I also do not have any concrete evidence about how historical prices give them a moat here.
Yeah, for the quarter ended December 2024, MMT increased revenue by 25% y-o-y. Rategain grew the distribution business by 4.2% y-o-y (Page 11 Q3FY25 Investor Presentation). The management attributed this mostly to impact of losing one big customer. It seems they are not able to cover up for it from other customers and expect this to hurt them for three more quarters. Excerpt below is from Page 7 of Q3FY25 Earnings Call Transcript.
Itâs one of the larger OTAs that is a sub-brand of one of the biggest OTAs that is sort of sunsetting, and we continue to see the volumes decline on this sub-brand that is being sunset and we will continue to see some pressure on that over the next three to four quarters till itâs completely sunset.
Finally,
In their public communication they keep repeating about how they are embedded into the travel and hospitality industry. See the below excerpt from Page 15 of Q3FY25 Earnings Call Transcript.
Now, Satya Nadella might think that Microsoft has the ability to build a hotel AI agent as well. That is right. We can build a hotel AI agent as well. But what they donât have is integration into the hotel ecosystem which RateGain possesses, which is integration to the hotel CRS, hotel PMS. So, if you call the hotel and you are speaking to the AI agent and you ask them, what are the rates for the next three days, we have the ability to cull out that information because we have integration to all the systems in place.
In my opinion that is their only moat, that they are already connected to many players in the industry. So there is a switching cost of moving away from them. I am not sure though how prohibitive it is and therefore what is really the width of this moat. For MarTech too they are banking on being able to cross sell. So what this company does is it keeps buying new companies and then keeps selling to the same set of customers the new offerings from the company just purchased.
In MarTech, they are basically engaging with the hotels to improve their social media strategy and to convert customers from Metasearch platforms into direct bookings. Do we know on approximate basis, the mix of these 2 in this segment?
Also, I am trying to understand the importance of advertising & social media for the hotels. As per me, reviews are the important drivers for customers than social media. Hotels are a commodity, I am wondering that apart from reviews, can anything else influence a traveler?
I can understand that social media can be helpful to spread awareness. But I donât think people will be enticed to take a trip simply because they saw a post from a hotel! Hotels can best spread their awareness through OTA, because whenever someone is planning a trip, they will go to OTA sight and Metasearch engine.
As per my understanding, Rategain can try to convert traveler from Metasearch to hotelâs platform, not through OTA, which is not possible. Can anyone confirm?
Converting a traveler from metasearch engine could be a different business where Rategain can add value to the hotels. Thoughts?
Also since company does not give split up of organic vs inorganic growth, it is difficult to take a call when it is dependent on acquisitions for growth.
The company does not disclose this in its filings.
My belief is that hotels do not want to be too dependent on OTAs. And they actively try and get as much direct business as possible. Here are some numbers.
So they definitely have a requirement for marketing software which would help them cut out OTAs as much as possible. I think hotels work very hard on not depending on leisure travellers whom you are referring to. They try and get most business from business travellers.
Yes the company does not disclose this. But here are a couple of numbers which give some idea.
They have made the following four acquisitions in past few years
Hi Varun, this information is quite useful! Putting the âAcquired Growthâ and âOrganic Growthâ numbers in perspective, we get below pointers/insights;
Between 2018-2023, RateGain spent ~$55mn (~Rs385cr @ $1 = Rs70) to acquire revenues of Rs435cr (DHISCO 118cr + BCV Social 67cr + MyHotelShop 50cr + Adara 200cr) at P/S of 0.9x.
RateGainâs Revenue increased from Rs262cr (FY19) â Rs957cr (FY24). This was an increase of Rs 695cr over 5yrs.
However, when we factor in the âAcquired Growthâ of Rs 435cr during the same period, it appears that Organic Growth was miniscule! (Rs695cr - Rs435cr = Rs260cr, which is pretty damn close to FY19 Revenues of Rs262cr)
In recent calls, management has indicated that they are unable to find decent acquisition targets due to competition in valuations. Over similar periods, guidance has been gradually reduced from 20% â 15% â 12%, implying that Acquisitions are a key pillar/necessity of the growth strategy at RateGain, and possibly in the industry due to its fragmented nature.
RateGain will likely fall under the âSerial Acquirerâ category of Peter Lynch framework and needs to be viewed/researched accordingly.
Above calculations are estimates to arrive at a general view and surely there will be variations in actual numbers. Also realize that RateGain might be able to improve the operations/technology of acquired company which could lead to better operating profit growth. Please do own diligence as necessary.
So, company doubled its revenue in 5 years, which comes to CAGR of 14%, which is decent. Further, we should also see growth in bottom line, may be EBITDA, data for which might not be available.
