Is the Webjet Limited (ASX: WEB) share price a big opportunity considering it's targeting a 14% global market share?
The ASX travel share already has a good presence in Australia. But the company has its sights on the global market with its business to business division called WebBeds.
Big plans for WebBeds
COVID-19 has been a difficult period for the global travel industry. However, Webjet's management believe that the world has changed and its opportunity has increased.
Competition has reportedly decreased as financial pressures impact the industry.
WebBeds is taking advantage of opportunities to deliver significant revenue growth across a number of areas.
It has expanded its domestic offering in all regions. WebBeds has increased its penetration into the large North American business to business market. The company has increased and optimised its API (application programming interface) connections for key business to consumer (B2C) clients. Webjet says its financial strength makes it a trusted partner for hotel suppliers. Finally, it has retained its global footprint, hotel supply relationships and global customer network, so it's ready for the global travel market to reopen.
In FY19 the B2B total transaction value (TTV) was worth a total of $70 billion. Webjet reportedly had a 4% share of this.
It's now targeting a 14% global market share and the global TTV opportunity is now supposedly worth more than $70 billion. WebBeds is targeting $10 billion of TTV. This could be quite beneficial for the Webjet share price if it achieves that goal.
How does this translate to profitability?
In FY19, Webjet's overall reported financial numbers reported were: $3.8 billion of TTV, $124.6 million of earnings before interest, tax, depreciation and amortisation (EBITDA) and $62.3 million of net profit after tax (NPAT).
WebBeds is now hoping to be 20% more cost efficient when it's at scale. The aim is for this to translate to revenue being 8% of TTV, expenses being 3% of TTV and EBITDA being 5% of TTV. In other words, the EBITDA margin could be 62.5% of revenue.
There are a few things that the company is working on to improve things. It's streamlining its technology, enhancing Rezchain (blockchain) efficiencies, leveraging data analytics and simplifying processes across the business.
Is the Webjet share price a buy?
Webjet said that its WebBeds division has/had been profitable since July, driven by domestic sales in North America and Europe. November TTV was 63% of pre-COVID levels, yet many larger markets were yet to open.
The company is looking to win new clients, win existing clients booking to new destinations and win new direct contracts for the domestic market.
Before Omicron took hold globally, Webjet said that based on its current trajectory and outperformance of the market with its WebBeds and Webjet online travel agency business, it believed it would be back to pre-COVID booking volumes by the second half of FY23 (being October 2022 to March 2023).
There are a few brokers that rate Webjet as a buy, including UBS, Ord Minnett and Morgans. Each of them have price targets that are at least 20% higher than where Webjet is today. However, the next broker notes released will probably include the impacts of Omicron on travel in the shorter-term.
Ord Minnett's numbers put the Webjet share price at 23x FY23's estimated earnings.
