After record-breaking bookings in recent months, Norwegian Cruise Line Holdings (NCLH -0.88%) looks to be rebounding from its pandemic-era slump. No doubt, numerous headwinds persist as the company seeks to boost occupancy and margins without compromising its level of service. But based on Norwegian's recent performance and future outlook, I think this cruise line stock is worth putting on your watch list. 

Q4 revenue exceeded 2019 levels

Norwegian brought in fourth-quarter revenue that was more than triple the same period in 2021. For the year, Norwegian's 2022 total revenue came in at $4.84 billion -- 7 times higher than 2021's result.

Interestingly enough, while full-year 2022 revenue fell 25% below 2019 levels, Q4 revenue actually beat pre-pandemic levels by 2.6%. 

The Miami-based cruise operator's total revenue per passenger cruise day surged 24% above 2019 levels last quarter, driven by strong ticket pricing and onboard revenue generation. During Norwegian's Q4 earnings call last month, CEO Frank Del Rio highlighted that onboard revenue "continues to be a bright spot."

Considered a "real-time indicator of consumers' actual spending" by Del Rio and his team, onboard revenue achieved better-than-expected results in Q4. Norwegian has also enjoyed a lengthening booking curve, which Del Rio cited as a "forward-looking indicator." 

In fact, last quarter Norwegian's booking curve grew longer than the same period in 2019. Suggesting ceaseless demand for Norwegian's cruises, Del Rio affirmed, "The bottom line is our target consumer continues to be willing to spend on travel and experiences now and in the future."

Expenses increased year over year

Although Q4 2022 revenue edged out 2019 levels, Norwegian ultimately took a net loss of $482 million during the period. For reference, in 2019 the company finished Q4 with a $121 million dollar profit. And while Norwegian netted $930 million in total 2019 profits, the cruise operator took a $2.3 billion loss last year. 

Total cruise operating expenses have increased substantially since 2019 -- even from 2021 to 2022. Higher labor, fuel, and variable costs have all risen for Norwegian, with inflation exacerbating the issue. 

While Norwegian operated at a loss last year, the company anticipates costs to ease as 2023 progresses. An expected increase in occupancy, combined with improved operating efficiencies, should lead to a "lower cost run rate," according to CFO Mark Kempa.

Kempa assured that Norwegian would "evaluate all opportunities to accelerate revenue and improve operating efficiencies," with the goal of rebuilding and maintaining a healthy profit margin.

Occupancy on the rise

In Q4, Norwegian's occupancy reached 87%, 20% below the same period in 2019. Current quarter occupancy has already hit 100%, and Del Rio anticipates "a return to historical levels" by the second quarter of this year. Beyond that, Norwegian could be looking at record-setting occupancy in the second half of this year.

With occupancy approaching its limit, Norwegian has no choice but to grow its capacity. For the first time in company history, the cruise operator plans to build one new ship for each of its brands this year -- for a total of 5,000 additional berths. By 2028, Norwegian plans to grow its capacity 50% beyond that of 2019.

Beginning the year with a record cumulative booked position of approximately 62%, Norwegian enjoyed all-time-high monthly booking records last November and again this January. And bookings remain on pace to reach historical levels by Q2.

Why Norwegian stock is one to watch in 2023

Having taken a net loss for the past three years, Norwegian Cruise Line expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $1.8 billion and $1.95 billion this year. 

Last quarter, Norwegian generated positive adjusted free cash flow for the first time since 2019, a "significant milestone," according to Kempa. "This represents another stepping stone as we return to a normalized operating environment," he said.

While Norwegian still has plenty of slack to pick up and is contending with forces outside its control, the company has taken clear strides toward profitability. Meanwhile, its stock still trades 72% below its January 2020 highs. If Norwegian can deliver on its EBITDA goal this year, watch for its stock to recover in due time.