Quantfury Gazette

Despegar.com (NYSE: DESP) takes off from the mess in Argentina

by
Pablo A. CONTRIBUTOR
despegar

Argentine President Javier Milei has had a tough couple of weeks as his economic plan known for its austerity falters, with shares in the country’s largest companies plummeting and the peso losing almost 20% of its value against the US dollar over the past month. Despegar.com (NYSE: DESP), a Buenos Aires-based travel agency whose name means “take off” in Spanish, has been doing just that, however, escaping the chaos at home and showing that businesses can still be successful in the South American country – if they avoid their own domestic market.

Despegar.com has found success by focusing on Brazil and Mexico, which accounted for 66% of transactions in the first quarter of the year compared to 62% in the same period last year. That’s given the company some cover from the mess back in Argentina. 

“We’re growing much more rapidly than our competitors,” CEO Damian Scokin said in a recent earnings call, noting that the company is also exploring partnerships outside of Latin America. “We can be 10 times larger and still have ample room for growth.”

That’s the kind of potential that investors tend to appreciate, and the company’s shares have surged 20% over the past month. That comes as some of the biggest Argentine stocks have seen massive declines over the same period, with Central Puerto crashing 10% (NYSE: CEPU), YPF SA (NYSE: YPF) falling 9% and Telecom Argentina (NYSE: TEO) diving 21%. MercadoLibre (NASDAQ: MELI), an Argentine e-commerce giant with operations across Latin America, fell 5%.

The past several weeks have likely been the worst financial period for Milei’s government since he took office last year amid rising concerns about his ability to maintain a zero-deficit policy. The shift is partly due to a substantial legislative package that remains stalled in Congress, where the ruling party holds a notable minority, making Milei the first Argentine president to have no laws approved in the first six months of a new presidential term. To add to the challenges, a recently passed bill in Congress by the opposition seeks to increase government pensions above inflation, posing a severe risk to the country’s balance sheet. Although Milei has stated he will veto any law that endangers a fiscal surplus, the situation creates uncertainty and potential governance issues.

While Despegar.com is emerging as a bright spot in a country full of turmoil, it’s probably not an example that Milei would be keen to highlight. The company has only been able to prosper because of its ability to do business outside of Argentina, where massive economic imbalances and contentious politics are likely to keep local markets trembling. 

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