The Internet is a disruptive beast with new business models going online every day. Webjet Limited (ASX: WEB) was one in a bunch of first-movers to go online when its founders revolutionised the travel industry by empowering customers to skip travel agents and book flights online, by themselves.
Whether it was pure luck, or a stroke of genius, the decision appears to have paid off with Webjet shares up over 700% since listing in 2000. However, its recent 65% surge in share price since July (on the back of solid results) might make it a good opportunity to take profits.
The travel industry
Webjet provides an online booking platform for customers to custom-build their itinerary at wholesale prices. It provides access to flights, cars and accommodation all around the world, allowing customers to experience a one-stop shop/site for their travel needs.
With global travel agency services set to grow by 6.8% annually over the next five years, the travel and tourism industry should be supported by demand. Webjet is well positioned to take advantage of these favourable conditions.
However, Webjet faces strong competition from bricks and mortar travel agents like Flight Centre Travel Group Limited (ASX: FLT) and Helloworld Ltd (ASX: HLO). It also must compete against online global giants Expedia and Priceline, leaving it precariously placed within the tourism industry.
Strong fundamentals
Nevertheless, Webjet appears to be performing well, with the company posting an underlying increase to earnings (EBITDA) of 41% in the last financial year.
The company was proactive in chasing new business sources. Total transaction values soared 31% across the group, supported by strong growth in its Business-to-business (B2B) division. The growth in its B2B segment came from the group's acquisitions of Lots of Hotels and SunHotels suggesting a shift in strategy to cater for the B2B market.
As The Motley Fool readers will undoubtedly have seen with Corporate Travel Management Limited (ASX: CTD), this segment can be lucrative. However, I believe Webjet's recent run-up has priced in all the upside, making its business model too risky to buy into at current levels.
A dying business
Webjet derives income through booking and transaction fees as well as commissions from service providers.
Although agency commissions are normal in the tourism industry, Webjet is the last of a rare breed which still charges booking and administration fees for providing such services.
Conversely, direct service providers like Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Limited (ASX: VAH) provide similar facilities without booking fees on their respective websites. This arguably implies Webjet's ability to command such fees into the future may be limited.
Foolish takeaway
Webjet is a solid business that has performed well over the years. It's recent results are a testament to that.
However, its mature business profile and increasing industry competition makes for limited upside potential. Accordingly, I believe it's currently a good time to take advantage of the recent uptick in price and take some profits.
