide 12.

Our balance sheet at the end of 2019 was in excellent shape. Our cash flow was up. We have no long-term debt and our capital base is strong and growing. Additionally, we generated a significant amount of cash flow and employed a disciplined return-centric approach to deploying our cash. Operational capital investments in the quarter were mainly in software and platform development. While we continued to review and prioritize our capital needs, we remained committed to making the required investments in our company to help position us for our long-term success.

Additionally, during 2019, we took the opportunity to repurchase in excess of 3.5 million shares for a total of $42.2 million and leaving approximately $78.5 million available under the current $100 million authorization buyback program. In sum, our balance sheet and financial conditions are strong, which give us a solid foundation for future growth. In addition to providing value to our shareholders through share repurchase programs, our strong cash flow from operations should allow us to continue to invest in our infrastructure and maintain our flexibility to take advantage of opportunities as they may arise.

We will also continue to be very disciplined in expense management and maintaining a healthy balance sheet, enabling self-funded growth and free cash flow generation. Summing up, we had many accomplishments during the fourth quarter as shown on the slide. Here are few highlights.

We delivered solid top line growth with increases of FX neutral gross bookings of 26% and revenues up 34%. While the team remains committed to enhancing customer satisfaction, NPS declined 50 basis points year-on-year in the quarter due to several contingencies in the Air segment in our portfolio.

This includes a wide range of events including the cessation of operation of an airline in Peru, several flight cancellation and incidents that led to higher-than-average rescheduling of flights across the region.

Increase in mobile transactions have been an important initiative for us. And this quarter, we delivered strong growth in mobile transactions, up nearly 470 basis points year-on-year, while mobile accounting for 41% of constructions in the quarter. Our competitive position and the strength of our balance sheet allow us to opportunistically take actions to gain share which resulted in a 20 basis points increase in Air market share in the quarter.

We continue to gain share, even in periods of contracted industry demand. In sum, we are pleased that we have been able to drive solid financial results in a challenging environment, while simultaneously investing in new growth opportunities and also returning value to our shareholders via share repurchases throughout the year.

The first year has not been without some macro and industry volatility. Despite this, we have been able to opportunistically react to change is market conditions and are pleased with the results we delivered during the past two quarters.

At the same time, we are committed to executing on our five-year growth strategy. In the near term, we expect Q1 2020 to be challenging. Contributing factors are driven mainly by coronavirus and it's related effects, including it's impact on emerging market currencies and capacity contraction and specific Argentina events.

These conditions have and are expected to negatively impact Q1. Although, we do not provide guidance, given the current market discontinuity, particularly coronavirus, we would like to share that we expect to -- to experience a low-teens contraction in gross bookings in dollar terms in this coming Q1 2020 quarter.

Importantly, we will continue to focus on executing against our strategy, drive our innovation program and transforming how we engage with consumers in the digital arena.

We will also continue to enhance the activity and drive cost savings to support our investments and grow margins. Our five-year goal remains intact. 2019 second half results support sustainability [Phonetic]. Sustainable 20% local currency gross bookings growth with take rate in the 11.5% plus area and EBITDA levels above 20% as we discussed at our Investor Day.

As always, we will continue to focus on creating long-term shareholder value. This concludes our prepared remarks, we will now take your questions. Operator, please open the line for them. Thanks.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Edward Yruma of KeyBanc Capital Markets. Please go ahead.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hi good morning and thanks for taking my question. First, thank you for the color on coronavirus, I don't know if you are willing to comment at this stage, but are you starting to see an impact for further out bookings, I know that you obviously have a higher leisure and package business. Do you think at this stage it is impactful for the balance of the year? It's my first question. And then second, I know you've taken a number of charges for your streamlining, at this point do you think that that's all the charges you'll need for all the streamlining you've planned for the balance of the year? Thank you.

