Inspirato (ISPO) provides curated vacation experiences to affluent travelers through its subscription services. Through innovation, it's aiming to cut a bigger slice of the $120 billion luxury hospitality market.

Inspirato subscribers have access to an exclusive portfolio of luxury homes, accommodations at five-star hotel and resort partners, and personalized travel experiences. While critics can argue that this subscription-based sales model is risky, the company has thus far outperformed expectations.

What makes Inspirato unique?

According to the company, "An Inspirato vacation is a carefully crafted experience. Imagine all the details taken care of for you -- the fridge is stocked, the beds are made, the kitchen cleaned up after you, the day's itinerary planned." 

Seasoned travelers know that the process of booking a vacation, as well as logistical concerns during it, can detract from its ultimate goal: enjoyment. At fees starting from $2,500 a month or $30,000 per year, Inspirato offers vacationers a stress-free way to book and enjoy travel.

While that price tag might look steep to many, Inspirato could be more reasonable to an ever-growing number of remote-working digital nomads. As of 2021, there were 35 million digital nomads worldwide, with an average salary of $119,423, and average age of 32. And the number of these nomads, who look to travel as much as possible while working, is growing rapidly. 

Inspirato looks to flip the script on the way airline and hotel loyalty programs currently provide their benefits to travelers. Instead of only rewarding travelers who earn points by flying and staying often, an Inspirato subscription offers the benefits from the start.

Current headwinds for Inspirato

Going public by way of a merger with special purpose acquisition company (SPAC) Thayer in February 2022, Inspirato's stock had an extremely volatile introduction. First offered at prices in the $9-$10 range, shares shot up to a prodigious $108 on Feb. 17, 2022.

The spike occurred in part from coordinated buying by members of the Reddit community. Additionally, because of the way the SPAC was structured, many original investors cashed out their holdings before the merger was complete.  The combination of these factors resulted in a short squeeze that culminated in mid-February.

The stock has since fallen to the $4-$5 range. The volatility not only shook many long-term investors out of their positions, but has deeply impacted investor confidence in the company.

Besides the stock's wild intro, its subscription-based model could be a risk for Inspirato. The subscriptions come with certain exceptions and restrictions. For example, members can only book one trip at a time, and bookings are made first-come, first served. And many of their properties are only offered during non peak seasons. 

Another potential flaw in the subscription model is that customers who get the most value from their subscriptions tend to be the least profitable for such companies. Witness the failure of MoviePass, whose unlimited-movies-for-a-single-price offering ultimately led to its downfall. If too many Inspirato customers use their services too often, it could impair Inspirato's bottom line.

Family of four sitting beside pool.

Image source: Getty Images.

The subscription model seems to be working so far

Not all subscription models are unsuccessful, though. Indeed, the travel subscription market has begun to grow, encompassing airline tickets, exclusive airport lounges, special credit cards, and other luxury services. Inspirato could be a stable investment in a seasonal and sporadic segment.

The company had strong Q1 numbers this year, reporting record quarterly revenue of over $82 million, a 67% year-over-year increase. This comes after a record-breaking 2021, when Inspirato reported $235 million in revenue. Other Q1 records include its cash on hand, reporting a balance of $135 million as of March, the highest in company history. Inspirato also boasted records for active subscriptions in Q1, citing 15,300 active memberships, and for "total nights delivered" of 43,000, a year-over-year increase of 45%.

At the same time, Inspirato's net loss more than tripled year over year -- sharply higher growth than it recorded in revenue and total nights delivered. On the surface it would appear that more nights of travel mean a bigger loss for the company. But upon closer examination, we can see that $17.7 million of that red ink resulted from "warrant fair value losses" -- a big paper loss the company had to eat when its shares plunged in value, but apparently a one-time event.

Without that expense, Inspirato would have posted positive net income of over $5.5 million for Q1 2022. And it's recorded varying amounts of positive free cash flow every quarter since it went public. The company's outlook remains aggressive, with expected revenues of $350 million-$360 million for 2022. If Inspirato can stay on its current growth trajectory, travel stock investors may want to test its waters in the near future.