The next Realestate.com?

Realestate.com, the masters of monetization

There aren’t many better examples of a high-quality business than Realestate.com (REA). It has delivered impressive returns for investors over many years. Key to its success has been the company’s development of highly effective products, but as importantly, its record of ensuring customers pay for the added value.

The chart below shows REA’s monetization journey and how its mix has shifted over time from low-value ‘Feature’ articles toward high-value ‘Premiere’ ads. REA achieved this by ensuring all its new product releases went into higher-priced tiers only. As a result, customers migrated naturally, with revenue per advertisement (the black line), growing from an average of ~$80 in 2011 to ~$1,150 last financial year. Not bad.

So, what does this have to do with SiteMinder?

Firstly, a little about the company. SiteMinder is a software provider for the hotel industry. Its core product is a booking tool that connects hotels to various retail partners across the globe. As an example of the product’s function, when a customer books a hotel room, SDR’s core product will transact that booking, but also instantaneously remove the room from all other platforms where it is advertised. In practice, it essential infrastructure for the day-to-day operation of the hotel.

SiteMinder, like REA, derives a fee for its base product that is a fraction of the total transaction value (the cost of a holiday, or a house). The journey for SDR now, is to grow this fee and move its customer up the yield ladder. To do this the company has been busy developing new products that have the potential to materially grow yield from the existing customer base. 2024 is going to be a very exciting year for SiteMinder as it releases 2 new products that have been in development for some time. These products are known as Channels+ (C+) and Dynamic Revenue+ (DR+) and are to be offered in premium tiers priced above the base product.

C+ and DR+ could be game changers for Hotel Operators

SiteMinder’s journey to higher yield will largely be dictated by the success (or otherwise) of these new products. So, we will touch on them below…

Channels+ is a product that allows smaller independent hotel clients to list their inventory with many online travel agents (OTA’s) via one connection. As a result, C+ has the potential to be a game changer as it mulitplies the eyeballs on any room listed by the hotel (see diagram below). This compares to the current situation where hotels contract with each OTA individually, a labor intensive process that caps the number of OTA’s a hotel can list on (normally 2 or 3).

However, what makes this product compelling is that there is a symbiotic benefit for both the hotels and travel agent. While C+ likely increases eyeballs on the Hotels, it also increases the room inventory for the travel agent, which is a key driver for growing its revenues.

With the product due to be launched in mid-2024, 3 major global travel agents have already signed up, with others believed to be in discussion. As more travel agents become involved the product will become increasingly compelling to hotels. We think the initial uptake could surprise.

Siteminder's other new product, Dynamic Revenue+, also due for launch later this year, is a tool that maximises the price a hotel can generate on its room inventory. Given the cost of operating a room is fixed, the incremental revenue is very valuable as it drops straight to the hotel’s bottom line. SiteMinder’s special sauce is that it has the broadest transparency on demand via its 40k hotel partners, so is well placed to determine where price increases might stick.

To help demonstrate the benefits of revenue management tool for hotels, I’ll use a real-life example that also includes Taylor Swift...!  Two neighboring 5-star hotels in Melbourne each had vacancies when tickets went on sale for Swift's ‘The Eras Tour’ (see image below). As the concert scheduled for 17 Feb sold out, Hotel 1 reacted quickly to anticipated higher demand, lifting its price points (see image below), while Hotel 2 didn’t react meaningfully. The net result was an average room rate 110% higher than standard for Hotel 1, versus 15% higher than standard for Hotel 2. Remember, this incremental price dropped straight to Hotel 1’s bottom line.

The prize for success is large

Overall, we believe both C+ and DR+ have the potential to be game changers for SiteMinder’s clients, and ultimately for SiteMinder. If SiteMinder can deliver on this strategy it has the potential to become one of few ASX companies with double-digit revenue growth, a global addressable market and line of sight to the prized ‘Rule-of-40’ metrics. These companies tend to trade on double-digit revenue multiples.

The prize is large, so SDR’s next 12-months will be worth watching.