Webjet (ASX: WEB) and Wotif (ASX: WTF) have similar businesses: they both allow customers to book flights or accommodation over the internet, and charge customers a fee for the privilege. One key difference is that Wotif started as an accommodation website, and has diversified into selling flights, whereas Webjet started as a flight booking website, but diversified into accommodation. Both companies are experimenting with selling 'packages,' but Wotif is a much larger company, with a market capitalisation of around $600 million, compared to Webjet's market cap of just over $200 million.
Another similarity is the companies' share price performance over the last 12 months. Webjet currently trades at $2.44, down over 50% from a high of about $5.30 in April. Wotif currently trades at $2.85, down over 50% from a high of over $6 in January 2013. Personally, I never understood the optimism that resulted in the expensive share prices, but both companies have moved to the top of my watch list now that disillusioned investors are selling.
Wotif dropped 30% on Wednesday as a result of a negative profit update. The company announced that it expects to earn NPAT of around $22 million in the first half of FY 2014. That would imply an annualised NPAT of about $45 million, down from $51 million in FY 2013, and the company's worst result since 2009. At the current price, that implies a P/E ratio of just under 14. The company paid a dividend of 23c per share in FY 2013. Its cash flow is usually higher than its profit, so it could maintain the dividend (hypothetically) if the profit fell to $45 million. However, I think it is reasonable to expect a cut in the dividend to as little as 18 cents per share. However, even this reduced dividend would represent a 6.25% fully franked yield.
Wotif expects lower profit this half for reasons that may not be temporary. The group expects a decline in accommodation transaction value of about 5%. On the other hand, Wotif has seen an increase in the transaction value of the flights it sells and because of its increased commissions, the company expects higher revenue in FY 2014.
Webjet expects EBIDTA of $21.5 million for FY 2014. It is unclear why the company could not have simply given the expected NPAT, but from that figure we can estimate an NPAT of at least $13 million, assuming a tax rate of 30% and depreciation and amortization of $2 million. That figure would suggest that Webjet is trading on a forward PE of about 16 at current prices. In any event, it appears likely that Webjet is in a strong position to maintain its dividend of 13 cents per share (Webjet has strong cash flow too). At current prices, the company yields approximately 5.3% fully franked, and I think this dividend will be maintained.
When comparing internet businesses, I like to take a look at their Alexa rankings as well as those of their competitors (Alexa is a website traffic and analytics service). Within Australia, Wotif.com ranks 141st and Webjet ranks 221st. The Zuji.com site ranks far below either site, although it does source most of its traffic from overseas. Both companies face competition from bricks and mortar travel agent Flight Centre (ASX: FLT), and flightcentre.com.au ranks 310th on Alexa (and has a higher bounce rate). New competitor skyscanner.com.au has come from nowhere in 2012 to rank 643rd at the time of writing.
Qantas (ASX: QAN) owns qantas.com.au which ranks 68th, and jetstar.com, which ranks 145th: it's worth remembering that customers can bypass online travel agents if they wish. Another major online travel agent is expedia.com.au, which currently ranks 253rd in Australia. Wotif and Webjet are currently the highest-ranking online travel agents in Australia, but shareholders should continue to monitor the competitive landscape in which the companies exist. This Fool believes that Alexa rankings are a reasonably good indication of comparative brand strength.
Foolish takeaway
The most important difference between Webjet and Wotif is that Webjet has greater potential to develop overseas revenue streams. The company has announced that its Lots of Hotels and Zuji brands are both profitable, and these may turn out to be growth engines that elevate Webjet above its larger competitor. For this reason, I believe Webjet is a slightly better company than Wotif. I also think it is an advantage that Webjet is smaller than Wotif, because Wotif will find it more difficult to grow profits as a percentage of existing profit. Both companies will benefit from the lower Australian dollar encouraging domestic tourism.
