Selina: Hotels For Digital Nomads (NASDAQ:SLNA)

Selina Hospitality (NASDAQ:SLNA) is expanding fast. The London, England-based hospitality company recently opened Selina Magnetic Island in Queensland, its fourth hotel in Australia. This will form one of Selina’s more than 160 locations spread across the world. Magnetic Island encompasses the go-to-market strategy and long-term investment thesis of Selina. The 145-bed hotel is tucked in an idyllic location and offers live music at night, food trucks, local Aussie craft beers, and coworking space to mostly millennial and Gen Z travellers. Selina’s pitch is that its hotels and hostels form a home away from home for the growing number of digitally enabled workers.

The rise of the digital nomad, individuals who travel to different locations around the world whilst still in full-time work, has been a phenomenon observed since the new millennium democratized the internet as digitization created a new generation of jobs. With remote working essentially mandated by governments through stay-at-home orders at the height of the pandemic, digital nomads have seen their numbers ramp up. Hence, Selina is pitching itself to the millions of now fully remote workers who might be looking to swap working from home to working from anywhere. It’s not difficult to see the appeal of potentially cheaper living costs, good weather, and a broad range of new activities that also provide exposure to new cultures.

Selina has over 27,500 open bed spaces spread across 25 countries and offers a mix of shared and private rooms in locations from Tulum to Lisbon and Medellín to Athens. The company would go public at the later stages of the bursting of the SPAC bubble in October last year in a $1.2 billion deal that saw Selina raise $172 million from a private placement and from subscriptions to its senior unsecured convertible notes. Continued losses against management expansion plans and a need to raise capital to bridge the gap to breakeven formed the basis of the go-public transaction.

Revenue Is Rising But Profitability Is Negative

Selina is down around 91% over the last 6 months as the initial post-SPAC explosion of its stock price moderated with its commons settling at $3.55, up around 30% year-to-date. This mirrors the torrid performance of other travel-oriented deSPACs like Inspirato (ISPO), Sonder (SOND), and Vacasa (VCSA). This performance has come against what was the rapid rollback of pandemic-era travel restrictions in 2022 and a subsequent travel boom.

Selina is building its investment case on curating strong experiences for its guests and using that to maintain positive word-of-mouth referrals. The company’s locations generally have good ratings and the new Magnetic Island hotel is rated 8.4 out of 10 on Booking.

The consumer rating website Comparably places Selina’s NPS score at 45. Whilst this is lower than the figure from the January 2023 Investor Presentation, it’s higher than competing brands like Airbnb at 29 and Hyatt at 33. Further, whilst Selina is aiming for digitally native workers, the company is increasingly positioning itself to serve corporate travel by offering wellness retreats and is also pushing into music festivals.

Selina last reported earnings for the first nine months of its fiscal 2022 third quarter. This saw revenue come in at $133.2 million, an increase of 116% over the year-ago comp as new locations and the pullback of travel restrictions in core markets led to a revenue boom. The company’s occupancy rate during the period came in at 46.9%, up from 30.8% in the year-ago comp with daily total revenue per occupied bedspace (TRevPOB) growing to reach $38.38, a 2% increase over the year-ago period. The lower rate of TRevPOB growth might be flagged by bears as a point of concern, but the overall momentum of the business is positive as travel continues to open up.

Stay, Work And Explore

Occupancy for the third quarter of 2022 was also higher than Selina’s 9-month average, further giving legs to the current momentum and against what’s widely expected to be a recession this year. Selina’s management is bullish and is targeting 55% occupancy for their fiscal 2023 with more locations also set to open.

The company’s net losses are outsized and came in at $146.5 million for the first 9-months of 2022, only a partial improvement from a loss of $159.1 million in the year-ago comp. Getting this under control now forms the base case of any investment position as it’s a rate of loss that is more than 100% of revenue for the same period.

Selina is planning a review of its property portfolio to identify underperforming locations that could be closed if its management is unable to renegotiate lower base rents. The company is also planning to reduce its corporate overhead by around $6.3 million in 2023 with management targeting positive operating cash flow for the year. Selina is an interesting business in a fast-growing space, but I’ll avoid the commons until the company can reach sustained profits.