Is SiteMinder’s Re-Rating Just A Matter of Time?

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Despite a first-half revenue miss by SiteMinder, analysts anticipate a boost from new products and maintain faith in the company’s longer-term strategy.

-SiteMinder’s interim revenue disappoints, shares get punished
-Incentives cause a subscription slowdown
-Management expects a revenue boost from new products
-Buy ratings dominate, though re-rating might require time

By Mark Woodruff

While trust needs to be re-established after interim financials for global hotel software provider SiteMinder ((SDR)) missed consensus expectations for the second consecutive result, analysts still expect organic growth to accelerate in the second half of FY25 into FY26 and remain supportive of the longer-term strategy.

A better-than-expected gross margin and cost control didn’t make up for a disappointing first half revenue ‘miss’ and the business slipping back into cash burn. But Ord Minnett’s conviction remains as strong as before: the post-result weakness in the share price, now down by around -24% after six business days, presents a buying opportunity.

Management re-iterated guidance for organic revenue growth of 30% over the medium-term and analysts point towards new SiteMinder products coming to market.

Operating in around 150 countries, SiteMinder has key products in the channel management category and through its all-in-one Little Hotelier product offering.

Targeting accommodation providers of all types and sizes to manage every stage of their customers’ journeys, SiteMinder’s hotel commerce platform encompasses solutions around direct and third-party distribution, website design and creation, analytics and market insights, property management, and payments.

Citing the company’s recent traction with larger hotels, which implies significant scope for growth, Morgan Stanley remains upbeat.

Investment in short-dated incentives was responsible for this traction but caused short-term pain in the form of a growth slowdown for the core subscription business to 9.9% from 23.8% in the first half of FY24, explains Morgans.

While this slowdown appears negative, the number of net rooms added increased by more than 50% over the same period, highlights the broker, implying SiteMinder is acquiring significantly more gross booking value (GBV), which supports the longer-term plan.

Certainly, Wilsons is surprised by the generally negative market perception of customer discounts to drive Net Property Additions.

Had these discounts been included in operating expenses/customer acquisition costs (CAC) rather than Net Revenue, the market wouldn’t have flinched, in this broker’s opinion, given these incentives are estimated to be around $300 per customer addition.

Interim results

Reflecting weaker organic growth (constant currency) and currency impacts, the first half result missed consensus forecasts across most key profit & loss and cash flow metrics, explains Morgans.

While revenue of $104.5m was weaker-than-expected, Citi comments earnings (EBITDA) of $5.3m came in slightly ahead due to cost control as management restructured operations and increased headcount in lower-cost jurisdictions.

The key positive, according to Morgans, was the acceleration of transaction annual recurring revenue (ARR) growth to 37%, significantly ahead of revenue growth of 21.4%, driven by the ramp-up of the cloud-based Smart Platform late in the second quarter of FY25.

Management continues to expect a $5-10m revenue contribution in the second half from Smart Products: Channel-Plus, DR-Plus, and Smart Distribution, the latter being a subset of the Smart Platform.

While upcoming revenue growth acceleration has been pushed to the right marginally, Wilsons is undeterred, buoyed by its own recent research on SiteMinder’s Channel-Plus and DR-Plus products.

New Products

Smart Distribution is now commencing implementation, Channels-Plus pilot and general release has been successfully completed, and Dynamic Revenue-Plus is on track for its Northern Hemisphere release in March this year.

Ord Minnett assumes the Smart Platform delivers $20m revenue in FY26 onwards with Channels-Plus to gather momentum in FY27 followed by Dynamic Revenue-Plus.

This broker’s EPS forecasts remain largely unchanged following interim results as lower revenue is more than offset by lower costs, but FY26 and FY27 numbers have declined due to timing revisions for the new products.

Channel-Plus is a cloud-based channel management solution designed to help hotels and accommodation providers seamlessly connect between a property management system (PMS) and various online travel agencies (OTAs), global distribution systems (GDS), and other booking channels.

Helping hotels optimise their distribution strategy and drive revenue growth, SiteMinder DR-Plus (Demand and Revenue Plus) provides actionable insights into market demand, pricing, and competitor performance.

Goldman Sachs highlights the transaction gross margin grew by 284 basis points to 34.5% given the contribution from Smart Distribution, with a gross margin greater than 70%, with both Channel-Plus and DR-Plus set to drive further margin expansion.

Revenue shortfall

While 17.2% year-on-year revenue growth missed consensus by -5% due to customer incentives to drive adoption across larger properties, Jarden states underlying metrics remained strong.

There was an 8% rise in net subscription property additions, in line with the consensus forecast, and annual recurring revenue (ARR) grew by 22% when measured in constant currency.

Jarden considers first half revenue growth headwinds (such as currency, accounting changes, and discounting) are largely transitory.

Thankfully, lower-than-expected operating expenses in the half blunted some of the impact of lower revenue on both earnings and free cash flow (FCF), notes Wilsons.

Outlook

Morgan Stanley believes meaningful operating leverage and FCF will drive a re-rating in the SiteMinder share price, which the analysts believe has, post sell-off, little baked-in for new product traction, thus providing an attractive risk-reward balance.

Following the successful launch of Channel-Plus and the Smart Distribution Platform, UBS lowers its assumed weighted average cost of capital (WACC) within its SiteMinder forecasts to 8.5% from 8.8%, reflecting reduced earnings risk.

After Morgans downgrades its rating for SiteMinder to Hold due to a lack of catalysts prior to August full-year results, there are now four remaining Buy (or equivalent) ratings among brokers daily monitored by FNArena.

The average target of the five brokers is $6.82 (down from $6.94 prior to interim results), which suggests around 41% upside to the closing share price on March 5.

Outside of daily monitoring, Wilsons and Jarden are Buy-rated and Goldman Sachs is on Hold, with an average target of $6.62.

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