Experience Co. (ASX: EXP) is a tourism business that offers leisure activities such as skydiving, tree top adventures, trips through the rainforest, and boat tours to the Great Barrier Reef.
Experience Co. operates largely in Australia, with two skydiving operations in popular tourist destinations Queenstown and Wanaka, New Zealand.
It has been a tough time for Experience Co. (ASX: EXP) since Covid-19 lockdowns and travel restrictions. Visitors are returning to Australia, but numbers are still not quite back to pre-Covid levels. Revenue has been increasing since Covid-19 lockdowns finished, but this has been hampered by a sluggish economy, and some challenging weather in FY2024.
Despite the revenue recovery, Experience Co. (ASX: EXP) has remained unprofitable since Covid-19 and investors appear to be losing patience, with the share price trending down in recent years to now sit around 12 cents with a $98 million market cap.
Tourism is a tough business
Travel and leisure activities are consumer discretionary services, so Experience Co. (ASX: EXP) will do better when the economy is expanding, and consumers have more money to spend on luxury items and travel. On the other hand, when the economy is contracting, consumers usually tighten their belts and don’t spend on things that are not essential.
Experience Co. is competing with a broad range of leisure activities and attractions, and once most people have skydived or done the tree top adventure, they are not likely to keep doing it on a regular basis. As successful investor Peter Lynch stated; it is a good idea to invest in things that people need to keep buying, like razors or toothpaste.
Skydiving made up 37% of the group’s revenue over Q1 FY25, and as you can see from the below chart over recent years Experience Co. has diversified away from skydiving. In fact, two underperforming Skydive Australia sites were put under ‘care and maintenance’ in mid-September.
I think this is a good thing due to skydiving’s reliance on good weather and the expense and risks of owning planes. I also think attractions such as the tree top adventures which are being rolled out are more likely to attract domestic customers with families.
When I skydived in Byron Bay, we were first told we had to wait around until the wind died down. Alas, it did not die down, and the dive was postponed until the next day. Many tourists are just passing through, so may not be able to come back the next day, meaning the skydive operator misses out.
While the New Zealand skydiving segment only makes up 33% of total skydiving passengers, Queenstown and Wanaka have great scenery for skydiving and are popular tourist destinations. I was talking to a fellow I know who works at Experience Co.’s Skydive Wanaka who said jump numbers have been increasing lately. So even if it is hardly the perfect passtime, there is clearly sustainable demand for sky diving experiences.
Global warming to affect Experience Co. (ASX: EXP)
Global warming is causing more frequent erratic weather, which leads to wildfires and increased rainfall and flooding. For example, 2019 was Australia’s hottest year on record, and 8 of the 9 hottest years ever recorded in Australia, have occurred since 2013.
Sea temperatures are rising around Australia which not only impacts coral and sea life on the Great Barrier Reef where Experience Co. operates, but also contributes to more heavy rainfalls, as there is more evaporation, and the atmosphere can hold more moisture at higher temperatures.
One example of how weather can disrupt Experience Co was Cyclone Jasper in December 2013, which disrupted Far North Queensland operations for Experience Co.
From the below chart you can see temperatures rising rapidly along the East Coast, where Experience Co. has most of its operations.
Moving to aviation, in October 2023 there was an incident with a Cessna plane that had to make an emergency landing with eleven passengers taken to hospital for observation. Aviation investigations often take a long time to complete and there have been no further updates on the incident since then.
I am always mindful of the Ardent Leisure incident back in 2016, when four people died horrifically in a water park ride. This saw the Ardent Leisure share price tumble and it eventually delisted. People remember these things, and unfortunate skydiving accidents have impacted the company in the past.
Experience Co. (ASX: EXP) is dependent on visitor numbers
Experience Co’s revenue is dependent on tourist numbers in Australia. NZ presently accounts for the largest visitor numbers to Australia, followed by China and the UK. China was later in opening its borders after Covid, and recovery of Chinese visitors into Australia has been slow. It is quite possible Covid and the increase in travel costs may have changed travel habits for many, encouraging them to explore areas closer to home.
While investors may argue that a new viral pandemic is a fairly uncommon event, it does show that Experience Co. (ASX: EXP) is reliant on international visitors. The below chart shows visitor numbers are still below pre-Covid levels.