Alberto Lopez Gaffney -- Chief Financial Officer

Ed. Good morning. Alberto speaking here. How are you doing? And so, addressing your questions and maybe start with the one on charges. Okay. As you know, during 2020, we will continue with the implementation of the integration of Viajes Falabella. Okay. And also we expect to have by the closing of the second -- of the first half of 2020 the incorporation of Best Day into the Despegar Group. So from that perspective, we are actually on Falabella, well advance in integration plans, a portion of the restructuring charges that you see over there that we have announced this quarter are related to that because we are looking at running these operations of all the different subsidiaries in a seamless manner.

So as such, we have made some good adjustments and we expect that the results of such measures will start pouring through our financial statements in this first half in 2020.

But secondly we will be also -- we are already looking into the integration plan for Best Day, and there will be many opportunities for us to capture both on the top line, but particularly on the bottom line level and as such, we will need to reaccommodate the structure but in any case there will be a good news to the overall story of the Despegar.

So for now let me particularly say Q1, Q2 we believe that there will be very few of those and maybe more, more is to come in the second quarter, but all in all we expect that if there are any charges were to be taken that would be a positive to the [Indecipherable]. And then, would you please remind me of the first question please.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Yes. The first question is on the coronavirus, I know you gave some color as to the bookings for the first quarter, but given that you have a high buyers per leisure, packages, is it your expectation that it should -- are you starting to see an impact for bookings that are kind of 2Q,3Q, 4Q? Thank you.

Alberto Lopez Gaffney -- Chief Financial Officer

Sure. Let's -- I think that when you look at coronavirus-related factors, OK, let me start with the second one. If you actually look at what happened to currencies, particularly emerging market currencies, since the breakout of corona in China by the end of January, clearly that did affect the currencies in the region. Okay.

As such, you see today the real trading close to 460 per dollar [Phonetic]. We actually see default in Chile again, Colombia peso etc. So, that is certainly what -- certainly trading levels for those currencies that are away from consensus, OK, consensus at the beginning of the year we're looking at the picture that was completely different to the one we're seeing today.

So we also tend to believe that, that is certainly Santander will collect as the coronavirus effect in the overall capital markets comes down.

Secondly, with regards to the business impact, OK, our participation, if you look at all the different regions as you know and we have discussed with the -- communities in the past. Today, our business is approximately two-third Latin America, OK, and one-third approximately let's say -- the travel outside the region with China and Southeast Asia been very small, but then as you go into Southern Europe, Europe and Southern Europe and the US, the percentage starts increasing.

So clearly, what we have seen since the break of corona in Europe, OK, we have seen that our clients started pausing to a certain extent on their travel plans and that is why we actually tried to reflect on the guidance, let's say one-time guidance that we're providing for Q1 and that is our best estimate or what will be the performance for Q1.

Then, with regards to how the rest of the year will shape up at Despegar, we are very positive on the year that we're looking ahead, axe this with the interim period of coronavirus. We are looking at -- continue implementing our strategy. We are excited with Best Day, excited with the results we are already obtaining with -- on Viajes Falabella, the loyalty program, how the app is working, our ability to manage margins that has worked particularly well over the last two quarters and last, we are finishing '19 with two quarters in a row well ahead of our plan and we're particularly excited about what we're seeing, clearly Q1 is affected, not only through Despegar but also through other either competitors or peers of us in other regions of the world and I think we need to just go through and we are very confident that we will emerge quite strong -- stronger than our competitors, given our competitive position.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Great, thank you very much.

Operator

The next question today comes from Eric Sheridan of UBS. Please go ahead.

Eric Sheridan -- UBS -- Analyst

Thanks for taking the question. Topic that came up during the Analyst Day and good progress in this quarter on take rates, could you give us a little bit better sense of how you're seeing take rates evolved in real time. How important it is to make investments on the inventory of the supply side to continue to allow for an upward pressure in take rates over a multi-year timeframe? Thanks so much.

Damian Scokin -- Chief Executive Officer

Eric, hi, this is Damian. Thanks for your question. In terms of take rates evolution, as we always say, in the short-term we manage our pricing strategy very dynamically. It was up to market conditions. And I think that the evolution of take rates in Q4 is a reflection of how we can rapidly take advantage of market conditions to -- in this case increase the take rate. As we've been saying and we stress during the Investor Day, we see a long-term positive trend in terms of our take rate, but that doesn't mean that is a short-term in terms of with the objective of gaining market share.

