Can MakeMyTrip reinvent itself?
MakeMyTrip has drawn out an ambitious plan to focus on hotels & packages. It won't be easy.
Critics of the NASDAQ listed company are unforgiving. "MakeMyTrip is now a dinosaur age internet company that by now would be reasonably expected to perform consistently, if not profitably," says Seth R Freeman, CEO and Chief Investment Officer of US based EM Capital Management.
Revenues of the company, though, are consistently on the rise. Revenue less service cost increased 14.7 per cent year on year (YoY) to $38.1 million in the first quarter of this fiscal year. So, what explains the losses? "We have been investing to grow hotels and packages business organically by making investments in mobile and marketing as well as in our international hotels businesses," says Magow, who is spearheading the Gurgaon based company these days, as founder Deep Kalra serves as chairman and group CEO. "If we want to become profitable, we can be profitable today," adds Magow.
Holidays, hotels & competition
MakeMyTrip, the country's largest online travel company, started feeling the pain from air ticketing business when Kingfisher airlines went down in December 2012.
Even as domestic airlines lowered the commission given to OTAs and the Supreme Court banned transaction fees, the margins in the airline ticketing business became insignificant. According to MakeMyTrip's financial statements, the net revenue margin in the latest quarter, from air ticketing was 5.5 per cent and from hotels and packages was 13.3 per cent.
That has meant that the company has had to increase its efforts more towards the Hotels and Packages (H&P) business. "One of the first products which went online was flight bookings. But somewhere down the line, we were clear that we will have to find a long term business model because the margins in air business were very, very small. We had to build the hotels and packages business," says Magow.
MakeMyTrip's H&P revenue almost tripled from $74.6 million in FY 11 to $220.5 million in FY 15. The segment's contribution to the company's revenue has gone up from 29.8 per cent in Q1 of FY 2013 to 48.2 per cent in Q1 of FY 2016. "Currently, the H&P contribution (to revenue) is almost 50 per cent. If we can make it to 75 per cent in the next 2-3 years… our success would be defined by this," says Magow.
The problem is that MakeMyTrip isn't the only player looking at this segment. A recent JP Morgan analyst report indirectly mentions Gurgaon based goibibo (South Africa based Nasper's subsidiary) as a strong competitor. Ashish Kashyap, CEO of ibibo group says that his firm is 2.5 times bigger than MakeMyTrip (in terms of booking volumes) in the H&P segment and 5-6 times bigger than Yatra. "In hotels we grew 500 per cent year-on-year, whereas MakeMyTrip grew 75 per cent year-on-year. In air ticketing, we grew 85 per cent year-on-year, whereas they grew 45 per cent yearon-year," claims Kashyap.
Even smaller players like Chennai based Stayzilla claims that their room nights per day (booking per day) is higher than MakeMyTrip. Yogendra Vasupal, founder of Stayzilla says they do around 7000 room nights a day. MakeMyTrip's Q1 results show that for MakeMyTrip India the standalone hotel bookings stand at 2.45 lakhs (April- June). For 91 days, it means around 2700 transactions per day. (MakeMyTrip says that their room-nights number (2700 daily transactions) amounts to 5000-6000 room nights daily (standalone hotels) and about 9000 when taken as a combination of different products (holidays)). Though Vasupal adds that the average value of transaction is much higher for MakeMyTrip at around Rs 5,000- 6,000 versus Rs 1,300 for Stayzilla.
Yatra, a rival OTA had acquired hotels aggregator Travelguru in 2012 to increase their foothold in the H&P space. Last year, they raised Rs 140 crore from IDG Ventures and Vertex and they had announced that they will be focusing on the hotels and packages space and was on the lookout for acquisitions.
"Almost 50 per cent of the bookings are coming from mobile for hotel bookings and around 30 per cent of ticketing is coming from mobile for us," says Sharat Dhall, president at Yatra. It's an area where MakeMyTrip has fared well: the company's India hotel bookings have grown 78.1 per cent YoY and mobile has grown 216.1 per cent YoY for the first quarter of this year.
The big shift
Magow and Kalra are no strangers to adversity, having manoeuvred the company through several sticky situations including the 9/11 attacks, the SARS epidemic (which affected travel and tourism) and the dotcom bust. The duo, who teamed up in early 2000s to start MakeMyTrip, now wants to drive the company to its next phase of growth: the shift into the hotels and packages business.
The founders say that the company is heavily investing in hiring senior talent and technology to make the leap to the next phase. Last year, MakeMyTrip announced that it was setting up an innovation fund of $15 million, which is formed to invest in start-up or early-stage companies in the travel technology space. "It was roughly 10 per cent of our cash in balance sheet. But, it is a perennial fund. There is a lot of disruptive work going on, in niche areas by startups… this is our way of keeping abreast with changing technology," says Kalra.
It has also embarked on a series of acquisitions — six to be precise — since January 2014, including companies like Amsterdam based EasytoBook, Bangalore based Simplotel, US based Inspirock, Bangalore based Holiday IQ.
"The philosophy behind it was there is a lot of disruptive work going on in the niche areas in travel by startups," explains Kalra. "And because of the very nature of startups, the focus is very high. So, startups will pick up one problem and they will focus on it completely. So their chance of succeeding are probably higher than if we were to hire people in the company to do the same job," argues Kalra.
For instance, take the case of Mygola which MakeMyTrip acquired in April this year. Mygola, which was founded by IIT Mumbai batchmates Anshuman Bapna and Prateek Sharma in 2009, claims that it lets travellers' custom trips in 15 minutes. Acquisitions like not just provide MakeMyTrip not just with crucial technology but access to talent in the space. For instance, MakeMyTrip appointed Bapna, who was the CEO of Mygola, as its new chief product officer. Bapna expected to lead the crucial mobile strategy bit for MakeMyTrip.
In addition, MakeMyTrip has also been acquiring destination management companies in Thailand and Singapore, to help grow the outbound segment of the business. "We acquired a pure play hotel company called HotelTravel.com which is integrated with MakeMyTrip today to ensure that we have international product offerings," says Magow.
The company is also investing in mobile "since the hotel market is underpenetrated and smartphone usage going up." It has recently launched an app for hotel bookings.
A back of the envelope calculations, based on announced deal sizes, show that the company must have shelled out more than $ 70 million for these acquisitions. How have these acquisitions worked out for MakeMyTrip?
"Obviously, the acquisitions have not worked out as the company remains unprofitable and the stock price has collapsed. They have to fix their operating costs problems and perform effective investor relations marketing to increase awareness of the company and its potential," says EM Capital's Freeman, who believes that the company "is likely to either go out of business or more likely be acquired by a much larger company wanting an established footprint and infrastructure in India." The CEO of a company that competes with MakeMyTrip is a lot more circumspect. "These acquisitions take time to digest. It's too early to pass a verdict on the success or failure of this strategy," adds the CEO.