Tourist numbers in Australia (millions)
Experience Co Revenu
Over FY2024 revenue was up 17% to $127 million. It was split fairly evenly between Skydiving – contributing $62.1 million, and Adventure Experiences contributing $65 million. Revenue was impacted by Tropical Cyclone Jasper and other adverse weather events during the fourth quarter, affecting Treetops Adventure and Skydiving in Australia.
The $70,000 loss for the 2024 financial year was an improvement on a loss of $540k in FY 2023.
Free Cash Flow came in at $3.5 million, up from negative $3 million in FY23, as operating cash flow was higher in FY24 and spending on property, plant and equipment was higher than normal in FY23, due to two treetop adventure sites opening and Experience Co. acquiring the Australian Jump Pilot Academy.
Net debt of $8.9 million on 30 June 2024, increased 31% over the financial year as Experience Co. rolled out new treetop adventure locations. The debt-to-equity ratio of 27.6%. This may increase in the future with the rollout of more locations for tree-top adventures or other attractions.
In FY23 revenue almost doubled, increasing 95% as the benefits of diversifying away from skydiving became evident with the adventure experiences segment performing strongly due to its higher weighting to the domestic market, which for the first financial year since FY19 was not impacted by Covid-19 restrictions. International visitors (see previous chart) increased later in the financial year, which helped the skydiving segment.
Due to the current uncertain macroeconomic environment Experience Co. has not yet provided guidance for FY25.
Experience Co. Social Media Marketing Fail
The Experience Co. Facebook and Instagram page have only 991 and 2340 followers respectively, and I would have thought for a company that would have plenty of pictures from their adventures to showcase, they would have had more followers. On the LinkedIn page however, they are advertising for a social media person for TikTok and Facebook etc. so maybe Experience Co. is looking to up its social media game!
Is Experience Co Stock Cheap?
Revenue has steadily grown since Covid, but growth has been slower than expected. Experience Co. is still unprofitable and while it should get back to profitability if revenue keeps rising there are many unpredictable factors at present such as international visitor numbers, current slow economic growth, and more erratic weather.
Investors appear to be losing patience with the lack of profit, and no dividend has been paid since 2018, as the share price trends steadily downwards. Liquidity is low, so investors wanting to buy large amounts may not get the prices they want, and may have trouble exiting.
There are four ‘strong buy’ recommendations from brokers on share investing platform Commsec. This is not something I pay close attention to though, as stockbrokers often recommend stocks that may need to raise capital in future so they are kept in line for any future capital raisings.
Richmond Hill fund manager and Non-Executive Director Alex White bought $1,828,717 worth of shares on-market over the last year, giving Richmond Hill a total of 112,181,229 shares. Coincidently Alex White is also on the board of Coventry Group (ASX: CYG), which was the previous Mailbag Article I recently covered and was not keen on either. Richmond Hill does not have its performance on the website.
Director and Non-Executive Director Anthony Boucaut sold $73,623 worth of shares in April, but still holds a sizable 175,181,212 shares. Four other directors own decent amounts of shares, and the other two own none.
Positively for Experience Co. is the fact that people are becoming wealthier and technological advances mean more leisure time. Places that are further away like NZ and Australia will become more accessible to the rest of the world as travel should become more advanced and cheaper. But again, there are plenty of leisure activities around the world to choose from.
While the strategy of diversifying away from skydiving seems to be working and travel numbers and revenues are increasing, a return to profitability is gradual.
It appears Experience Co. will either keep growing revenue with increasing overseas visitors and probably gradually get back to profitability at some stage, or get taken over – Experience Co. believes its shares are undervalued. In April Experience Co. hired a corporate advisory firm to conduct a strategic review to ‘unlock shareholder value,’ with a possible change of control, having had interest from other parties. Director Anthony Boucaut and Alex White, Experience Co.’s largest shareholders support the review. Alex White of Richmond Hill has been on the board of two previous ASX small caps that were taken over.
I think there are too many factors hampering a return to profitability. Tourism is not a very scalable or niche industry that is likely to provide asymmetric returns. With lack of liquidity, a slow return of international visitors and macroeconomic uncertainty, I think investor funds would be better deployed in ASX small caps with tailwinds, earnings and dividend growth over the long term.
Given it lacks these characteristics, I do not find Experience Co stock compelling.
Disclosure: Neither the author of this article nor the editor of this article own shares in EXP, and neither will trade EXP shares for at least 48 hours following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).