Online hostel booking platform Hostelworld (HSW) has surprised the market after admitting that booking demand over the peak summer period has been lower than expected.

The firm’s half year results, chief executive Gary Morrison said full year profit is now likely to be below last year’s figure.

HIGHER COSTS AND TOUGH MARKET

He pinned the blame on a ‘highly competitive’ market, as well as higher than anticipated pay-per-click advertising costs and further investment in its ‘Roadmap for Growth’ strategy.

Shares in the booking platform plunged around 8% this morning to 149p, with its revenue and earnings before interest, tax, depreciation and amortization (EBITDA) in the six months to 30 June also disappointing analysts.

Actual revenue stood at €38.8m, down from €42.6m in the same period the previous year, while adjusted EBITDA fell 15% to €8.9m, as bookings reduced to 3.8m compared to 4m in the first half of 2018.

The company’s interim dividend was also reduced to 4.2 cents per share, from 4.8 last year.

LONG TERM RETURN TO GROWTH

Analysts at Shore Capital believe Hostelworld’s EBITDA this year will be €2-3m lower than in 2018, but remain bullish on the stock.

They said, ‘Despite this update and the potential downgrade, we continue to believe that the shares are undervalued for its unique marketing position in a subsector of the global travel market therefore we remain a buy for the longer-term outlook of returning to growth.’

Positive things of note for Hostelworld were an increase in its average booking value of €12.80, up from €12.20 last year (hostels are considerably cheaper than hotels), as well as further milestones completed in its growth strategy including improving the core search experience and adding unique hostel content.

READ MORE ABOUT HOSTELWORLD HERE

It also plans changes to its payments platform and innovations to the overall booking experience, but analysts at Numis said these will take longer with the benefits unlikely to be felt until 2020.

However the broker also remains keen on Hostelworld and its analysts said, ‘We are encouraged that the group has addressed legacy tech/product issues and should be able to match the attractive rate of market growth.

‘However, this will require a degree of patience given the uncertainty around when the bookings inflection point can be reached in FY20.’

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Issue Date: 21 Aug 2019