Summary
- MakeMyTrip delivered revenue growth of 32% during the latest quarter. Losses narrowed significantly.
- India’s e-commerce industry is poised to grow at a double-digit rate this year, which will prove to bring more customers to the company’s website.
- Business-friendly government is pushing aviation industry ahead.
- The company is expected to deliver a profit in 2016.
MakeMyTrip’s (NASDAQ:MMYT) share value has gone up by 33% in a year. The company operates a traveling website through which customers can research, plan and book travel services and products in India as well as overseas. MakeMyTrip has been a top performer in the industry since a long time: the company’s revenue growth has averaged 27% over the past three years, while the industry has seen its revenue grow at a far lesser rate of 9.1%. With the macro environment proving favorable for the company, this trend is expected to sustain ahead.
In this article, I will evaluate MakeMyTrip’s financial strength by reviewing its performance in the latest quarter. Later, I will discuss factors to highlight the future potential of the organization.
Second Quarter
During the period, MakeMyTrip achieved top-line growth of 35% on a constant-currency basis. The $32 million revenue figure was achieved on the back of strong performance across all the core business segments. Of particular importance was the performance of the company’s strategically important hotels and holiday packages “H&P” business: acquisition of easytobook.com and an increase in relationship contracts with suppliers helped MakeMyTrip grow its H&P’s transactions by over 70% during the quarter, and the company registered approximately 75% growth in revenues less service costs on a constant-currency basis.
In addition, MakeMyTrip investment in targeted marketing and lower prices helped it improve the mix of non-air revenue during the seasonally-low quarter to 43% versus 35% in the same quarter of last year. The improving business mix demonstrated that MakeMyTrip was capable of outpacing and differentiating itself from competitors in a fast-growing market.
Even though the top line remained strong, the company’s excess expenditure to achieve higher penetration led it to deliver an adjusted loss of $0.4 million. However, the loss was significantly lower than the $1.5 million MakeMyTrip reported in 2013. Looking forward, the company is expected to deliver a profit due to the reasons discussed below.
Market Growth
At first, let’s talk about the e-commerce market in India, since growth in this market directly affects the magnitude of customers that visit MakeMyTrip’s website. Fortunately, the e-commerce industry in India is changing fast. The market is expected to grow by 70% this year and is likely to cross $6 billion in revenues. The growth alone will make India one of the fastest-growing e-commerce markets in the Asia-Pacific region.
The expansion will be aided by the fact that more than 30% of traffic on e-commerce platforms is now coming from mobile phones and tablets. There is increasing traction in mobile shopping as marketplaces, consumer-goods companies, and food and beverage companies have started investing in mobile commerce.
Also, with the introduction of the first Microsoft (NASDAQ:MSFT)-branded phone after the acquisition of Nokia (NYSE:NOK), the market for cheap-end phones has expanded recently. The reasons are why bookings from mobile now account for over 16% of total online transactions of MakeMyTrip. They also explain why mobile users contribute nearly 34% of the total online domestic-hotel transactions to the company.
To leverage from this growth, MMY recently launched a nationwide TV campaign that focused viewers’ attention on the company’s mobile offering. The campaign has been successful as approximately 31% of the increase in downloads during the latest quarter came due to the commercial.
MakeMyTrip has also enhanced the overall performance of its app by reducing the app download size and bringing new mobile payment-security facilities offered by financial institutions within India. As a latest move, the company recently introduced vernacular content on its mobile app and mobile web, and will continue to expand the content nationwide this year. The vernacular content will allow MakeMyTrip to reach customers beyond the larger cities, where many potential users prefer an Indian dialect to research and shop. Together, these moves will help MakeMyTrip increase its market share in the mobile arena when the overall market is growing.
Secondly, MakeMyTrip will also gain through the aviation industry which is forecast to grow by 6.9% over the next five years. The aviation market is poised to benefit from the recent entry of Air-Asia and license issuance to Tata Airlines, thanks to the new business-friendly government’s plan to liberalize several markets. Also, the ongoing price war among airlines in India will prove to be another catalyst for online-travel companies ahead.
Bottom Line
The losses MakeMyTrip has been delivering are a product of investments that the company has made to position it well in the market. The analysts believe that these investments will finally turn fruitful in the upcoming year and MakeMyTrip will deliver a profit of 27 cents per share. The estimate has further led 10 brokers to value the company’s stock at $33.7 per share, which reveals that MakeMyTrip is undervalued by 24%. Therefore, the company holds a buy rating.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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MakeMyTrip: Market Expansion To Drive Earnings Growth (MMYT)
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