Monetizable Social Features And Budget Rollout Will Drive Global Expansion

Key Takeaways

• New social network features, expanded inventory, and digital tools are expected to boost growth by attracting younger travelers and increasing margin efficiency.
  
• Investments into AI, emerging markets, and sustainability alignments are set to enhance global reach, brand distinctiveness, and revenue resilience.
  
• Intensifying margin pressure from bed price deflation, high marketing costs, and reliance on low-cost Asian markets weakens profitability and increases risk to sustainable revenue growth.

Catalysts

Operates as an online travel agent focused on the hostel market in Europe, the United States of America, Asia, Africa, and Oceania.

• The company is about to launch its first monetizable social network feature and a global rollout of budget accommodation inventory, both targeting a rapidly expanding Gen Z and millennial traveler base that increasingly prefers experiential and budget travel, positioning Hostelworld for expanded user acquisition and higher future booking volumes (likely to accelerate revenue growth and improve earnings quality).
  
• Rising digital adoption and shift toward mobile-first bookings is reflected in Hostelworld's strong app booking growth (+11% YoY, now representing ~50% of bookings), driven by growing adoption and engagement with the proprietary in-app social network, likely causing sustained reductions in customer acquisition costs and providing long-term support for net margin expansion.
  
• The company's new Elevate marketplace monetization tool has already driven a higher blended commission rate (15.2% to 15.8%), and is projected to move toward 16% by 2027 due to stronger than expected hostel partner adoption; this is expected to structurally improve take rates and underpin medium-term margin improvement.
  
• Strategic investments and optimization of the digital platform, including AI-enabled features and expanded local presence in Asia and Latin America, position the company to capture a larger share of the growing emerging market middle-class traveler segment, which should support future topline growth and geographic diversification of revenue.
  
• Industry trends toward social/shared accommodation and sustainability align with Hostelworld's core business model and ESG initiatives (e.g., sustainability badge adoption), supporting brand differentiation and long-term defensibility, which may lead to higher repeat usage and greater pricing power, contributing positively to future revenue and earnings resilience.

Hostelworld Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hostelworld Group's revenue will grow by 11.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.3% today to 14.0% in 3 years time.
• Analysts expect earnings to reach €17.7 million (and earnings per share of €0.13) by about August 2028, up from €7.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, down from 21.6x today. This future PE is greater than the current PE for the GB Hospitality industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 2.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.54%, as per the Simply Wall St company report.

Hostelworld Group Future Earnings Per Share Growth

Risks

• The company continues to experience notable headwinds from bed price deflation in most regions (apart from Asia), which has directly pressured average booking values (ABV) and revenues; this trend, if persistent, could negatively impact long-term revenue growth and earnings.
  
• Hostelworld's revenue mix demonstrates increasing dependence on low-cost Asian destinations, making it vulnerable to further regional demand shifts, currency risks (notably weaker USD), or macroeconomic disruptions, heightening overall revenue volatility.
  
• Sustained high marketing costs-evident in Q1's spike (marketing at 51% of net revenue) and guidance only reducing to mid/high end of the 45–50% range-suggest structural difficulty in lowering customer acquisition costs, constraining both net margin improvement and long-term profitability.
  
• Platform reliance on third-party hostel supply, combined with ongoing investment in expanding inventory (headcount, tech, B2B marketing), leaves Hostelworld exposed to competitive disintermediation if hostels deepen ties with larger OTAs or shift toward direct bookings, threatening margin compression and revenue stability.
  
• Despite social platform engagement gains, direct monetization of the social network and launch of new budget accommodation features are still unproven; delays or underperformance of these initiatives could limit diversification and cap upside in ancillary revenues, restricting future earnings growth.

Valuation

• The analysts have a consensus price target of £1.901 for Hostelworld Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.36, and the most bearish reporting a price target of just £1.31.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €126.8 million, earnings will come to €17.7 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of £1.18, the analyst price target of £1.9 is 38.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.