Is Webjet a Good Buy Now? | ASX: WEB

Today is a stock breakdown/analysis video I wanted to touch base on one of the bigges travel stocks in Australia and New Zealand.

That is Webjet (ASX: WEB) who is the leader for travel bookings in both Australia and New Zealand.

Business Model
So it seems like the company has two clear business models in it’s BIZ2BIZ in webbeds, which is a accomodation supplier to the wholesale travel industry and it’s BIZ2Consumer in the travel sector which we just looked at in WebJet that provides flights, accomodation and car rentals. Which now to think of it I remember seeing all these Webjet ads when I was younger, not sure if any of you remember it… (insert Webjet ad last part).

So now we kinda understand their main businesses, let’s have a look at the operations overview

Their first metric is Total Transactional Value and this is common for travel companies and is used to indicate how much business they are transacting, which might indicate a couple of things, we could draw that because that transactions have gone up that there are more users or that because the TTV has gone up revenue naturally does so accordingly assuming the commission you make per sale is the same.

In the case of Webjet there seems to be a correlation because we can see their revenue up 26%, which is close to their 27% up in their TTV. This is a good sign of growth and it seems like 10% of their TTV forms part of their revenue, which is done so with a relatively healthy margin of profit of 33.6%.

Overall though their net profits is at $60m with an earnings per share of 47c, which btw that’s not going to be the case in 2020 I can tells yah that, but we’ll touch on that later on.

So the overview is nice, but I want to see which portion of the company makes what and the reasons the company has put forth for such cases. So looking at WebBeds performance it seems like it’s putting the whole of Webjet on it’s back and carrying them in transactions and revenue forming about 50% of the company’s entire revenue and 56% of their TTV.

Btw this is very impressive for a brand that has just started 6 years ago to be able to get to 67M EBITDA is incredible. So just to describe briefly how WebBeds works, it basically acts as a middleman between hotels with empty rooms that need fulfilling and interacts with its clients (travel agencies) which includes wholesalers, retail agents, online travel agencies and tour operators.
SO basically the drop shipping of hotel rooms :)

WebBeds has been rather successful at this because they’ve made acquisitions throughout the year of other hotel providers and with those acquisitions come with partnerships and connections in regions those providers are domiciled in. Most of their contracted hotels are from their acquisitions because only 30k of their 350k hotels is contracted directly through WebBeds, the others are from their acquisitions. So these purchases of the competing brands are so important to establish market dominance, which they have as being the 2nd largest provider.

Okay so enough of WebBeds, it seems like the rest of the revenue comes from Webjet and Online Republic $72.5M. Now although it seems good because it’s a healthy number, it is a weakening market for Webjet and honestly I don’t know anyone that uses Webjet. The other issue in this space is that people are expecting cheaper flights, I don’t know many people who are willing to pay more for an experience and would rather paying more for a flight.

Now whilst I think this is good to keep the company safe for the remainder of 2020, I question whether it can sustain it’s dividends. It’ll most likely slash that because issuing more shares and maintaining dividends would be pushing a Boulder uphill and would create some more money leaks now they have to pay out more shareholders. I also don’t foresee their shares going up to all time highs for years to come.


Overall thoughts
My overall thoughts are I think the business will do well and if it continues to expand in the WebBeds space, it’ll do very well. With a share dilution it’s hard for me to buy in, but we can see that with good businesses such as QANTAS, COCHLEAR and now Webjet securing debt or capital their shares seem to rally up which shows that there’s more demand for a good business than there is of supply for that stock.

I think Webjet will do well, however am sceptical for their growth in the OTA space because I personally don’t use the service so in a space where margins are getting slashed because people are expecting cheaper flights; it’ll become more difficult for Webjet to compete and grew it’s revenue. But it has deferred dividends already and I believe it might not be paid out. A nugget of gold for anyone who has stuck around Let me know if you’re investing in Webjet below, could be a great swing trade in the near future.

Видео Is Webjet a Good Buy Now? | ASX: WEB канала Lee Vo - Financial Zero to Hero