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Why the Webjet share price soared 40% higher in a week

Nikhil Gangaram
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The Webjet Limited (ASX: WEB) share price closed 42% higher for the week at $16.10 on Friday following investor jubilance to the company’s FY18 interim report.

After being heavily sold off in the volatility of late 2018, Webjet’s interim report was warmly welcomed by the share market resulting in one of the strongest responses seen this reporting season.

The company reported revenue of $175.3 million contributing to a 37% increase in net profit of $25.2 million and total earnings before interest, taxation, depreciation and amortisation (EBITDA) of $51.8 million. Earnings per share (EPS) also grew 26% to 20.8 cents and an interim fully franked dividend of 8.5 cents, a 6.5% increase. This strong result dashed the weaker outlook feared by investors, with Webjet comfortably confirming guidance for FY19E.

Emergence of the B2B market

The result was heavily buoyed by Webjet’s business to business (B2B) subsidiary WebBeds, which emerged as the company’s largest business component. The B2B platform which was launched in 2013, sources hotels globally from multiple suppliers and sells the inventory to travel providers.

WebBeds reported a 72% increase in revenue and more than doubled EBITDA to $30.1 million, a 136% increase. The key acquisition of DOTW (Destinations of the World) from Middle Eastern equity firm Gulf Capital in 2018, has made the WebBeds platform the second largest B2B provider and bedbank in the world.

The emergence and growth of the B2B market means that WebBeds will overtake the traditional business to consumer (B2C) division of Webjet. This provides the company with greater growth opportunities for the future in an evolving marketplace. In contrast, the performance of Webjet’s B2B subsidiary parries the slowing demand and supply in the leisure travel market. Such a slowdown was reflected by rival Flight Centre Travel Group Ltd (ASX: FLT) which reported a 7.5% drop in revenue and a 17% fall in profit after tax.

Vision for FY22

With this new growth in the B2B division, Webjet also announced a target of ‘8/4/4’ in relation to its total transaction value (TTV). The vision for FY22 aims to achieve greater margins of 8% revenue/TTV, 4%costs/TTV and 4% EBITDA/TTV respectively. In its pursuit of more profitable avenues, Webjet has demonstrated a commitment to growth by adapting to market trends. This commitment and success in expansion is why investors have a favourable outlook on the company.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019