WEB is Australia’s largest independent online travel site, competing mainly with companies offering similar leisure-related services, such as Jetset (JET), Flight Centre (FLT), Wotif.com (WTF), Expedia, and Bestflights.com.au.
Earlier this year, the company acquired rival Zuji and launched business-to-business hotel aggregation platform, Lots of Hotels, for the Middle Eastern and African markets.
The company derives its revenue primarily through booking charges and fees, with its main customers being the general public and tourists.
Weak FY13 results
WEB’s FY13 results weren’t that impressive for a company that traditionally trades on a high P/E multiple. Revenue of $66.5 million represented a rise of 15% on the prior year’s result.
Underlying net profit was only 5.6% higher on FY12’s result, missing previous guidance of 15% growth.
EBIT margin contracted 10 basis points to 32.4%, continuing a worrying trend where profit margins have fallen for three straight years.
Business momentum is also heading in a negative direction, with Total Transaction Value (TTV) and flight booking volumes both declining from 1H12 to 1H13.
WEB trades on a forward P/E of 13.5x, which is a discount to other online service providers, including closest rival, Flight Centre (FLT).
The trend of shrinking profit margins is a worry, suggesting that WEB is losing market share to FLT and not getting enough return for each dollar spent on marketing and advertising.
WEB followed up its disappointing results by offering relatively subdued guidance earlier this month. It warned that FY14 EBITDA was likely to be unchanged from a year earlier, at $21.5 million.
The group admitted that the Australian market had been flat over the past year, but that it would still push on with plans to spend $3 million on marketing and technology, which was expected to weigh on the bottom line.
This is a big worry given how important Australia is to WEB’s business. Moreover, the increased marketing and ad spend comes on top of the resources needed to integrate Zuji and support the launch of Lots of Hotels.
Although the longer-term outlook appears more promising, FY14 is shaping up to be another disappointing year for FLT.
The prospect for further margin erosion will be a key factor behind continued share price weakness in our opinion. For all of our latest australian share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.
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