May has been an adventurous month for Viking (VIK -2.72%). The world's leading operator of river cruise sailings went public at $24 on May 1. On Wednesday, it delivered its first financial update as a public company. It didn't go over as well as its market debut earlier in the month.
The waters were rough on Wednesday. All but 55 of the S&P 500 components moved lower on a down day for the market. The shares tumbled nearly 3% for the day after announcing its first-quarter results in the morning. The stock is still trading 24% higher than its initial public offering (IPO) price, so investors can't be feeling too bad. Let's wade deeper into Viking's christening as a publicly traded business.
Don't start looking for a lifeboat
Viking's first quarter since going public may not seem all that inspiring at first. Revenue rose 14% to reach $718.2 million for the first three months of 2024. This is well below the 20% to 29% top-line growth that the country's three largest cruise line operators posted earlier this earnings season, but let's not call Viking a laggard.
This isn't a traditional cruise line operator with massive ocean liners largely coasting through the Caribbean with thousands of passengers on board. All but 12 of Viking's fleet of 92 ships are small river cruise vessels with a capacity of 190 or fewer customers. There is seasonality in the overall cruising market, but the large operators are sailing year-round with two-thirds of their ships on the perpetually warm Caribbean waters. With 60% of its business stemming from European river itineraries, Viking's river cruise season runs mainly between April and October.
Sure, the 14% growth is being compared to the first quarter of last year with similar seasonal limitations, but it's not a red flag until we get to the peak summer travel season. The first quarter for Viking last year accounted for just 13% of its full-year revenue, compared to a little more than 20% for the three larger cruise line stocks. Turning to the bottom line, Viking's results also aren't as bad as the reported results.
The net loss did more than double to $493.9 million, but this includes a one-time $306.6 million hit on a private placement derivative loss. Viking's actual business is holding up better than the reported figures. Its gross margin, adjusted gross margin, and net yield all improved from the prior year's showing. Flexing scalability as it grows, total cruise operating expenses rose just 6% compared to the 14% increase in total revenue.
Image source: Getty Images.
Bon voyage
The future should be more encouraging, and not just because we're heading into the seasonally potent part of Viking's fiscal calendar. Bookings remain strong. At this point, Viking has $4.1 billion in deferred revenue, up from the $3.5 billion it had just three months earlier.
Cruise ship operators had a strong "wave" season, the promotional period early in the year when companies get aggressive about filling up their berths for the balance of the year and beyond. Viking now has 91% of its capacity for all of 2024 sold and is off to a strong start next year, with 39% of its berths spoken for already.
The stock is cheap, a common trait for the entire industry. IPO underwriters and other analysts are just starting to initiate coverage on Viking this week, and they see Viking earning $1.28 a share this year and $1.92 a share next year. This prices Viking at just 15 times next year's projected profit.
The three larger players are cheaper, with year-ahead multiples in the pre-teens. However, Viking is a uniquely positioned player with a dominant market position in the river cruise market and high customer loyalty and passenger satisfaction metrics.
You didn't miss the boat. Viking seems to be just getting started.
