RateGain Travel Technologies IPO: Information analysis

RateGain Travel Technologies (after this referred to as 'RateGain') is the largest Software-as-a-Service company (SaaS) in India's hospitality and travel industry. It offers travel and hospitality solutions across various verticals including hotels, airlines, online travel agents (OTAs), vacation rentals, car rentals and cruises among others. Its suite of products leverage its big data capabilities and help hospitality and travel providers acquire more guests, retain them via personalised guest experiences and seek to maximise their margins.

The company builds technologies around the guest acquisition and pricing intelligence. It delivers the solutions through its SaaS platform. Its products are classified under three strategic business units:

a. Data as a Service (DaaS) - provides real-time competitive pricing insights, makes sure that prices are not dissimilar across various platforms so that the customer gets to benefit from their ad spending and helps companies make better pricing decisions. Revenue is earned through a subscription model and a hybrid model (minimum subscription fee + pay-per-use). This segment contributed 37.2 per cent to FY21 revenue.

b. Distribution - provides availability, rates, inventory and content connectivity between accommodation providers (like Expedia) and their demand partners (like hotels). The company has subscription and transaction models (that generate revenue from bookings). This segment contributed 48.6 per cent to FY21 revenue.

c. Marketing Technology (MarTech) - end-to-end brand to consumer social media interaction to drive customer delight and loyalty. Flashes ads for hotels on social media to acquire customers. Once acquired, the next step is brand engagement by monitoring the customer's needs. Finally, there is personalisation to help improve the guests' experience and ensure brand loyalty. Revenue is earned through a subscription model, and this segment contributed 14.2 per cent to FY21 revenue.

According to a Phocuswright report, COVID-19 has accelerated the digitisation of customer interactions with hospitality and travel companies. These changes will likely shift hospitality and travel companies from in-house solutions to third-party software and services. Third-party travel and hospitality technology is estimated to be a $5.91 billion market in 2021, growing to an estimated $11.47 billion in 2025 at a CAGR of 18 per cent.

Strengths

Platform advantage: RateGain offers a platform that bridges the data gap across the hospitality and travel industry. By leveraging data, its interoperable products help its customers find the right guest, decide the right price, distribute it to the preferred channel of the guest and once converted, help them have an exceptional experience. The company has built proprietary AI algorithms and applied them in connection with its SaaS products, thereby providing its customers with the next generation of product features and increasing the opportunity to cross-sell.

Marquee global customers with long-term relationships: The company's customers include 25 out of the top 30 OTAs, several of the world's fastest-growing airlines, 23 of the top 30 hotel chains, tour operators and wholesalers, all leading car rental companies, all large cruise lines, and the largest travel management companies. As of September 30, 2021, the company had 1,462 customers, and over 415 customers have been associated with RateGain for more than five years. Moreover, its top 10 customers (which contributed 37 per cent to FY21 revenue) have been with the company for over seven years.

Network effect: As the company is one of the largest aggregators of data points globally for the hospitality and travel industry, it enjoys strong network effects. The company does this by integrating its data with various management and reservation systems and other channels such as tour operators, OTAs, wholesalers, bed-banks, etc. Data created by one set of products feed into other products. Also, when scraping data on its own, the company does not depend on cookies but instead uses cohorts (a group of users who share a common characteristic).

Risks/weaknesses

Susceptible to the woes of the travel and hospitality industry: As the company caters entirely to the travel and hospitality industry, RateGain's business is sensitive to factors affecting business volume in the travel and hospitality industry. The pandemic has resulted in a significant fall in demand for travel worldwide. In FY21, the company's revenue fell 37.1 per cent due to this. Any resurgence in cases and resultant lockdowns will not bode well for the company.

Significant overseas revenue: Its revenue from outside India has averaged 98.9 per cent over FY19-21. This exposes the company to various risks like regulatory, foreign laws, intellectual property enforcement, etc. Foreign exchange risk is also present.

Privacy regulations: As the company receives and stores a large volume of personally identifiable data, it is subject to the changing legislation and rules regarding data collection and storage. Though the company complies with all the regulations in each geography it operates, in case new and stricter rules are implemented, not only will the compliance cost increase, it might even have to work out new ways to do business.

Also read about RateGain Travel Technologies IPO: How good is it? to learn how we evaluate RateGain on various metrics.

Disclaimer: The author may be an applicant in this Initial Public Offering