Cloud Migration And Asia Pacific Trends Will Unlock Travel Opportunities

Key Takeaways

• Continued digital transformation and advanced AI integration are driving greater operational efficiency, margin improvements, and enhanced client retention for sustainable growth.
  
• Expansion into hospitality, payments, and airport operations reduces reliance on airlines, positioning the company for more stable and diversified earnings.
  
• Exposure to industry shifts, high expenditures, and volatile macroeconomic conditions threaten Amadeus' revenue, margins, and long-term growth prospects as competition and client power intensify.

Catalysts

Operates as a transaction processor for the travel and tourism industry in Spain, Germany, rest of Europe, the Middle East, Africa, Asia and the Pacific, the United States of America, and rest of America.

• Continued global growth in travel, particularly in Asia Pacific (10% PB growth) and steady recovery post-COVID, suggests persistent expansion of Amadeus's addressable markets and transaction volumes. This underpins longer-term top-line (revenue) growth as travel demand rises globally.
  
• Acceleration of digital transformation in travel, highlighted by Amadeus's near-complete cloud migration (90% of applications in public cloud) and expanded strategic partnerships (Google, Microsoft), is expected to drive higher operational efficiency and margin improvements, supporting growth in net margins.
  
• Increasing demand for AI-driven personalization and big data integration in travel is being leveraged through Amadeus Nevio, MetaConnect with Google Flights, and advanced AI/GenAI integrations. This will likely strengthen client retention, foster upselling, and increase recurring SaaS revenue, positively impacting both revenues and future earnings growth.
  
• Diversification beyond airline distribution into hospitality, payments, airport operations, and new rail agreements demonstrates successful expansion into high-growth verticals (e.g., Marriott/Accor implementation, payments, biometrics at Gatwick). This reduces reliance on traditional airline cycles and supports a more sustainable top-line and earnings trajectory.
  
• Scaling of New Distribution Capability (NDC) agreements and becoming the leading NDC content aggregator positions Amadeus to capture a larger share of evolving end-to-end travel distribution. This increases pricing power and supports higher revenue per booking and contribution margin expansion in coming years.

Amadeus IT Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amadeus IT Group's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.0% today to 22.1% in 3 years time.
• Analysts expect earnings to reach €1.7 billion (and earnings per share of €3.78) by about August 2028, up from €1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.8x on those 2028 earnings, up from 24.1x today. This future PE is greater than the current PE for the GB Hospitality industry at 16.8x.
• Analysts expect the number of shares outstanding to grow by 1.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.14%, as per the Simply Wall St company report.

Amadeus IT Group Future Earnings Per Share Growth

Risks

• The company's ongoing reliance on the global travel sector, which remains sensitive to macroeconomic and geopolitical shocks (such as regional conflicts and moderation in US travel demand), exposes Amadeus to unpredictable downcycles that could suppress transaction volumes and revenue growth.
  
• Persistent high R&D and capital expenditures (€700 million in R&D, 20% of group revenue, and 22% growth in capex) for cloud migration and product upgrades may continue to weigh on near-to-mid-term free cash flow and operating margins, especially if revenue growth does not accelerate as projected.
  
• Increasing FX (foreign exchange) volatility, with 40–50% of group revenue and 35–45% of operating expenses in USD, has already had a negative impact on reported revenue and EBIT, and continued currency headwinds could suppress earnings and net margins further.
  
• Growing industry trends toward direct airline and hotel bookings, as well as the use of alternative aggregators and NDC direct connections, could gradually erode the core GDS (Global Distribution System) business, particularly if airlines' and consumers' adoption of outside platforms accelerates, cutting into Amadeus' top-line growth.
  
• Customer consolidation (e.g., among airlines and hotel groups) and a more constructive, but tough negotiation environment could lead to greater client bargaining power, causing pricing pressure and lower renewal terms-which may compress gross margins and base revenue over the long term.

Valuation

• The analysts have a consensus price target of €77.91 for Amadeus IT Group 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 €88.0, and the most bearish reporting a price target of just €65.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.9 billion, earnings will come to €1.7 billion, and it would be trading on a PE ratio of 27.8x, assuming you use a discount rate of 10.1%.
• Given the current share price of €72.58, the analyst price target of €77.91 is 6.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.