We will be more aggressive on that side. So, in market conditions like the ones we are facing in Q1 at the moment which is very logical that we will be much more aggressive with our take rate.

In terms of other strategic initiatives and inventory as a reflection of that, Best Day is an example of how our inorganic growth strategy can help us gain on that.

As you know, not only Best Day has a significant proportion of non-air sales that will increase our purchasing power but also has some interesting initiatives going on and has hotel base that's something that will certainly leverage our ability to increase our sourcing capabilities. So we are in -- after the Best Day transaction even more positive about the long-term trend of our take rate.

Eric Sheridan -- UBS -- Analyst

Thanks guys.

Operator

[Operator Instructions] The next question comes from Rodrigo Nistor of Itau. Please go ahead.

Rodrigo Nistor -- Itau -- Analyst

Hi. Thank you for the opportunity. Well, my question is regarding the competitive environment both in Brazil and from global OTAs, how it behaved during the fourth quarter and what are you seeing during the start of the year? Thank you.

Alberto Lopez Gaffney -- Chief Financial Officer

Rodrigo. Good morning. Alberto, speaking here. We are -- clearly we are in an industry as we have already discussed that is an industry that is very open to international competition with all global players and regional players being present in all the -- in most of the countries in Latin America and have been present for a long way, OK, numerous years in every case.

So we -- as we look into our market share, OK, we are glad to say that we are improving margins, while also gaining market share as we look into the dynamic between regional players and global players, OK, we see that in an industry in the online space that continues to grow -- the news that has affected our positive trajectory. We are seeing that we are certainly gaining market share.

We monitor performance of our key competitors on the information we get and the analysis we perform is pretty encouraging.

But again, it is an industry that is, as I said, open to every player and as such we also need to have our regard very high and continue developing all the niche that we have been developing. For us the status quo in our business is continue developing new features, that's why we have the success in the app up improving customer performance particularly in that area actually look at despite the fact having an NPS going coming down this quarter, if you look at like all the different websites for claims or customer claims Despegar has continued to improve its current position -- it's position over the past quarters, and particularly this quarter on the NPS side, it will not show, but importantly, as you look into how our peers and how we're fairing vis-a-vis our competitors we are doing well.

We also like to see a great success on the loyalty program and I believe that loyalty program to-date as you know we are in a period of investment, because at the beginning you start like given out the points, so you have higher deferred revenue and that's in margin and impact your take rate. But again, that will be but we are seeing -- we are starting to see good results on the loyalty program on how our trust customers are engaging and what the delta of their behavior want to engage in the program viz-a-viz their performance at our platform before joining the program. So again, we gain market share. We feel very -- we have a solid operation. But again, it's a tough competitive environment in which we feel very well so far know Damian if you want to talk?

Damian Scokin -- Chief Executive Officer

No, no, you summarized it.

Rodrigo Nistor -- Itau -- Analyst

Thank you.

Operator

[Operator Instructions] The next question today comes from Brian Nowak of Morgan Stanley. Please go ahead.

Alex Wang -- Morgan Stanley -- Analyst

Hi, this is Alex Wang on for Brian. Thanks for taking the question. Just two, first, can you just give an update on the loyalty program, you are seeing strong growth there but any sort of consumer behavior findings you can share around spend per customer or frequency for loyalty members versus non-loyalty members? And any implications for sort of long-term marketing spend if you might see a better ROIs leaning more heavily into your loyalty program? That's part one. And the second question, if you can just provide us an update on capital allocation given the strong balance sheet? Thank you.

Damian Scokin -- Chief Executive Officer

Alex. Hi, this is Damian. In terms of Loyalty program, as we mentioned during the call, we launched the program in October 2019 in Brazil, and at the moment we have approximately 400,000 active members. The performance of the program in terms of membership, the credit card since we launched the co-branded credit cards in February like three weeks ago, points accumulated points redeemed, it's better than our original expectations on our business plans.

