Hotel Software-as-a-Service (SaaS) provider SiteMinder Limited (ASX: SDR) has had a stellar market debut after the company formally started trading on the Australian Stock Exchange.
In less than two hours of trading, the SiteMinder share price is up a whopping 33.89% to $6.77.
SiteMinder joins a growing list of recent successful initial public offering (IPO) listings.
Underwear retailer Step One Clothing Limited (ASX: STP) has jumped 79% since listing last week.
Meanwhile, small business lender Judo Capital Holdings Limited (ASX: JDO) is up a more modest 9%.
Hotel software for the 21st century
SiteMinder assists local bed and breakfasts, motels, lodges and vacation rentals with managing bookings across online channels such as Airbnb, Booking.com and Expedia.
The company has also branched out into website builders, booking engines and distribution with corporate agents.
SiteMinder has revenue of over $100 million, is incredibly sticky and is solving a real pain point for small and medium-sized hoteliers.
“Our mission here at SiteMinder is to open up every accommodation provider’s access to online commerce”.
SiteMinder – like all companies in the travel sector – has been hit by the closure of borders and subsequent halving of accommodation bookings.
However, the business has managed to weather the storm. with revenue only falling 5.7% in FY21 in constant currency terms.
For a more in-depth review of SiteMinder, check out my free 5-minute guide.
12.5x sales? That’s cheap!
SiteMinder is currently loss-making, however, is approaching profitability. In 2019, before the pandemic, the business recorded free cash outflow of only $0.6 million.
Notably, in its prospectus, the company did provide forecasts for the FY22 year. However, it did disclose that revenue was up 10% in the first quarter of FY22 compared to FY21.
The company raised $627 million at $5.06 in its IPO to largely fund existing shareholder sell-downs. The business also reserved $90 million for future growth.
The IPO implied a market capitalisation of $1.3 billion. Put another way the business is valued on a sales multiple of 12.5.
However, today’s 34% jump implies that the market thinks the IPO valuation of 12.5x was incredibly cheap.
It’s not uncommon for SaaS companies to be valued on sales multiples. But investors should remain cautious that at some point this valuation multiple will likely contract.
My take
A great result for new and existing SiteMinder shareholders.
I do think it’s a quality company with great a management team and growth prospects. But at 12.5 sales I was apprehensive of the valuation.
Now that the share price (and multiple) is up 34%, I’ll remain admiring from the sidelines.
