Webjet’s B2B Opportunity

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Already bullish brokers gain further confidence from Webjet’s strategy update for WebBeds.

-Brokers buoyant on the outlook for Webjet
-More a B2B platform than online travel agency, says Jarden
-Management outlines clear targets for WebBeds
-Technology a key differentiator

By Mark Woodruff

Brokers came away from digital travel business Webjet’s ((WEB)) strategy day for WebBeds in March buoyed by the business-to-business (B2B) opportunity and long runway for growth.

Management provided detailed stepping stones to an explicit total transaction value (TTV) target of $10bn for the WebBeds division by FY30, which had analysts scrambling to raise 12-month target prices for Webjet.

Guidance for $4bn of B2B TTV in FY24, $5bn in FY25 and the $10bn by FY30, all exceeded Morgan Stanley’s expectations, implying an ongoing rebound in leisure travel and share, and a tailwind for near-term earnings. The $10bn target is two years earlier than Ord Minnett anticipated.

The company has two key business units: Business to Consumer (B2C), which consists of Webjet, Australia’s number one online travel agency (OTA), and GoSee, a consolidated marketplace for car and motorhome rentals in Australia and New Zealand; the B2B operation is called WebBeds, which Morgans notes is the world’s second largest and fastest-growing accommodation supplier to the travel industry.

WebBeds is a digital global travel marketplace which connects sellers (hotels) with buyers (travel businesses and then ultimately travellers). Major competitors in the B2B space include HotelBeds and Expedia.

Morgans attributes WebBeds success to scale of suppliers (circa 430,000 hotels across the world) and around 44,000 customers, and Shaw and Partners notes the division has consistently grown 20%-30% above market.

Webjet has only around 5.4% of the B2B market and 0.65% of the total accommodation market, points out UBS, and is well placed to continue gaining share in a fragmented market.

Jarden believes the Webjet business is wrongly viewed as an online travel agent rather than a high return on invested capital (ROIC) global B2B platform growing at a more than 30% compound annual growth rate (CAGR), with multiple opportunities to accelerate growth into FY25.

A far back as FY23 results in May last year (the company has a March year-end), Jarden assumed success for management’s less-detailed $10bn target for WebBeds, noting that if the division were to trade at an around -50% discount to global B2B platform peers, and the balance of Webjet’s operations traded in line with OTA peers, a share price north of $9.00 was on the cards.

The current share price is still trading at around $8.34, and this broker raised its target to $9.55 from $8.80 following the WebBeds strategy update based on near-term momentum, as management is on track for its $5bn of WebBeds TTV in FY25.

The analysts also highlighted the Americas region is performing strongly, with more than $900m of TTV opportunity in South America, while the US is benefitting from system consolidation. Suppliers are consolidating B2B operators, which is considered a positive for Webjet as it is a top five global player.

The company is targeting near-term growth in North America and Eastern Europe and broad-based growth across Asia, explained Wilsons. Management indicated China, India and South Korea should provide the largest contributions to growth, while South America largely remains a “post-FY25” opportunity.

Management is making significant investment into plans to lift conversion, which drove around 9% of the company’s 31% growth in the first half of FY24, noted Jarden.

Ord Minnett highlighted the importance of the return of outbound holiday demand by Australians to pre-covid levels. It’s felt the B2C division is being overlooked by the market given Webjet generates much higher returns from these bookings compared to domestic.

Technology

The company explained the FY30 TTV target is underpinned by the existing customer base growing in line with the market, new customer wins and improved conversion via technology.

A material opportunity exists via converting traffic into transactions through investment in technology, according to Citi.

Webjet has been a structural winner post-covid, explained Ord Minnett, due to a combination of this investment in technology, the inability of smaller players to compete and the growth in OTA’s/Super Apps buying through wholesale channels.

Shaw and Partners noted technology solutions like Roomdex differentiates Webjet from other bedbanks as the relationship with hotels becomes less transactional and more to do with business partnering.

The Outlook

Despite upcoming macroeconomic risks, Macquarie could see a further recovery in Australian international capacity, travel demand and activity levels, but downgraded its rating for Webjet to Neutral from Outperform on valuation after raising the target by 6% to $8.88.

For the nearer-term, Citi felt the current macroeconomic backdrop should continue to assist with hotel prices and nights per transaction both currently increasing simultaneously. While conversion of existing traffic should be a material contributor, it’s believed the main opportunity for new customer wins resides in both the US and the APAC region.

Morgans expects the next catalyst will be FY24 results on May 22 when management is expected to release its capital management policy given the currently strong balance sheet.

While domestic leisure demand appears to have emerged higher in the post-pandemic period, and Citi is yet to see any signs of softening, the broker remains cautious this demand may mean revert.

In the wake of the WebBeds strategy day, the average target price of seven covering brokers for Webjet in the FNArena database increased to $9.43 from $8.45, suggesting just over 13 % upside to the latest share price. There are five Buy (or equivalent) ratings and two Neutral ratings.

Outside of the database, where research is not updated daily, Wilsons and Jarden have Buy (or equivalent) ratings and an average target of $9.84.

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