Today, we will look at why we like Webjet shares (ASX WEB).
Webjet is a market-leading digital travel business that is rapidly expanding from the B2C to the B2B market.
With recent acquisitions, Webjet’s B2B business is now the No.2 global player in the market.
Webjet has experienced strong year on year growth and continues to grow its dividend payout.
We think Webjet has a strong, globally diversified business with a lot of future upside and earning potential.
Founded in 1998, Webjet Limited (ASX WEB) is a digital travel business consisting of B2C businesses (Webjet Online Travel Agency and Online Republic) and a B2B business (WebBeds).
Webjet leads the way in online travel agencies in Australia and New Zealand while Online Republic provides booking services in the online cruise, rental car, and motorhome markets.
Moreover, WebBeds is No.2 in the global B2B market – an attractive growth business that is a bridge between hotels and customers worldwide. This business of Webjet Limited delivered record profit (48% growth in EBITDA) since the launch of WebBeds in 2013.
The company applies different strategies to its various businesses. Its brand focuses on delivering value to customers, airlines, and partners, managing cost, and gaining market share through technical improvements.
Note that there is slower growth in domestic flight bookings and the highly competitive international flight bookings.
The strategy of Online Republic is to create a scalable global business by concentrating on profitable bookings growth with increased margins and lower acquisition costs. It recently appointed a new CEO, Lindsay Cowley, to take this strategy forward.
Meanwhile, WebBeds use a multi-supply aggregation strategy that combines directly contracted, 3rd party inventory, and global hotel chains to win market share in the B2B travel market.
The online travel market is soaring with the development of the e-commerce industry and advanced technologies. The global online travel market is likely to grow from US$570 billion in 2017 to US$1,134 billion by 2023.
The Asia-Pacific region, including Australia, India, and China, accounts for over 26% of this market. Due to the fast growth in population in the Asia-Pacific, travel and travel-related revenues in this industry will grow apace in the coming years.
However, this is a highly competitive industry with global brand players, such as Booking Holdings and Expedia, present in the Australian and New Zealand markets.
On the other hand, the wholesale travel industry (B2B market) is a highly fragmented global market with very few global players. Each of these players has a relatively small market share.
The acquisition of JacTravel and DOTW in 2017 and 2018 respectively enabled WebBed to increase its scale and consolidate its position as the No.2 global player in this market.
The use of advanced technology, such as RezChain, its blockchain-based accounts reconciliation solution, enables WebJet to correct and reconcile erroneous data and mitigate losses.
Therefore, WebBeds has a significant opportunity to gain market share and increase the revenue of Webjet Limited.
Financial Performance and Peer Comparison
Source: Webjet Limited 2019 Annual Report (Note: Continuing operations – 2019 excludes acquisition costs of $6.2M and debt establishment costs of $0.5M associated with DOTW acquisition. 2018 excludes acquisition costs of $1.0 M debt establishment costs of $0.5M associated with JacTravel acquisition.)
The overall financial performance, such as EBITDA, dividends, and EPS, of Webjet Limited, has steadily grown over the last three years.
The financial performance of Webjet Limited comprises the three businesses of Webjet.com.au, Online Republic, and WebBeds.
According to the above chart, WebBeds contributed the most significant EBITDA growth of around 136%, while Webjet.com.au and Online Republic delivered 11% and 14%, respectively.
The loss in corporate division includes foreign exchange losses, investment in growing global businesses, and other corporate overheads.
WebBeds categorizes its market segments as Europe, Asia Pacific, and AMEA (America, Middle East, & Africa).
Growth in bookings in these territories in 2019 was 26%, 111%, and 67%, respectively.
Moreover, WebBeds has:
- 30% market share in Europe
- 17% in the Asia Pacific
- 36% in MEA (the Middle East & Africa)
- 19% in the Americas.
Asia Pacific is the fastest growing B2B region in the world. The DOTW acquisition will help WebBeds gain scale in this important market.
A comparison of financial performance with Australian competitor Flight Centre Limited (ASX FLT) shows WebJet is superior across all metrics.
This outperformance is because the B2B business of Webjet Limited is far more profitable than that of Flight Centre Limited even though the B2C businesses of Flight Centre have more travel products, such as global SIMs, foreign currency, and airlines.
|YoY Growth||Webjet Limited (ASX WEB)||Flight Centre Limited (ASX FLT)|
Strengths and Opportunities
Webjet’sB2C businesses have several ongoing product improvements in the pipeline. A technology innovation, Rezpayments, was introduced to provide a flexible and cost-effective way to comply with the PCI data security standards.
Additionally, dynamic packages and the inclusion of PayPal in mobile apps enhanced the user experience and simplified the checkout experience.
Increasing their entire product range and introducing advanced technologies should help these businesses gain more market share and deliver exceptional customer service.
Furthermore, WebBed’s Umrah Holidays International is the first truly online B2B provider of travel services for religious pilgrims.
This program provides online packages, stand-alone accommodation, and services for both individual travellers and groups, which leverage the global distribution network and the partnerships with hotels in the Kingdom of Saudi Arabia.
This business would help WebBeds scale up user growth and revenues.
Even though highly competitive, Webjet has still been able to grow Webjet OTA and Online Republic.
However, the strongest growth comes from its B2B businesses, which is bringing in significant profits.
Although Thomas Cook’s collapse and a recent share price decline adversely affected the stock price of Webjet Limited in the medium term, we think this is just a short term blip.
Over time, the Webjet share price has strong upside potential as they have a proven business that has grown successfully in a competitive environment.
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This is general advice only. MF & Co Asset Management has not considered your personal financial needs, objectives or current situation. This information is not an offer, solicitation, or a recommendation for any financial product unless expressly stated. You should seek professional investment advice before making any investment decision.