AI-Powered Travel Platforms Will Gain Share From Legacy Providers Over The Long Term

Catalysts

About Navan

Navan provides an AI driven, end to end business travel, payments and expense management platform for enterprises and growth businesses worldwide.

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

• Accelerating shift of global enterprises away from fragmented, legacy travel and expense stacks toward unified, AI powered platforms positions Navan to keep taking share in a $185 billion market, supporting sustained double digit revenue growth and higher net revenue retention.
• Rising expectations that AI will be embedded in critical business workflows is driving demand for Navan Cognition, Ava and the upcoming Navan Edge experience, which should deepen product adoption, increase usage based revenue and structurally lift operating margins through automation.
• Industry consolidation and operational issues at traditional managed travel providers are forcing large corporates to reevaluate vendors, giving Navan an opportunity to win full global mandates, expand gross booking volume and enhance earnings visibility as new cohorts ramp.
• Growing reliance on integrated corporate payments and card based spend control in travel programs, combined with Navan’s strengthened post IPO balance sheet and lower cost of capital, should enable higher payments attach rates and better unit economics, boosting net margins and interchange driven earnings over time.
• Globalization of business travel and increasing focus on real time visibility, duty of care and policy compliance favor Navan’s international footprint and direct supplier network, which can expand hotel and air attach, sustain usage yield near 7% and support ongoing gross margin expansion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Navan's revenue will grow by 24.4% annually over the next 3 years.
• Analysts are not forecasting that Navan will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Navan's profit margin will increase from -56.7% to the average US Hospitality industry of 8.1% in 3 years.
• If Navan's profit margin were to converge on the industry average, you could expect earnings to reach $101.9 million (and earnings per share of $0.33) by about December 2028, up from $-371.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 95.7x on those 2028 earnings, up from -8.6x today. This future PE is greater than the current PE for the US Hospitality industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Business travel is structurally cyclical and highly sensitive to macro slowdowns, geopolitical disruptions and changes in corporate travel policies, so any prolonged downturn in the global business travel cycle or shift to virtual meetings could compress gross booking volume and stall revenue growth over time.
• Navan’s strategy and valuation rely heavily on AI leadership and proprietary data, but rapid advances from larger AI platforms or new entrants could erode its technology moat and pricing power, which could pressure long term net margins and earnings.
• The model depends on expanding payments attach rates and extending more credit post IPO. A weaker credit environment, rising defaults or tighter capital markets could limit interchange economics and increase credit losses, weighing on net margins and free cash flow.
• Ongoing industry consolidation and uncertainty at legacy competitors are tailwinds today. If incumbents modernize faster than expected or bundle travel with broader corporate software stacks, Navan could face tougher competition for large enterprise mandates, slowing new customer wins and net revenue retention.
• Execution on multiple growth vectors at once, including Navan Edge, PLG expansion, international growth and higher direct supplier connectivity, raises operational complexity. Missteps in scaling or integrating these initiatives could increase operating costs faster than revenue and cap long term earnings growth.

Valuation

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

• The analysts have a consensus price target of $25.08 for Navan 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 $30.0, and the most bearish reporting a price target of just $20.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $101.9 million, and it would be trading on a PE ratio of 95.7x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $12.9, the analyst price target of $25.08 is 48.6% 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.