Can MakeMyTrip Fulfill its Potential?
MakeMyTrip (MMYT) is a leading online travel agency in India that owns 15% share of the overall domestic air travel market. However, the losses continue to widen for the trip planner. During the most recent quarter ended 30th June 2015, the company generated revenue of $93.7 million, a decrease of 1.2% (an increase of 5.2% in constant currency) over revenue of $94.8 million in the quarter ended June 30, 2014.
Revenue from air ticketing business increased by 20.0% (27.3% in constant currency) to $19.8 million from $16.5 million in the quarter ended June 30, 2014. This was primarily due to a 16.8% increase in gross bookings to $329.35 million (23.9% in constant currency) and a 45.6% increase in the number of transactions to 1.605 million year over year. The transaction growth in the June quarter was largely driven by special fares offered by Indian domestic carriers. Air ticketing revenue accounted for 51.97% of MakeMyTrip’s net revenues for the quarter, up from 51.3% in the preceding quarter.
In the other growing segment that the company serves, revenue from hotels and packages (H&P) business decreased by 6.3% (0.01% in constant currency) to $72.4 million in the quarter ended June 30, 2015, from $77.3 million in the quarter ended June 30, 2014. However, the net revenue increased by 2.8% (10.4% in constant currency) to $18.4 million from last year’s $17.9 million.
Investments and acquisitions
In July 2015, MakeMyTrip Limited invested $ 5 million in Bona Vita Technologies Private Limited, a new venture founded by Amitabh Misra, former Snapdeal CTO till February 2015. Bona Vita will be using this invested capital for building differentiated products for the travel industry.
Recently, MakeMyTrip also announced the signing of an agreement for the acquisition of a minority stake in HolidayIQ. This is a popular Indian travel community and holiday-planning recommendation engine. MakeMyTrip will now have a 28 % stake in HolidayIQ. This strategic investment will help both companies to scale up hotel content and reviews for Indian customers, and provide more attractive offerings to their visitors. As both the companies have a natural inclination and focus on hotels as a segment and mobile as a technology, they will have great synergy working together to drive scale jointly.
There are many big and small players venturing in this space. Among them Gurgaon based goibibo is being seen as one of the strongest competitor for MakeMyTrip. It is 2.5 times bigger than MakeMyTrip in the H&P segment by booking volumes and is growing faster too. Smaller players like Yatra and Stayzilla have also claimed better figures for the June quarter signalling a healthy competition ahead especially in the H&P space.
Outlook and future scope
In a recent study, KPMG and IAMAI estimated that despite low Internet penetration (19%) India has the world’s third largest Internet user base at 278 million of which almost 50% or 159 million are mobile-only Internet people. The Indian mobile internet user base is likely to exceed the total US population within the current decade.
This is a great opportunity for a company like MakeMyTrip which is fully ready to with its mobile app aided by rich content, latest smartphone features, increased bandwidth and the government’s Digital India drive. And the effects have started to show already. India’s standalone online hotel transactions for MakeMyTrip increased by 78% year-on-year and India’s standalone hotel transactions via mobile more than tripled year-on-year.
As the Supreme Court has banned transaction fees and domestic airlines lowered the commission given to OTAs, the margins in airline ticketing dwindled. So the company is right in acknowledging the need of aggressive marketing and pricing in order to attract new users online and increase market share in the hotels space. Thus, a temporary net loss or debt accumulation shouldn’t worry investors much as it is a characteristic of fast-growing e-commerce companies.