In association with Travelport
Both Tui and Thomas Cook seem to have had a good start to the year.
Thomas Cook’s numbers were probably the most eagerly awaited and the industry number two did experience lower revenues as a result of challenges in Egypt.
But overall it seems to be making steady progress on its new strategic plan, especially at the cashflow level where the seasonal outflow came down markedly.
The best bit of good news though was hidden deep inside its numbers around its web and marketing plan.
Cook observed that “since the end of 2013, 50% of all web site visits to thomascook.com were from a mobile, tablet or ‘phablet’, with total searches up 60% compared with the same period last year”.
Chief executive Harriet Green’s digital transformation seems to be very much on track if this pace of growth sticks around.
Turning to 2014 business, Cook announced that bookings for Summer 2014 “are developing in line with our expectations and at similar levels to last year” which is about what we all expected, although personally I’d been rather hoping for a small surprise on the upside but beggars can’t be choosers.
My only other small niggle is that although net debt was reduced by £273 million, the grand total is still at a whopping £1.286 billion.
There’s a very long way to go before this huge number even starts to approach a sensible level and I have a sense that the management are going to have to do something even more dramatic to get the number below say a sensible £1 billion level.
Over at Tui most investors must be a tiny bit bored by the relentless stream of good news – usually powered by the group’s twin drivers for growth namely its higher margin, all inclusive mainstream holiday business and bumper growth at its wholesaling unit.
Looking at summer 2014 bookings , Tui announced that it was “pleased with summer 2014 trading, in particular our performance in the key January booking period, with higher average selling prices and Mainstream volumes up by 1% against tough comparatives”.
Over in its wholesale accommodation business there was a “strong start to the year, with Total Transaction Value (TTV) for Summer 2014 up by 45%, driven by growth in Asia and Latin America and a rebound in Spain”.
To be honest neither set of result surprised many investors but both finished the month on a very upbeat note – Thomas Cook’s shares increased by just over 8% in February while Tui’s increased by 9%, both double the gain from the wider FTSE All Share index.
Sticking with the positive vibe I want to return to the excitable world of initial public offerings (share listings) for travel businesses.
Last month I reminded readers that the mega Saga deal is on its way but investors are, truth be told, already getting over exuberant, salivating at the growth prospects for digital businesses, even in the travel sector.
Last week for instance AO World – Appliances Online to you and I – debuted on the London market.
Many investors (me included ) think the valuations are becoming utterly insane but no-one seems to be listening as prices keep shooting up. If this enthusiasm continues I think we should keep a very beady eye on a great British digital travel champion, namely Skyscanner.
To understand my observation let’s get some numbers on the table.
In the year ended March 31, 2013, the appliances group AO World saw revenues of £275 million and net profits of £8.7 million, yet when it came to the London market last week at 285p it was valued at an extra ordinary £1.2 billion (at 285p), before shooting up to 378p a share.
Now I have no doubt at all that AO is a great business but this valuation looks simply insane.
More to the point when we look at Skyscanner’s recently announced numbers you can begin to understand why the Edinburgh based travel business could be worth billions of pounds.
Numbers from the middle of February saw Skyscanner annual income to the end of December increase by 96% to £65.8 million and earnings before income, tax, depreciation and amortisation (Ebitda) double to £24.1 million up from £12 million.
Visitor numbers and mobile app downloads also doubled – more on that a little later.
Now I have no idea what debt and other financial exceptionals Skyscanner is carrying on its balance sheet (not a great deal I imagine) but I suspect the online travel business is easily capable of turning in pre tax numbers (after exceptionals and interest) of at least twice those of AO World, which would imply a valuation of at least £2.5 billion.
And arguably Skyscanner is a more interesting business as we are about to discover. If I’m right Skyscanner’s backers – which includes venerable tech venture capitalist Sequoia Capital – will be delighted as they only bought into the Scottish business last October at a valuation of $800 million or about £500 million.
Back on ‘planet financial reality’, it would seem that Skyscanner could hit pre tax profits of somewhere between £20 million and £40 million this time next year (Feb 2015) if it kept up its current growth rate.
If we then use conventional digital business metrics (a valuation that is about 25 times profits) we could easily get to valuation of between £500 million and a £1 billion for Skyscanner.
That’s a big number indeed and a probable doubling on Sequoia’s recent valuation – it’s also incredibly good news for founder Gareth Williams and his co-founders who only received their first round of funding back in 2007 via a £2.7 million investment from Scottish Equity partners.
Yet I’d argue though that Skyscanner is a much more interesting business than these hard, cold numbers suggest.
Its biggest advantage is that it’s made the crucial transition from being pretty much exclusively UK based to a proper global business, with fast growing divisions in Asia and North America.
Looking at Skift’s latest digital travel brand survey for instance I notice that Skyscanner is the first solely UK based company in the list at number 18, admittedly a long way behind the mammoth US giants but well ahead of its UK competitors.
In fact only 20% of Skyscanner’s current traffic is from the UK, while monthly unique visitors from around the world have more than doubled to 25 million.
North America is a big area of growth – last year saw a 119% year-on-year increase in unique monthly visitors in North America – while mainland Europe is still growing fast (helped along by acquisitions such as Barcelona based hotel search company Fogg) with unique monthly visitors increasing by an average of 64%.
But it’s Asia where I think most investors will focus on next – the region already accounts for 20% of the company’s users, up from just 6% two years ago.
It’s also worth noting in passing that Skyscanner can boast another fast-approaching tipping point – its making its first big move into turning itself into a traditional consumer brand via mass market advertising.
Its £3 million “Born Honest” integrated campaign has started airing on TV and is targeting young urban professionals and empty nesters – according to Market Week it’s the first time the company has placed media spend outside SEO and digital media, helping to grow the ” brand’s spontaneous awareness levels”.
In my experience brand businesses that have crossed this line from online to mass market tend to attract a higher valuation for investors.
Yet I think all of these fascinating tipping points and transformations (I haven’t even bothered to mention the move into mobile and hotels and car booking) amount to nothing when compared to Skyscanner’s move into big data – crunching its data to provide insights for its customers.
As my colleague Lee Hayhurst reported just a few weeks ago Skyscanner has set up a new business-to-business unit which is being led by Filip Filipov.
Skyscanner’s founder and chief executive Gareth Williams told a recent Travel Weekly Business Breakfast that the brands “database has got to be pretty valuable to hoteliers and airlines looking at demand forecasts, but also building models around what would happen if they created a new route, for instance.
“All of that, combined with what the current market rate is for something, is incredibly detailed and valuable information. So we are really keen to make that available to the people who we work with and allow them to get insights and value from that.”. Quite.
The treasure trove of data sitting in these vast digital business platforms is truly astounding and has phenomenal value – the travel business that manages to unlock could prove to be utterly invaluable.
So when’s the IPO?