Prime Subscriber Growth And Hospitality Market Expansion Will Strengthen Future Performance

Key Takeaways

• Strong growth in Prime subscribers and market expansion are key drivers of revenue and profitability improvements for eDreams ODIGEO.
  
• Enhanced cash flow and share repurchase initiatives signal value return to shareholders and long-term net margin growth.
  
• Uncertain ROI from new market expansions and rising fixed costs threaten profitability amid declining non-Prime revenue and decreased ARPU.

Catalysts

Operates as an online travel company in France, northern and southern Europe, and internationally.

• The strong growth in eDreams ODIGEO's Prime subscribers is a key catalyst, as they added 305,000 members recently, exceeding 7 million members. This growth is expected to improve revenue as the company targets further increases in Prime membership over the fiscal year.
  
• The maturity of Prime members is leading to higher cash marginal profit margins, up 8 percentage points to 46%. This is likely to enhance net margins as the model enables better profitability with a stable or lower cost base.
  
• Cash EBITDA has shown significant growth, increasing by 40% year-on-year, which indicates potential for improved earnings in the future as the Prime model becomes more predominant, promising higher profitability through increased operational efficiency.
  
• The company's share repurchase program, supported by strong free cash flow growth of 91% year-on-year, suggests a commitment to returning value to shareholders and improving earnings per share (EPS) by reducing the number of shares outstanding.
  
• Expansion into new markets and increasing hotel bookings are anticipated to diversify revenue streams and improve average basket value, contributing to revenue growth and better working capital management that can also enhance future net margins.

eDreams ODIGEO Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming eDreams ODIGEO's revenue will grow by 10.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 11.5% in 3 years time.
• Analysts expect earnings to reach €100.5 million (and earnings per share of €0.98) by about March 2028, up from €40.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, down from 24.0x today. This future PE is lower than the current PE for the GB Hospitality industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 3.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.68%, as per the Simply Wall St company report.

eDreams ODIGEO Future Earnings Per Share Growth

Risks

• The anticipated decline in the non-Prime side of the business, despite growth in Prime, could negatively impact overall revenue if not offset sufficiently by Prime growth.
  
• A decrease in Average Revenue Per User (ARPU), partially due to increased discounts, might affect net margins and overall profitability despite higher member growth.
  
• There is uncertainty about the ROI from investments in expanding into new regions, potentially impacting future earnings if new markets do not perform as expected.
  
• Rising fixed costs, attributed to personnel and IT expenses, could narrow net margins unless they are offset by increased revenue from Prime growth.
  
• Dependence on seasonality and working capital fluctuations, particularly from hotel bookings, may affect free cash flow, potentially impacting short-term financial stability.

Valuation

• The analysts have a consensus price target of €10.993 for eDreams ODIGEO based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.9, and the most bearish reporting a price target of just €8.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €876.8 million, earnings will come to €100.5 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 10.7%.
• Given the current share price of €8.1, the analyst price target of €10.99 is 26.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.