Nustay issues comprehensive market update on recent performance
Nustay A/S (“Nustay”) has today issued a comprehensive market update on the Company’s progress against its key performance indicators (KPIs) since its IPO early 2019. Today’s update does not change or affect the company’s current capitalization needs, as communicated to the market on October 11th, 2019. Today’s update seeks to provide the market with a deeper understanding of the Company’s operations and most recent actions, and through this, highlight the potential for further growth. The Company has announced that handled revenue in Q3 saw a year-on-year increase of 709% - from 3.4 MDKK in Q3 2018 to 27.5 MDKK in Q3 2019, bringing the Company's total handled revenue from Q1-Q3 2019 to approx 87.7 MDKK. There was however a slight decline in handled revenue of 22% from Q2 vs Q3 2019, but the net revenue figures remained broadly at the same level due to a positive increase in the commission percentage earned per booking. Nustay has highlighted the slowing momentum experienced since the summer, which was the result of several overlapping factors, including: tied-up capital in both the technical setup and implementation of Expedia (who then terminated its agreement with Nustay), a surge in bookings that failed at the final stage of booking (caused by so-called “dead rates”) and a volatile return on the Company’s marketing investments. This situation caused a larger-than-expected financial loss for Nustay. During this period, the company has been working hard to solve the lingering technical issues, diversify its marketing investments through partnering with other ambitious market players, and launch its much-anticipated new website Q4 2019. These, combined with the capital injection of DKK 10 million carried out in September 2019, means that the Company will continue moving towards a positive marketing cost vs commission earned on the daily bookings level.
Increased development pace since the summer
Since Nustay’s IPO in the beginning of 2019, and with the added capital injection of DKK 10 million conducted in September 2019, the Company has continued its trajectory towards a positive marketing contribution level on its total daily marketing investment. This means that the Company is trending towards the point of breaking even on its marketing costs vs commission earned on bookings daily – shown in the graph below (figure 1). Looking at the last 60 days (see figure 2), a total of 20 days have seen a positive marketing contribution (at an accumulated average of 23,39%) against only nine days in the previous 60 days. According to the Management’s assessment, the travel industry has typically required a minimum of 4-5 years, as well as a significantly higher levels of investment, to achieve this target (when using performance marketing channels such as “meta-search” – also called price comparison websites).
Nustay has moved in this direction despite experiencing certain setbacks throughout the summer. Following Expedia’s termination of agreement with Nustay end May 2019, and the resulting impact on Nustay’s performance, the company readjusted its performance marketing approach. Nustay has since been taking important steps towards diversifying its supplier base. Using development resources to becoming far less reliant on one or a couple of big hotel suppliers and instead teaming up with a larger supplier base. This means that Nustay has moved to a lower risk model which is not dependent on a single source of market prices, thus mitigating a repeat of an Expedia-type situation.
Apart from mitigating risk, this shift has seen the Company’s handled revenue, return on marketing investments, commission, and the business as a whole stabilise further. If the Company is able to keep the above-mentioned positive trend towards breaking even its daily marketing contribution (costs) vs commission, it will at some point be able to scale significantly without the unnecessary cash burn caused by a negative return on investment in marketing.
Nustay is also looking forward to launching its new website as well as several new profit streams, namely, car rental, airport transfers and flight tickets, in Q4 2019.
Figure 1. Graph describing the overall trend in marketing contribution
Figure 2. Number of days with positive marketing contribution
Financials
The Company’s Q3 results have been in line with expectations following the issues outlined above. Handled revenue over the year, from Q3 saw an increase of 709% - from 3.4 MDKK in Q3 2018 to 27.5 MDKK in Q3 2019, bringing the Company's total handled revenue from Q1-Q3 2019 to approx 87.7 MDKK. There was however a decline in handled revenue of 22% from Q2 2019 vs Q3 2019. The quarterly net revenue figures remained around the same level, indicating that Nustay experienced a positive increase in earned commission in Q3 vs Q2 2019.
Today’s update does not change or affect the company’s current capitalization needs, as communicated to the market on October 11th, 2019.
Failed bookings
During the summer season of 2019, Nustay experienced a surge in bookings that failed (‘failed rates’) at the final stage of booking. Two principal reasons have been identified as causing this: sold out rooms, and, rooms where the price has increased substantially since received by Nustay – which in the Online Travel Agency industry is known as “dead rates”. The root cause of this latter problem has been prolonged data caching in the systems that supply Nustay with hotel prices and availability. As a result of this issue escalating during the Company’s peak season (summer), Nustay initiated an effective tracking process as from July 1st, 2019.
After analysing the root causes, the company has developed an action plan on how to overcome this particular challenge and develop a long-term fix. One such action to reduce fail rates on booking attempt has been initiating more direct integrations to bigger hotel suppliers. During a prototype of this measure, applied between the 1st to the 7th of August 2019 on one of Nustay’s biggest hotel suppliers, there was a significant reduction in fail rates, coming down from 32% to 6.67% while the average across all suppliers is currently approx. 15%. The optimization process will be introduced across all of Nustay’s suppliers going forward. The Company’s overall target is to reach a stable level of failed bookings below 10%.
Caching
To further tackle the above stated prolonged caching issue, and therefore limit the impact on customer experience produced by sudden price changes on the final stage of booking, Nustay has introduced the necessary technical changes to bring down its caching time for prices used in marketing. The caching time has been reduced from 24 hours to between 2 hours and 4 hours. This will improve user experience by significantly limiting any variations from the marketed price to the price at booking.
Marketing
Since the summer, Nustay has drawn a marketing strategy focused on the countries that have shown the best conversion rates, allowing Nustay to buy less but higher converting traffic through its marketing. The top converting countries for Nustay as per November 10th, 2019 were:
1. United Kingdom
2. United States
3. France
4. Germany
5. Spain
6. Australia
7. Canada
8. United Arab Emirates
9. Ireland
10. Italy
Note, that as a result of this strategy, users located in countries not on the list will likely not be presented with Nustay’s hotel offers on price comparison websites.
Mathias Lundoe Nielsen, CEO of Nustay, comments
“Nustay experienced a ‘perfect storm’ of challenges during the summer peak season but has at the same time been able to grow its business and deliver positive results on many of our key KPI’s, as is evident in the data presented today. We have also been able to overcome the serious difficulties stemming from failed bookings, which is entirely thanks to the development team here at Nustay who worked tirelessly to find creative and innovative solutions to a problem which has affected not only us, but the entire OTA and hotel distribution industry this year. Despite being a small player in the OTA industry, we have attracted significant attention from dominant market leaders and the challenges we have faced this summer have matured Nustay as a company and brought the team together in a way we could not have anticipated.”
For further information about Nustay, please contact
Mathias Lundoe Nielsen, Founder & CEO, Nustay A/S
Telephone: +45 22 91 94 99
E-mail: mln@nustay.com
Website: www.nustay.com
This information is information that Nustay A/S is obliged to publish following the EU Market Abuse Regulation. The information was provided by the contact person above for publication on November 11th, 2019.
About Nustay
Nustay is a Danish online hotel booking company established in 2014. The company has developed an innovative booking platform offering the lowest possible hotel prices while also enhancing customer’s booking experience. Nustay has set out an ambitious vision to become the global leader within the online hotel booking industry, and is confident its large hotel room inventory, novel pricing strategy, and transparent booking process, will achieve that goal.
