Wotif.com Holdings (WTF) provides online travel services via itswww.wotif.com website. The website offers last-minute travel accommodation, across hotels, motels, serviced apartments, resorts, guesthouses and bed & breakfasts.
While the company is the dominant hotel booing site in Australia, it is attracting more competition and the historically strong rates of growth are becoming increasingly hard to replicate.
The company’s recent results saw higher revenue and profits but still disappointed the market, with the high Aussie dollar constraining overseas booking of Australian hotel rooms
At first glance, WTF’s FY12 results weren’t that bad. Net profit rose 14% to $58 million, with total revenue up 5% on the back of accommodation and flight booking growth.
EBIT margin increased from 56% to 59%, with the group demonstrating good cost control in a period of revenue growth.
However the operating environment has weakened noticeably in the opening months of FY13, reducing the odds of a repeat performance this financial year.
Last month, WTF CEO Robbie Cooke announced he would leave the group at the end of the year to take up the top role at Tatts Group (TTS). Cooke’s intention to depart was met with a negative reaction, as his seven year tenure coincided with a period of strong growth for the group.
Given there was no immediate successor, his departure introduces leadership uncertainty just as the company is grappling with a slowing domestic economy.
Squeezed by competition
The biggest long-term threat to WTF is the entrance of new competition in the online accommodation market. The market itself has very low barriers to entry, meaning it wouldn’t be that hard for WTF’s competitors to muscle into its territory.
Indeed this seems to be happening already with US-based Expedia and Priceline expanding their presence in Australia through the development of smart phone apps.
Increased competitive pressures are also a likely reason why the value of room nights sold through WTF has stagnated around $7 million a year from FY10.
The near-term outlook for WTF is uncertain at best. Its domestic-oriented business faces a period of weak revenue growth as TTV declines amid cutbacks in consumer discretionary spending.
Moreover, the Aussie dollar is still trading at lofty enough levels to encourage consumers to travel internationally rather than domestically. WTF admitted as much in its FY12 results, saying the high dollar was “situation normal”.
Flight bookings make up less than 10% of overall revenue, so whilst there may be some benefit to WTF from increased offshore travel, it won’t be enough to mitigate the impact to domestic accommodation revenue.
Moreover, greater competition from companies like Expedia and Priceline is expected to eat into WTF’s domestic market share, potentially resulting in slower revenue growth and margin pressure over the longer-term.
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