Is This Hot IPO the Next Carnival?

Viking quietly raids the market this month. You should be paying attention.

The inviting market waters greeted a new cruise line operator earlier this month. Viking (VIK 1.55%) completed its initial public offering (IPO) on May 1, pricing a little more than 64 million shares in the offering at $24 apiece. Most of the stock belonged to existing stakeholders. Viking itself received the proceeds for just 11 million freshly minted shares.

The timing of Viking’s arrival as a publicly traded company is solid. Leading cruise line Carnival Corp. (CCL 1.76%) has seen its stock nearly double since the start of last year, and its peers are also trouncing the market.

Viking’s first few weeks on the market have been a success. The river cruise specialist has traded as low as $25.71, hitting a high of $30.23 on Wednesday. Avoiding the obstacle of being a broken IPO out of the dock is a good start, but let’s go from potholes to portholes and take a look at why more investors should be paying attention to Viking.

It’s a different kind of regatta

Viking’s $4.7 billion in revenue last year is well shy of Carnival’s $21.6 billion haul, but it’s not fair to just lump the stock exchange debutante with the three larger publicly traded cruise line operators. It may take passengers on waterway vacations, but it’s a different product with a different target audience.

Let’s start with the fleet. Carnival ships tend to entertain thousands of seafarers, with its largest vessels having room for more than 5,000 passengers. Viking operates a whopping 92 ships and counting, but they are much smaller in size. Its flagship business of river cruises — accounting for 80 of its 92 vessels — operates a fleet of small ships that take on no more than 190 passengers.

Carnival’s gargantuan ocean liners can’t navigate the rivers of the world that Viking covers. Just eight of Viking’s ships are of the larger ocean variety, but even there, passenger capacity is fewer than 1,000.

With a more nimble fleet, Viking’s itinerary is very different. Just 4% of its watery escapes tackle the Caribbean, the beach-happy region that accounts for two-thirds of the three largest cruise line operators’ sailings. Viking’s more than happy to lean on European rivers for 60% of its excursions.

There’s no denying that Carnival and its more traditional rivals like big boats, and they cannot lie. In a push to skew younger and more mass market, the titans of cruising have added rock walls, water slides, and enough attractions to draw in families with active kids to its higher-capacity ships.

Viking is unapologetic about aiming for the more traditional target audience of guests 55 or older who have the financial independence to spend lavishly on more intimate sea adventures year-round. Viking’s total revenue per passenger was $7,251 last year, more than four times what Carnival is generating.

A couple holding hands on a ship with tropical drinks between them.

Image source: Getty Images.

A rising tide lifts all ships

Viking is similar to the larger cruise ship operators in some good ways that investors are more familiar with. Like Carnival, Viking also shattered pre-pandemic records across many important metrics last year. As a result of adding ships and passengers willing to pay more, Viking’s revenue is 47% higher now than in 2019. This is a lot better than Carnival’s 4% top-line increase in four years.

Viking’s net operating income is 44% higher than in 2019. Its adjusted free cash flow topped $1 billion for the time last year, 13% greater than where it landed four years ago. Return on invested capital has risen from 26.1% to 27.5%.

Rudder-kicking investors will be quick to note that Viking posted a large loss in 2023, but that was the result of a one-time non-cash hit on private placement derivatives. Viking’s business is improving, and investors will likely get to see that firsthand next week when it reports its first quarterly results as a public company.

There’s a new way to invest in cruise line stocks, and the debutante provides a differentiated niche leader that’s outpacing the long-term growth of the market’s more established players.

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