December 13, 2021

The Australian: Savvy investors queue up to book room at SiteMinder

Via theaustralia.com


Australian hotel booking company SiteMinder has heavyweight supporters who rank the start-up with the likes of Atlassian, Xero and Wisetech.

A month ago the world’s leading hotel commerce platform, SiteMinder, listed on the ASX. Australian-grown, it boasts a register stacked with top drawer investors that say it ranks with Atlassian, Xero and Wisetech.

Yet why is a newly listed tech business in the hollowed-out travel sector such hot property? The Australian spoke with three major investors and chief executive Sankar Narayan. The answer has a lot to do with a first-mover advantage in a race to grab the business of one million hotels.

SiteMinder offers hotels an online platform to manage distribution of their rooms, taking bookings and providing products and tools to manage the business, process payments and provide market intelligence.

Sankar Narayan has clocked up three years as chief executive. He brought with him travel experience as chief financial officer of Virgin Australia and technology know-how from Xero, where he was chief operating officer.

SiteMinder has staff in 20 countries, customers in 150 countries, 32,000 hotel subscribers and a platform that uses eight different languages.

“We have a leading position in a vertical that is very fragmented, a strong market position on a global basis,” Narayan says.

At the IPO, managed by Goldman Sachs, Barrenjoey and UBS, shares priced at $5.06 popped 39 per cent to $7.01. And despite Omicron, they closed on Friday at $6.37.

After the hype around the Nuix float, the SiteMinder prospectus was notable for an absence of company forecasts. But investors are looking through the near-term wobbles to blue sky travel. And there are some big names.

“This is something very unique (compared) to almost every other IPO that I have seen recently,” says Narayan. “Ellerston, Aussie Super, Bailador, Pendal, Blackrock and then Fidelity came just before the IPO. Then during the IPO you had Wellington join in, UniSuper and Caledonia. The conviction has not waned. The conviction is stronger than it was pre-pandemic.”

Ellerston Capital’s David Leslie first invested in 2020. “We were doing the work in 2019, the deal closed in 2020 and then this pandemic turned up 15 minutes later. It was interesting time.” Regional tourism kept some hotels busy. Narayan points to ­SiteMinder’s resilience, despite the biggest disruption in travel he has ever seen. Today Ellerston has 7 per cent of the stock as Leslie doubled down and also brought in some of the firm’s equity funds.

“It has a fantastic business model, global scale and it is Australian, which is important for what we look for,” he said. “The other part frankly is just Sankar. He was always very clear on what the plan was going to be.”

Online shift

An early SiteMinder investor was former Fairfax CEO David Kirk who runs growth-stage investment fund Bailador.

Kirk says SiteMinder was created to solve a problem. A friend of co-founder Mike Ford ran a hotel in Sydney and became overwhelmed with clunky systems trying to manage online bookings from young backpackers.

“It was when Expedia and Booking.com were just emerging. The old bookings for the hotel were moving online,” Kirk says. “And so we recognised that eight years ago. It was our third investment for the fund.” Bailador holds 6 per cent.

Between 2005 and 2008 Sankar Narayan was David Kirk’s chief financial officer at Fairfax. “We grew up together in the big end of town chasing the tail to make the transition from a legacy business to digital,” says Kirk. “We bought Trade Me together, we bought Stayz and launched Brisbane Times and WA Today.”

Like Ellerston’s Leslie, George Batsakis who runs AustralianSuper’s growth portfolio had already come across Narayan while he was at Xero and was impressed. AustralianSuper hopped into SiteMinder in 2019.

“They have great technology and we like the software as a service model,” says Batsakis. “We are looking for companies that can grow fast for five years or longer rather than a company that can grow for the next six months and beat the market.”

Revenue growth

SiteMinder’s revenues are underpinned by 32,000 hotel subscriptions and the prospectus makes a strong pitch on the ‘‘total addressable market’’ or TAM of one million hotels around the world for future revenue growth.

Leading small caps analyst at Barrenjoey, Josh Kannourakis, says some companies hype their TAM and revenue potential. At SiteMinder he could really kick the tyres.

“It is rare to have very high quality global software as a service business that has a TAM that is actually addressable and accessible,” Mr Kannourakis says.

“They have eight different languages that they speak across the businesses to tap into different markets. A big part of our research is talking to hotels – some that have the product, some that don’t have it yet – and to really understand what the true addressable opportunity is. And it is substantial.”

SiteMinder boasts the largest global footprint and the most open platform, partnering with others to bring in the best tech solutions. Unlike many tech businesses, it does not rely on big make-or-break contracts.

“We go to sleep every night in this environment knowing that the subscription business ticks over and is incredibly robust,” says Leslie. “The average revenue for SiteMinder is a few thousand dollars. They are not hundred thousand dollar or million dollar contracts. We love businesses that have that strong market presence with that network effect that enables them to be less vulnerable.”

Narayan says subscriptions in most markets are sticky.

SiteMinder now offers business intelligence around travel patterns. “That kind of a guide during what has been one of the most challenging periods for global travel has been very beneficial for our hotels,” he says.

On top of subscriptions, there is also a growing transaction business with services like hotel payments for customers. Barrenjoey’s Kannourakis expects 26 per cent per year compound annual growth in revenue from the 2022 financial year to 2026, with transaction driving about 43 per cent of growth.

Step change

Subscriptions remain the core business, however, accounting for 46 per cent of gross profits, and transaction 24 per cent.

SiteMinder’s other business, Little Hotelier, will deliver just over 30 per cent of gross profits. It services smaller hotels with up to 20 rooms, offering a front-of-house operational system.

Barrenjoey estimates the cost of acquiring a new Little Hotelier customer is about the same as a core SiteMinder hotel customer, but the monthly revenues generated are only $150 compared to $230.

Kannourakis says the step change about to happen at Little Hotelier is a re-platforming to bring the time taken to onboard a customer down from three weeks to 12 minutes. He believes the change to digital self-onboarding could cut costs by 50 per cent and attaching payments to Little Hotelier subscribers could increase monthly revenue by around $80.

Of course, like many tech unicorns, SiteMinder is some years off posting a net profit while it spends up to grow market share. Kannourakis expects a bit of land grab in software as a service and a cashflow break-even for SiteMinder by 2025.

“There are upfront costs to acquiring customers and the benefit comes in future years,” says Narayan. “More important for me is, are we gaining customers on a profitable basis? Then your profitability is an investment choice for the company as opposed to a reflection of the underlying fundamentals of the business.”

SiteMinder investors are right behind this strategy.

“There is a huge runway for growth,” says AustralianSuper’s George Batsakis. “It’s not quite cashflow break-even at the moment but that high revenue gives us confidence that once they start normalising their expenditures after the high R&D period, the revenue will keep growing and it will be extremely profitable.”

“Peel back the onion layers and you see many SiteMinder customers are very profitable,” observes Leslie. “A core part of this business is really about driving growth in new initiatives.”

SiteMinder’s IPO raised $627m yet only around $100m was invested in the business. So why were so much of the proceeds used to pay out some investors?

Kirk says the US growth fund TCV was 14 years into a 10-year fund which needed to wrap up to avoid an overhang. And SiteMinder has all the capital it needs.

Sankar Narayan agrees.

“Over 15 years, it has been one of the most capital-efficient businesses I have seen,” he says.