AI-Powered Travel Platform And NDC Leadership Will Drive Strong Long-Term Corporate Demand

Catalysts

About Serko

Serko provides a global corporate travel booking and expense platform, partnering with major brands to deliver scalable, AI-enabled travel solutions.

What are the underlying business or industry changes driving this perspective?

• Rapid scaling of Booking.com for Business, with completed room nights expected to exceed 4.2 million and strong unit economics, is identified as a driver of sustained double-digit revenue growth and expanding EBITDA margins as volumes move into higher tiers.
• Deep integration of GetThere and the Sabre partnership gives Serko a strategic beachhead into large North American corporates and TMC resellers, which positions the business to access a larger addressable market and potentially increase total income and earnings over time.
• Early leadership in NDC across Sabre and Amadeus, together with growing NDC adoption by major airlines, is cited as a factor that may increase content differentiation and wallet share, supporting higher quality revenue and structurally stronger gross margins.
• Accelerated investment in AI-powered capabilities, supported by an India development hub and widespread adoption of AI coding tools, is expected to increase product innovation velocity and operating leverage, with the aim of improving long-term net margins and free cash flow generation.
• A strong balance sheet with NZD 65 million of cash, no debt and a history of generating free cash flow while growing, is described as an enabler of continued reinvestment in platform acceleration and U.S. expansion without dilution, with the goal of supporting compounding earnings power.

Assumptions

This narrative explores a more optimistic perspective on Serko compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Serko's revenue will grow by 17.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -24.4% today to 20.1% in 3 years time.
• The bullish analysts expect earnings to reach NZ$35.4 million (and earnings per share of NZ$0.27) by about December 2028, up from NZ$-26.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NZ$-5.7 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from -14.1x today. This future PE is lower than the current PE for the NZ Software industry at 23.4x.
• The bullish analysts expect the number of shares outstanding to grow by 0.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Serko is leaning heavily on macro sensitive corporate travel demand, and management already highlighted weaker trip frequency among small and medium businesses in Europe. If macroeconomic or geopolitical headwinds deepen or persist, this could structurally cap growth in completed room nights and slow revenue expansion.
• The U.S. strategy depends on converting a strong strategic position with Sabre and GetThere into meaningful direct corporate and TMC reseller sales. Management acknowledged they have not achieved targeted U.S. sales and some large prospects are delaying adoption until new capabilities are ready. If this conversion continues to lag, the North American opportunity may remain under-monetized and constrain earnings growth.
• Serko is materially increasing spend on AI powered platform acceleration and U.S. market initiatives while still loss making at the net profit level. If these long dated investments fail to deliver the expected operating leverage or pricing power, total spend could remain elevated and net margins and earnings may not improve as assumed.
• The revised Booking.com for Business commission tiers and expectation of moving into lower commission bands as volumes exceed 4.2 million completed room nights mean each additional room night could earn less revenue per unit over time. If volume growth slows or mix shifts unfavorably, this structural decline in average commission and revenue per completed room night could compress gross margins and EBITDA margins.
• Foreign exchange movements and hedging choices have already swung reported results from gains to losses, including a sizeable FX loss and reduced net finance income in the latest period. If currency volatility remains elevated or hedging is imperfect, reported revenue stability and net profit could continue to be pressured, undermining the predictability of earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Serko is NZ$4.55, which represents up to two standard deviations above the consensus price target of NZ$3.69. This valuation is based on what can be assumed as the expectations of Serko's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$4.55, and the most bearish reporting a price target of just NZ$2.71.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be NZ$176.0 million, earnings will come to NZ$35.4 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of NZ$3.01, the analyst price target of NZ$4.55 is 33.8% 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.