The skies looked choppy as Despegar.com (NYSE:DESP) was getting ready to take off with its first quarterly report as a public company. The leading Latin American online travel site still managed to lift off, posting better-than-expected financial results on Thursday afternoon.
Revenue clocked in at $131.5 million for Despegar's third quarter, 24% ahead of last year as a 42% surge in revenue related to bookings for hotels, packages, and other travel products helped offset a modest 7% uptick in air ticketing sales. Analysts were holding out for $128.9 million. Net income moved lower -- sliding 22% to $11.2 million, or $0.19 a share -- but Wall Street was targeting a profit of only $0.15 a share. The market's reaction to the report was lukewarm. The shares opened slightly higher on Friday following the report, only to drift into slightly negative territory within minutes of the new trading day.
You never forget your first flight
Despegar (which means "to take/lift off" in Spanish) went public at $26 in mid-September, a turbulent time for the industry. Most of the online travel agencies and specialists have corrected sharply in recent months. The last major operator to go public is Trivago (NASDAQ:TRVG), and it has been a disaster. Trivago is now trading in the single digits, having plummeted nearly 70% since its summertime peak.
However, while Germany's Trivago went public with the tailwind of monster growth in 2016 -- revenue soaring 53%, only to decelerate sharply as 2017 plays out -- Despegar's trajectory has been quite different. Its revenue declined 3% last year, only to rise by more than 20% in each of this year's first three fiscal periods. Despegar's welcome ascent in 2017 comes just as Trivago, though expecting revenue to grow 2% to 15% in the current quarter, is warning that it will likely not grow at all through the first half of next year.
Wall Street was understandably nervous following Despegar's late-summer debut. A few weeks later, many of the largest underwriters behind the September offering -- UBS, Morgan Stanley, and Citi -- initiated coverage of the stock with neutral stock ratings. Sure, the stock had bubbled up to the low $30s. The underwriters had handed over the stock four weeks earlier at $26. It was still a chorus of ho-hum at a time when online travel sites in general were descending out of market favor.
Despegar didn't offer guidance for the fourth quarter and beyond in its Q3 earnings release, but it's clearly in a good place. Transactions rose 25% in the third quarter, with gross bookings up by an even better 32%. Keeping an eye on margins and cost controls will be essential in bringing its healthy top-line growth to the bottom line in the coming quarters, but it has lived up to the IPO hype in its first quarter as a public company.