Global Business Travel Group: Buying This Travel Stock Could Be A Genius Move (NYSE:GBTG)

Investment Thesis

Global Business Travel Group (NYSE:GBTG) has underperformed in 2023 and stock prices are down by about 3%. However, I believe a stock has the potential for upside based on revenue growth driven by transaction growth from broad-based customers across the industry, strong improvement in operational efficiency reflected from margin improvement and achieving positive free cash flow are some of the stock catalysts.

Global Business Travel (GBT) is the world’s leading B2B travel platform, providing software and services to manage travel, expenses, and meetings & events for companies of all sizes.

Strong Revenue Performance Driven By Growth In Total Transaction Value

In Q2-2023, the company reported the highest quarterly revenue in their corporate history. The revenue increased by $106 million, an increase of 22% Y/Y driven by continued recovery from post-pandemic travel relaxation. The management expects revenue growth for FY-2023 in the range of 22-23%. Moreover, GBT achieved Q2-2023 revenue ahead of guidance & thus raised FY 2023 guidance, it is a solid sign.

The company has 2 segments i.e. Travel and Product & Professional Services. The travel segment includes revenue streams related to servicing a transaction, through air, hotel, car rental, rail or other travel-related booking or reservation. Its revenue increased by $91 million (23% growth Y/Y) due to growth in transaction value supported by strong growth in corporate travel and international transactions. The other segment, Product and Professional Services revenue increased $15 million (16% growth Y/Y) due to growth in management fees and corporate events revenue (driven by strengthened demand).

Transactions and Total Transaction Value (TTV) – Excellent SME and International Growth

As travel restrictions have been relaxed, GBT has seen continuous improvement in its key volume metrics through H1-2023.

In the above graph, we can see that total transactions increased by 12% compared to Q2-2022 and TTV increased by 13% to $7.3 billion due to growth in business travel. Furthermore, management expect double digit transaction growth in H2-2023.

For the travel industry, details of transactions are the most important metrics to evaluate the performance of the company.

From the above graph, investors can understand the source of the increase in transactions. With this, we can conclude SME (Small-Medium Enterprise) and international transactions are growing fastest. SME transactions increased by 15% Y/Y and international transactions by 17% Y/Y. The management expects the highest growth in industrials, communication services and financial services and insurance. Also, it’s customers expect continued strong growth in H2-2023 travel spending.

In summary, GBT is showing strong momentum in revenue growth driven by transactions, TTV, SME and international customers, and expected improvement in customers from across industries. Thus, we can conclude that GBT stocks will take advantage of an improving overall business travel environment.

Revenue Growth of GBT in Comparison To Peers

Let’s try to understand the revenue growth of GBT in comparison to peers to substantiate our analysis:

From the above comparison, we can conclude that revenue growth of GBT in Q2-2023 is higher than of almost all peers of travel tech, airlines, hotels and business services. Hence, buying this growing travel stock could be a genius move for investors.

Drive continued margin improvement

There have been continuous improvements in GBT’s business and operating position since the outset of the COVID-19 pandemic. GBT has successfully managed the cost in an environment of high inflation. In Q2-2023, adjusted EBITDA amounted to $106 million, an increase of 126% Y/Y. The companies having incremental margins (EBITDA margin growth > revenue growth) are showing signs of operational efficiency. Furthermore, it has achieved an adjusted EBITDA margin of 18% compared to 10% in Q2-2022. This is a significant improvement of 800bps in a year and investors must consider this in their analysis. Moreover, management is estimating adjusted EBITDA margin in the range of 16%-17% for FY-2023. This is 10% higher than compared to the 6% margin for FY-2022. In nutshell, GBT has a solid trend for margin improvement.

Returned to Positive Free Cash Flow

Cash is king and GBT has achieved an important milestone by returning to positive Free Cash Flow ahead of projections in Q2-2023. This is an improvement of $195 million compared to the same period in 2022 driven by an increase in cash flow from operating activities.

Risk for Investment

Although the world is moving back to the pre-pandemic travel pattern, however any new variant could derail travel relaxations and will be a negative catalyst for GBT. Therefore, the company cannot foresee the long-term effects of the pandemic on its business.

GBT has achieved an important milestone by returning to positive Free Cash Flow and its important to manage the cost structure effectively to continue with positive FCF. Any mismanagement of operating expenses will lead to negative FCF. Hence, management of cost structure is important in the current situation.

Final Thought

The key investor takeaway is that GBT is a solid company with robust historical revenue growth and projected growth. It is poised to outperform due to performance of key metrics like transactions and TTV, EBITDA margin expansion, better management of cost structure and break even of FCF in Q2-2023. However, investors have to watch closely the impact of any emerging COVID variant on revenue growth. In addition, the investor should keep a close eye on management guidance related to revenue and margins. In nutshell, buying this travel stock could be a genius move.