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Should Expedia buy Despegar?

Writer's picture: Andres Sucre Andres Sucre

Despegar had its IPO a bit over a year ago. It listed at $26 usd per share at a valuation of 1,8bn+ usd. It was a big deal for the travel sector in the region and brought its biggest player to the public markets.


Fast forward to today, the stock is down roughly 50%+ from its IPO price with a market cap of 950M usd.


When Despegar went public, I thought that Expedia would be inclined to divest their stake in Despegar and focus on building their main brand across the region (much like Ebay did with Mercado Libre).


Given current valuations, it could be interesting to consider if Expedia should in fact make a bid for the Latin American travel leader.


Despegar has had a very rough year as their two largest markets by revenue underwent significant turmoil (Brasil & Argentina). Both the stock and their financial performance have been hit by the turbulence.


However, when you compare business metrics with other emerging market OTA´s like MakeMyTrip, you can see that Despegar is trading at a significant discount when looking at GMV, Net-Revenue & YoY growth.


Despegar sells almost 5bn usd in gross bookings with 550M usd in net revenue per year and currently holds 350M in cash. Unless the Latin American region tanks completely on the political & economic fronts, which is a real possibility, current valuation suggests an interesting entry point.


The company enjoys favorable long-term macro trends for online travel in LatAm, a defendable/diversified business model with clear brand leadership across the region (no real regional competitor) and a solid management team. In addition, shifting political tides with Bolsonaro in Brasil could be positive for the largest economy in LatAm.


Expedia is already in the cap-table for Despegar (16% stake), has very close commercial ties with the company (all international content is powered by Expedia), and could benefit from controlling the largest travel brand in one of the fastest growing digital travel regions in the world.


Given the timing, valuation, relationship and potential upside, I believe Expedia should be looking at a deal with Despegar. If not them, someone should.

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