Royal Caribbean (RCLUS) stock has shown major growth this year by market cap and enterprise value, despite being just the second-largest cruise line by revenue and passenger volume.
The company has positioned itself as a key player in the cruising industry, demonstrating notable resilience and growth amid a recovering global tourism landscape.
With recent developments indicating a robust demand for its services, Royal Caribbean’s financial performance has captured the attention of investors and analysts alike. However, while the company’s earnings figures and forecasts show promise, recent market reactions also highlight critical concerns about operational costs and future profitability.
Q3 Earnings
During the third quarter of 2024, the company reported an adjusted EPS of $5.20, beating forecast of $5.05. In the prior year’s quarter, RCL reported an adjusted EPS of $3.85.
Quarterly revenues of $4.88 billion outpaced the consensus mark of $4.86 billion. In the prior-year quarter, RCL reported revenues of $4.16 billion. A rise in close-in demand (at higher prices) and continued strength in onboard revenues added to the positives.
In Q3 2024, Royal Caribbean reported $3.47 billion in passenger ticket revenues, surpassing estimates of $3.3 billion, and $1.41 billion in onboard and other revenues, slightly exceeding expectations. Total cruise operating expenses rose 11.9% year-over-year to $2.39 billion, above the $2.29 billion estimate. Net yields increased 7.9% year-over-year, while net cruise costs (excluding fuel) rose 4%.
In the fourth-quarter 2024, RCL expects depreciation and amortization expenses of $410-$420 million. Net interest expenses are projected between $250 million and $260 million. Management estimates adjusted EPS of $1.40-$1.45.
Recent Highlights
Royal Caribbean Group is set to launch the *Star of the Seas* in August 2025, a mega-ship featuring record-breaking waterslides, seven pools, and a large waterpark. This addition reflects the company’s focus on innovation and enhancing the cruise experience with state-of-the-art amenities.
Risks
Royal Caribbean faces risks from external factors like rising fuel costs, regulatory changes, and geopolitical events, which could increase operational expenses. If the company cannot pass these costs on to consumers without reducing demand, it could weaken its pricing power and profit margins.
Maintaining strong pricing power and favorable yield-to-cost spreads is vital for its financial health.
The cruise industry is highly sensitive to economic fluctuations, and a global downturn could lead to reduced discretionary spending on travel. This could result in fewer bookings, pressure on ticket prices, and the need for discounts to maintain occupancy.
Economic instability could also affect Royal Caribbean’s capacity growth, potentially resulting in excess capacity that harms profitability.
Increased competition from other cruise lines or vacation alternatives may also challenge Royal Caribbean’s ability to maintain its pricing strategy. If competitors expand their fleets or offer significant discounts, the company could face pressure to lower its prices.
These external factors, combined with rising costs, could undermine Royal Caribbean’s pricing power, requiring careful management to navigate these risks.
Technical Analysis
Source: TradingView
RCLUS is trading at its all-time highs with a strong bullish trend established. If the stock continues this trend, traders will be watching potential resistance around $260.
The RSI shows that the stock has been trading in overbought territory for a while with possibilities of formation of bearish divergences that could change the trend.
Price might continue to trend upwards and may form resistance around $260.
If the price couldn’t hold on to its gains, it might pull back to the pivot point around $230 which may act as support.
