Disclaimer: This is not investment advice but my personal (and often unqualified) opinion. PLEASE DO YOUR OWN RESEARCH !!!
Background & Intro
Long term readers of my blog might remember a certain obsession with travel companies over the past few years. Among other posts, the main analysis were these ones:
Part 1 – Lastminute.com
Part 2 – Expedia
Part 3 – Trivago
Part 4 – Flight Centre – book review
Part 5 – Flight Centre
Part 6 – Tripadvisor
Part 7 – Tripadvisor (cont)
Part 8 – GDS (Sabre, Amadeus etc.)
Part 9 – Expedia (cont)
Part 10 – AirBnB
With the exception of a short, mildly successful (and very lucky) speculation in Expedia, I found the sector as “too hard” for me to invest as too many things were moving at the same time:
The more I look into those companies, the more difficult the sector seems to become. There is a lot of fundamental change going on, Which on the one side is good for agile players but on the other hand makes it very difficult to predict anything and extrapolate trends from the past.
As a Value Investor, unpredictable fast-moving industry changes are difficult. In order to invest in such a sector, there should either be a significant moat and/or fantastic management or a very cheap valuation.
So why now looking again at a travel company ? To be honest, I was motivated by a comment from “Celebrity investor” Philipp “Pip” Kloeckner in my Twitter feed as I introduced HomeToGo as a part of my “Bumsbuden Wikifolio” where I collect German shares that I think are staying away from makes a lot of sense.
Pip commented that he has a very different opinion, which is not surprising, as he is sitting on the Supervisory board and seem to hold around 100k shares that he received for consulting in the early days of the company.
Long term readers know that I have covered the (online) travel industry intensively and that I actually have build up a “post pandemic travel basket” recently. Therefore, I was really excited to look at AirBnB’s S-1 going public filing.
Airbnb is one of the most prominent Unicorns of the last decade. The company was founded in 2007 and has since then become one of the really big names in online travel. It describes itself as having established a new category of travel called “home sharing” and that all the hosts on the platform as well as the clients are a big “community” that make travel “Human”.
However the big “elephant in the room” is the question: Why do they go public now after 13 years ? Why didn’t they go public earlier or wait a few more months once the travel recovery really kicks in ?
There was already a lot of press coverage already for Airbnb in the past weeks. I think in general one could distinguish between the Bull Case and the Bear Case:
The Bull case :
- It’s a “positive” global brand with strong growth potential and a huge TAM (all travel lodging globally )
- People will rent apartments first if travel rebounds
- Restrictions maybe less a problem in cities after Covid-19
One of the biggest cheerleaders of the Bull case is clearly Prof. Scott Galloway who wrote a big post some days ago, putting the value of AirBnB at 120 bn USD with the following statement:
My long term readers know that I did a lot of research on travel stocks in the past, however with little result other than a only slightly profitable investment into Expedia.
With the current situation, I decided to have a quick look at the travel sector again.
Up until now, the tourism industry has been seen as a secular growth industry, mainly due to 2 mega trends: Emerging market middle class tourists and older, more wealthy first world tourists were driving tourist numbers and subsectors such as cruises or AirBnB rooms. Just last year, “overtourism” became a major trend in social media, I guess this problem will not be a big issue in 2020.
I invested into Expedia in February 2018 after the stock had become cheap enough. The idea was that a stock in a secular growth sector (online travel) should do well in the long run. After pretty decent fulll year 2018 numbers, with double digit increases in both, top and bottom, line, the first quarter 2019 showed a clear slowdown. Topline growth slowed to ~4%. Excluding Trivago which is still shrinking, topline sales would have grown +6%. Underlying profitability has improved although the first quarter is always the weakest one.
What I found interesting is the fact that Expedia performed better than Booking com. Here is a stock price comparison (including Tripadvisor and Trivago):
Saga Plc is a UK company that combines two business that I have looked at quite often: Insurance and Travel.
Saga has its origin as a Seaside Hotel in England and then became a travel company before then moving into insurance in the 1980s. Saga caters specifically for the “over 50” market and claims to be the “leading provider” to people over 50 in the uK.
After a PE financed management buyout in 2007, he company was IPOed in May 2014 at a price of 185 pence / share.
Looking at the stock chart, IPO investors at first saw a decent outperformance before things went south this year:
Disclaimer: This is not investment advise !!! Do your own research !!!!
The guy who wrote this post just lost a lot of money with his Silver Chef position. You might even consider shorting his recommendations 😉
When I looked at Expedia almost exactly one year ago as part of my 2017 Travel Series my key take negative aways were as follows:
– CEO has super high salary (90 mn USD in 2015)
– top line growth, operating profit stagnant
– expensive acquisitions in 2015/2016, number of shares and debt increased significantly
– reported growth numbers not adjusted for acquisitions in investor presentation
– lots of share options
Additionally, the stock looked expensive:
At 119 USD per share, Bloomberg tells me that they have a trailing P/E of 54, an expected 2017 P/E of 22,3 and an EV/EBITDA of ~16. This means that a lot of growth is already priced in.
As we can see in the chart, the stock became at first even more expensive before dropping back to a level of around 100 USD / share:
Time to do another “travel series” post after the last Tripadvisor post a few months ago.
GDS – The business
The so-called “GDS” (short form of Global Distribution System) is one of the oldest “platform business” I know about.
Basically (and as far as I understand it), it is a real-time repository of available airplane seats, hotel rooms and rental cars from different suppliers (airlines, Hotels etc.). This repository can then be accessed by travel agents, OTAs etc. in order to book these offers for their ultimate clients. The GDS charge money both for access to the system and transactions. The added value comes clearly from the fact that they act as a single interface to many different back-end systems on the supplier side.
This is the follow-up post on the intitial Tripadvisor post from last week.
So where is the upside ?
After “bashing” them in the first post, the question is: Is there an upside and if yes where ?
CEO & Capital management
With Steve Kaufer, the CEO, one of the founders is still on board. His salary is rather modest but he got plenty of options awarded in the previous years. According to Bloomberg, he received option in the original value of ~33 mn USD in 2014 to 2016. He owns shares in an amount of 17 mn USD, which is not huge but still not insignificant.
In his 2016 letter to the shareholders he writes the following:
So this is part 6 of my little travel series. Previous posts were:
Part 1 – lastminute.com
Part 2 – Expedia
Part 3 – Trivago
Part 4 & 5 – Flight Centre
Tripadvisor is clearly one of the most well-known names in Online Travel. The company was founded in 2000, but was then acquired by Interactive Group in 2004 and rolled into Expedia. In 2011 the company then was spun out and listed separately. Similar to Expedia in true John Malone style, there are two entities listed: Tripadvisor and Liberty Tripadvisor.
This is part 2 of the Flight Centre analysis after the book review last week.
The “old” business model
The Australian based company is a classic “travel agency”, both, running physical agencies as well as offering airline tickets and tours over web sites.
A traditional travel agency usually works like this: They offer flights from preferred airline partners and hotels or packages also mostly from certain partner companies. Traditionally you would go into a travel agency and ask if they can recommend you a destination, then you would be offered some colorful catalogues where they list the offered hotels (with prices mostly depending on the official “star system”) and then gladly sell you the “Bundle”.