Smart Platform Underpins SiteMinder Optimism

Small Caps | 11:00 AM

SiteMinder's new Smart Platform strategy looks poised to deliver strong medium-term growth.

-SiteMinder's new Smart Platform strategy
-Commission-based pricing, more products
-Shares rally after minor disappointment in May
-Achieving Rule of 40 would be significant catalyst

By Mark Woodruff 

Macquarie last week initiated coverage on global hotel software provider SiteMinder ((SDR)), forecasting strong medium-term revenue growth, underpinned by sustained market share gains and rising adoption of the company's transactional products.

At the heart of the anticipated growth trajectory lays SiteMinder's Smart Platform strategy, which marks a step change in both scale and monetisation. By expanding its product suite from three to six offerings, and pivoting from fixed-fee to predominantly commission-based models, the company is not just adding functionality, but --in the words of Macquarie-- unlocking powerful new revenue streams.

Successful execution of this strategy will be critical to achieving management's revenue growth ambition of around 30%.

By adopting commission-based pricing, SiteMinder is positioning itself to more effectively monetise the $80bn in gross booking value (GBV) that flows through its platform annually.

Broker Jarden recently reinforced this optimism, noting much of SiteMinder's expected revenue growth is upsell-driven, requiring minimal incremental investment. Jarden also highlighted the exceptionally high gross margins attached to the company's new products, further amplifying earnings potential.

This broker's analysis highlighted SiteMinder's enterprise value (EV) to revenue multiple was so low that, in its view, investors were effectively getting the company's new products, and arguably even its transaction business, for free.

At the time of Jarden's report in early-May, SiteMinder shares were trading at $3.78 and have since rallied to $4.73.

SiteMinder explained

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.

Operating in around 150 countries, SiteMinder has key products in the channel management category and through its Little Hotelier product offering, an all-in-one property management system tailored for small hotels, bed & breakfasts, and inns.

Rising online booking penetration is compelling small-to-medium enterprises (SMEs) to embrace both technology and multichannel distribution strategies. This shift is driving greater demand for channel management solutions, providing a structural tailwind for SiteMinder, explains Macquarie.

SMEs are management's target market and represent around 85% of the hotel industry globally.

Travel, tourism, and hospitality market research firm Phocuswright estimates the global hotel industry is worth around US$573bn made up of more than 1m hotels, of which SiteMinder serves circa 47,000 properties (5% market share).

Positively for SiteMinder, few large-scale global competitors exist, as market fragmentation makes it challenging to achieve comprehensive connectivity across distribution channels, explains Macquarie.

At the end of the first half of FY25, around 64% of SiteMinder's revenue was subscription based, with transaction revenue the balance.

(Note: management considers transaction revenue 'recurring in nature', given it consists of usage and volume-based charges to its subscription base).

Slight disappointment in early-May

A February selloff in the share price from around $6.50 meant the risk reward was far more attractive when SiteMinder slightly disappointed the market in early-May, noted Morgans at the time.

The broker has been proven correct, with the share price eventually rallying by around $1.00 to $4.73 at the close of trade on June 17.

Morgans analysts were commenting after management held revenue guidance unchanged at $5-10m for FY25 but noted a softening in US travel during the half, which had impacted both the base transaction business and its new Smart Distribution product.

SiteMinder was not alone. Jarden noted a spate of recent downgrades by travel names including Flight Centre Travel ((FLT)) and Corporate Travel Management ((CTD)).

This broker noted the majority of global travel weakness was US centric and only circa 10% of SiteMinder's first half revenue was related to US transactions.

Analysts also highlighted SiteMinder is significantly less impacted by customers trading down and weaker corporate spend given the exposure to small and medium-sized business (SMB) travel.

This view was supported by management's guidance for annual recurring revenue (ARR) to accelerate by the end of FY25 from the 22% generated year-on-year in the first half.

While the company's update was perceived as a marginal negative and out of management's control, it did mark the third downgrade/miss in a row.

Accordingly, Morgans preferred to wait for improved execution around the delivery of Smart Platform, particularly with the required contribution from Channels-Plus in FY26 (which is second-half-weighted) to hit consensus estimates. 

Broker Wilsons appeared to take the update in its stride, suggesting the withdrawal of both US-domestic and US-inbound travellers had a muted impact.

Wilsons analysts felt the key risk to SiteMinder was US-outbound to Europe, given the role the US traveller has had on the recent buoyant EU Summer seasons while the US dollar had been strong.

If anything, Wilsons was a tad disappointed the update didn't cause more of a bounce in SiteMinder shares given recent market action had implied a disaster looming based on earlier updates by travel sector peers.