Having said that, a word of caution, because obviously the early adopters of these programs are generally the more [Indecipherable]. So we are looking at very positive numbers with caution.

And the second part of your initial question about how that will affect, how this will affect marketing spends on ROI obviously, as we've been explaining since we introduced the program, the overall objective of the program is not to build a new profit center around our new business -- around the loyalty program, but rather to intensify our relationships with our consumers and in that way to reduce our acquisition cost and our marketing spend.

So we are extremely optimistic, in nutshell [Phonetic] we are on track to achieving the expected benefits through a lower marketing spend in the long term. As per your second question on capital allocation, remember that along 2019, but really on the third quarter, we made some heavy share repurchase and we always said that that was an opportunistic action that the company took given how the shares were in our prospect under value in comparison to the long-term value of the company.

And obviously we make those decisions in consideration of all other capital allocation alternatives, given where we are now in terms of the -- those deals and the conversations we are having with other potential targets, but we haven't done any of the share buyback activities during Q4, and that's the perspective we have for the, -- I would say next couple of quarters.

Alberto Lopez Gaffney -- Chief Financial Officer

Just to complement. I think that we -- as we know, we invest in the business through the P&L, through actually capturing less of a margin that we could in order to assure that the company continues growing and continued gaining much gaining share, M&A and share repurchases.

Between the -- the trade-off between these last two, we believe that at the levels that we -- at valuation levels that we have been able to get into deals, OK, we believe that is a best return profile getting into M&A given all the positive synergies, how come we better serve our customers and how much more efficient we can be with our expenditures etc. So you will see the company under similar circumstances leaning more given all the synergies that you can capture and leaning more toward M&A rather than share buybacks, OK, as a matter of principle.

Alex Wang -- Morgan Stanley -- Analyst

Great, thank you.

Operator

[Operator Instructions] The next question comes from Kevin Kopelman of Cowen. Please go ahead.

Emily Lavin -- Cowen -- Analyst

Hi, good morning. This is Emily Lavin on for Kevin. Thank you for taking my question. I just wanted to ask about how your mix shift in your business between international travel and domestic travel has been trending since the coronavirus news and also since the new tax in Argentina on international purchases was implemented? Thanks.

Alberto Lopez Gaffney -- Chief Financial Officer

Hi, Emily. Good morning, Alberto speaking again. As you know, the both -- now let's say coronavirus related effects, first start with related ones FX. On FX, clearly the way we see it on a per-country basis, because not all countries have the same as you know, breakdown between international and domestic traveling, what you see is domestic goes up in times in which the FX of each respective -- respected country comes down.

And as you might imagine, OK, over the past weeks as you look into all the different -- all the different travel destinations, OK, as there are news on Southern Europe, OK, the bookings on from a week basis per day -- on a daily basis you have to receive booking for certain destinations coming down, OK. So overall, yes, what fits into the one-time guidance we provided for this quarter is actually what we are seeing on the trade. Okay. What we're seeing on the trade is, since January already with currencies devalued on all carona related news. We actually see a lower relative growth vis-a-vis excluding the corona effects. Okay -- of international share and I'm particularly asking the, the demand starts coming down is very much in line with where the news were coming from. Okay. Southern Europe, Asia, etc. And so certainly, you will see in the upcoming Q1, 2020, OK, you will see that the share of domestic travel will actually increasing.

The good news for us to a certain extent, OK, just to be able to a certain extent to cope with international travel that as you know is more profitable for us is that the network of the inventory we have for domestic travel across the region is particularly strong and we're certainly benefiting from all the good work that our team were doing on the sourcing side, OK, for the domestic destinations as well. So all-in-all, I provided some color, but your assessment is correct.

Operator

[Operator Closing Remarks]

Duration: 58 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

Rodrigo Nistor -- Itau -- Analyst

Alex Wang -- Morgan Stanley -- Analyst

Emily Lavin -- Cowen -- Analyst

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