Tough-as-Nails Viking Stock Makes Waves in Popular Initial Public Offering
Venture into May, and it's been a thrilling ride for VIK (-2.26%), the globe's pioneer in river cruise voyages, who made their public debut at $24 on the 1st. On a Wednesday, they released their initial financial report as a public company, but the reception wasn't as warm as their market entrance earlier in the month.
The sailing was choppy on Wednesday. A significant majority of the S&P 500 constituents declined on this rollercoaster day for the market. The shares plunged approximately 3% for the day following their financial disclosure in the morning. Despite this, the stock continues to trade at a 24% premium compared to its IPO cost, so investors can't be utterly disappointed. Let's dive deeper into VIK's christening as a publicly traded enterprise.
Abandon not hope
VIK's initial quarter post-debut might not spark instant enthusiasm at first glance. Revenue swelled by 14% to hit $718.2 million for the first quarter of 2024. This is far from the 20% to 29% top-line advancement displayed by the top three American cruise line operators during their recent earnings reports, but it's premature to brand VIK a laggard.
VIK isn't your typical cruise line titan commanding large ocean liners, casting their waves across the Caribbean with thousands of passengers. Only 12 out of VIK's fleet of 92 vessels are gigantic ocean cruisers. The majority — 88 vessels — are compact river cruisers with a capacity of fewer than 200 customers. The broader cruise shipping market exhibits seasonal rhythms, but the leading ocean lines operate even in the chilly months with two-thirds of their ships gliding on perpetually balmy tropical waters. In contrast, 60% of VIK's business springs from European river journeys, which mostly occur between April and October.
While the 14% growth does take a hit compared to the first quarter of the previous year, subject to the same seasonal constraints, it doesn't set off any red flags yet. The first quarter represented just 13% of VIK's total revenue the year prior, compared to a more substantial 20% for the other three major cruise line stocks. Considering the bottom line, VIK's numbers also don't appear as dismal as the reported figures indicate.
The net loss ballooned by more than double to $493.9 million, but this sum includes a $306.6 million charge for a private placement derivative loss. Excluding this extraordinary loss, VIK's true performance looks more promising. Its gross margin, adjusted gross margin, and net income per passenger increased compared to the previous year's annual returns. Despite growing in size, VIK effectively kept its cruise operating expenses in check, rising just 6% against the 14% growth in total revenue.
Fair winds ahead
Looking into the future, the journey should be more enticing as we reach the seasonally robust part of VIK's fiscal voyage. Bookings remain robust. VIK is presently holding $4.1 billion in deferred revenue, marking a substantial leap from $3.5 billion from only three months back.
Cruise ship operators had a successful "wave" season, a promotional period where companies compete to fill their berths for the remainder of the year and beyond. VIK has already sold 91% of its entire 2024 capacity and is off to a promising start in 2025, with 39% of its berths already booked.
The stock is undervalued, a typical trait for the entire industry. IPO underwriters and analysts are only beginning to pen their reports on VIK this week, and they envision VIK earning $1.28 per share this year and $1.92 per share next year. This pegs VIK at just 15 times next year's projected earnings.
The bigger three players are still cheaper, with year-ahead multiples hovering in the pre-teens. However, VIK stands out as a uniquely positioned player, boasting a dominant market position in the river cruise segment and sky-high customer loyalty and passenger satisfaction scores.
You haven't missed the ship yet. VIK seems to be just setting sail.
In light of the financial report, investors may want to reassess their approach towards investing in VIK, given that the stock is trading at a 24% premium despite the day's plunge and the company's net loss. To effectively manage their finances, they might consider diversifying their portfolio to balance potential risks and rewards.
Expectations for VIK's future prospects are optimistic. With robust bookings and a substantial increase in deferred revenue, the company is poised to perform well during the seasonally robust phase of its fiscal year. Moreover, the stock is considered undervalued by analysts, making it an attractive investment opportunity for those keen on venture capital in the cruise industry.
