ASX travel share Webjet Limited (ASX: WEB) stock is on my buy list for a few different reasons. It has already recovered a long way from the COVID-19 weakness, but there could be more positivity to come.
Webjet operates three different businesses – an online travel agency (OTA) business, a business-to-business (B2B) segment called WebBeds, and a car and campervan rental website called GoSee.
The Webjet stock price is still 30% lower than where it was in January 2020, though there's a higher share count these days after its capital raising ensured its balance sheet was good enough to survive.
But, from here, I think the business can excel for a few different reasons.
Improving market share
The pandemic was a rough time for many travel operators, but travel has seen a booming recovery. In the company's FY24 first-half result, it reported a 35% increase in total transaction value to $2.9 billion.
When the company reported its HY24 result, it revealed Webjet OTA had seen a "material increase in international market share". The business doesn't have a physical presence, and households have been doing a lot more things digitally since the start of COVID-19 thanks to digital adoption.
Webjet said its OTA international flights market share grew 24% compared to the FY23 first half, with its software Trip Ninja "playing a key role providing unique content and real savings for customers."
Strong cost control
Revenue is just one element of a company's performance, costs also play an important part in profitability.
Webjet did a lot of work during the COVID-19 pandemic to reduce its cost base and increase its operating leverage.
As it processes more TTV, this can lead to even higher profit margins because of how profitable each extra transaction is for a digital business.
In HY24, the company saw its total revenue increase by 39%, the underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 40.6% and the profit before tax improved by 126%. These are strong improvements that can help Webjet stock.
If revenue can keep increasing, then I expect the profit before tax margin can keep growing thanks to its digital operations and cost controls.
International travel recovery
Webjet said in its HY24 result that while there had been strong growth in international bookings for the period, capacity constraints by airlines "continued to subdue overall bookings". But, the company suggested that it's seeing "ongoing growth opportunities as capacity returns to 2019 levels."
There is still scope for Webjet's earnings to show more of a recovery from COVID-19 impacts with the recovery of international travel. As I've mentioned, more volume should be helpful for revenue and even better for margins and profit.
Foolish takeaway
According to Commsec, the Webjet share price is valued at 19 times FY25's estimated earnings. I like the business now, but it'd be even more appealing if it was a bit cheaper.
