Webjet (ASX:WEB) share price higher on positive trading update

Webjet’s key WebBeds business has returned to form…

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The Webjet Limited (ASX: WEB) share price is on the move on Tuesday.

At the time of writing, the online travel agent’s shares are up 4% to $5.72.

Why is the Webjet share price rising?

Investors have been bidding the Webjet share price higher today following the release of a trading update ahead of its annual general meeting.

That trading update reveals that the company’s WebBeds business returned to profitability during the month of July. Pleasingly, it has continued to be profitable in August and is expected to remain profitable in September.

This follows a sharp rise in WebBeds total transaction value (TTV) over recent months. After being as low at $18 million in February, the segment’s TTV hit $55 million in June and then $96 million in July. The latter is just ahead of its break-even point.

Pleasingly, August has been even better, with its TTV expected to reach $113 million this month. This will be approximately 50% of its pre-COVID TTV levels.

What about other segments?

The Webjet OTA business was profitable for much of the year but recent lockdowns have ended this streak. However, management notes there is significant demand for leisure travel and pent-up demand for international travel.

Another positive, which could be supporting the Webjet share price, is that management notes that the pandemic is accelerating the structural shift to online booking. This is good news for the company given that its Webjet OTA business is the number one player in the ANZ market.

Elsewhere, it has been a similar story for its smaller Online Republic business which has become unprofitable again. However, management is confident its performance will rebound once lockdowns end.

Management commentary

Webjet’s Managing Director, John Guscic, said: “Our post-Covid strategy is delivering results and the Company will be operating cash flow positive for the first half of Financial Year 2022. The WebBeds business was profitable in July and August and is well on track to be profitable in September.”

“We have seen strong demand as travel restrictions ease in North America and Europe, suggesting significant upside as more international markets reopen. Webjet OTA was profitable for April to July but has been subsequently impacted by the current lockdowns in Australia and New Zealand.”

“Online Republic was profitable in April and May, but like the Webjet OTA, has been impacted by lockdowns. However, we are confident that both businesses will return to profitability as soon as the domestic Australian and New Zealand markets reopen.”

Mr Guscic remains very positive on Webjet’s long term growth prospects.

He said: “We see a world of opportunity for Webjet. All our businesses have significant potential to grow market share by expanding into new market segments and benefiting from consumers shifting to buy travel online. Transformation initiatives are underway and we on track to reducing costs by at least 20% once the Company gets back to scale.”

“As a result, as conditions normalise, we believe our Webjet businesses will have higher market share, lower costs and greater profitability. While the exact timing is uncertain as our growth opportunities are driven by the opening of borders, we know demand for travel will return and we are absolutely ready to capture it,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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