The Webjet Limited (ASX: WEB) share price was out of form in October and tumbled notably lower.
The online travel agent’s shares lost 11.7% of their value over the month. This compares to a 1.9% gain by the S&P/ASX 200 Index (ASX: XJO).
Why did the Webjet share price underperform in October?
Investors were selling Webjet and other travel shares, such as Flight Centre Travel Group Ltd (ASX: FLT), last month amid rising COVID-19 cases globally.
With many countries experiencing second and third waves and recording record high infections, the prospect of global travel markets reopening fully before the successful development of a vaccine became very unlikely.
This could be bad news for travel companies, who may have to contend with lower booking volumes for even longer than expected.
Speaking of which, last month Webjet provided the market with an update on how its businesses are performing in FY 2021.
What did Webjet reveal?
Webjet’s update revealed that bookings are still down significantly from their pre-pandemic levels.
According to the release, the company’s Webjet OTA business recorded monthly bookings of 18,700 during September. This is down from its pre-COVID average of 131,300 per month.
However, it is worth noting that this recovery is stronger than the market average, which implies market share gains. Management advised that Webjet OTA’s bookings are 14.2% of pre-COVID levels, which compares favourably to a 7.1% recovery by the rest of the market. This side of the business will reach break-even when levels hit 23% of 2019’s levels.
The company also revealed that its key WebBeds business is improving but remains a long way from becoming breakeven. As of 7 October, its average total transaction value (TTV) stood at 12% of calendar year 2019 levels. Management advised that it needs to surpass 45% of 2019’s levels to become profitable.
One positive, though, was that Webjet’s cash burn has been better than expected thanks to its focus on managing costs. So far in FY 2021, its cash burn is $9 million a month. This compares to $10.5 million a month in FY 2020.
Based on this, current trading conditions, and its strong balance sheet, management believes it has sufficient capital to see it through to 2022.
Forget what just happened. We think this stock could be Australia’s next MONSTER IPO…
One little-known Australian IPO has doubled in value since January, and renowned Australian Moonshot stock picker Anirban Mahanti sees a potential millionaire-maker in waiting…
Because ‘Doc’ Mahanti believes this fast-growing company has all the hallmarks of genuine Moonshot potential, forget ‘buy now pay later’, this stock could be the next hot stock on the ASX.
See how you can find out the name of this stock
Returns as of 6th October 2020
More reading
- These are the 10 most shorted shares on the ASX
- Are ASX retail investors ‘dumb money’?
- Leading brokers name 3 ASX shares to buy today
- These are the 10 most shorted shares on the ASX
- ASX 200 Weekly Wrap: ASX snaps winning streak… just
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Why the Webjet (ASX:WEB) share price tumbled 12% lower in October appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/2JvmGst
Leave a Reply