- Profits wiped out by extra marketing spend
- Shares down 30% year-to-date
- Company remains optimistic
Despite all of its efforts and a strong recovery in consumer demand for holidays, On The Beach (OTB) is still losing money.
Its shares sank 15% to 107p after reporting half-year results which flagged the company had spent heavily on marketing.
Investors were seemingly displeased with the results, particularly as airlines and travel companies have been flagging strong demand in recent months, implying that the holidays industry was finally back on its feet post-pandemic and earnings stood to greatly improve.
Shares flagged the stock last July as a turnaround situation, buying when sentiment was so weak for the company and the sector. Its share price subsequently went up by nearly 40%, at which point (2 February 2023) we said to sell the stock at 177p, noting that plans to increase spending to boost its market share might weigh on profits. That’s exactly what’s happened.
The company reported a £6 million pre-tax loss for the six months to 31 March 2023, versus a £7 million loss a year earlier. That’s despite revenue increasing by 38% in the period to £73.2 million.
On The Beach made its name by selling beach holidays via the internet – giving people the opportunity to buy accommodation and flights together or just somewhere to stay. This has become a highly competitive market which has led the company to focus more on the premium holiday segment.
Incoming CEO Shaun Morton told Shares: ‘Going forward, we are moving away from that core value short-haul beach offering to premium short-haul and long-haul offering – which is now four times bigger than pre-pandemic. We are using the same people, technology, and brand that we have used over the past 20 years. We have managed to grab some market share from TUI (TUI) and Thomas Cook which has exited this market.’
The decision to shift focus looks well-timed given how On The Beach flagged that volumes in the value end of the holidays market have not yet recovered to pre-pandemic levels. However, becoming a bigger player in the premium end of the market will require further spending. We cited Liberum in our previous article on the stock and its words still stand true: ‘Capturing market share is expensive and likely to take time.’
Outgoing chief executive Simon Cooper was keen to reassure the market, saying: ‘The group typically generates a greater profit in the second half of the year, and we are confident that the upfront investment into the brand and proposition will ensure both top and bottom-line growth in the second half of the year.’
Revenue growth was supported ‘by investment in the brand and proposition’ with a continuation of free holiday perks for customers and ‘the most wonderful time of the year’ campaign which included sponsorship of ITV’s Masked Singer and the Magic Radio breakfast show.
Davy Research said: ‘Emerging from the challenges of the pandemic, On The Beach has begun to hit FY19 (2019 financial year) levels of operational performance, with its share price today languishing 74% below where it sat on 31 December 2019. FY22 saw record revenue, although margins were suppressed, given the outsized marketing and technology spend, compared to FY19 as the firm focuses more on premium, long-haul and B2B.’
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