We always worry going into earnings. Our data tracker has been pretty accurate in terms of directionally predicting results (within 1% on TN revenue last few quarters), and this Q it indicates a miss on Sep-Q (topline) and a wider miss on the Dec-Q.
We are -2% on 3Q topline for Sabre. We are more than 4% below on 4Q revenue. How come? The central problem is seasonality: the Street doesn’t seem to be modeling traditional 4Q seasonality.
But when the data is so self-evident, we have to wonder: what are we missing?
Finding problems, good and bad, in Street estimates for Sabre:
- Negative: Street is looking for 5.5% growth for AHS solutions in 2018…notwithstanding the exit of Southwest mid-2017 which creates a difficult comp
- Positive: Street is modeling flattish Dec-Q OPEX despite the 11% RIF in early 3Q which should remove ~$20m of OPEX
- Negative: Street modeling 6% growth for TN in 2018 while transaction comparisons indicate a tougher y/y comp against this year’s growth, and recent data confirms slowing overall domestic US transactions
Notes from our Sabre data digging:
- Fired 11% of the staff – we estimate max ~$25m cut to quarterly OPEX into 4Q
- Air Canada selected Amadeus despite the fact that Sabre’s CEO used to be head of commercial strategy at Air Canada:
- “He served as an Executive Vice President of Commercial Strategy at Air Canada, a subsidiary of Ace Aviation Holdings Inc., from June 2007 to August 2007, Executive Vice President and Chief Commercial Officer from July 2005 to June 2007 and Executive Vice President of Strategy since May 22, 2007. Mr. Menke served as a Senior Vice President of Ace Aviation Holdings Inc. since June 16, 2005 and was responsible for all commercial aspects of Air Canada's worldwide operations, including marketing, sales, scheduling, brand, research and product development, international affairs, alliances and Jetz, the carrier's specialty charter service.” (Bloomberg)
- Hotel revenue should bounce back on further Wyndham deployments – specifically looks like Ramada has moved onto the system recently (adds 800 hotels on base of ~33k at Sabre)
- “To date, we have moved 9 of our 20 brands onto that central reservation platform. And what that provides each brand with is global 2-way connectivity they've never had before. So in terms of our ability for each brand, and we're seeing that today with the brands that we moved on like Ramada internationally, they're now all on a central reservation system that's more connected than what they were on previously. And we've seen significant share growth and contribution growth most importantly for the brands that have moved on. Our big brands, Days Inn and Super 8, will move on. Days, later this year, we're targeting that for November. Super 8, the first quarter of next year” (Wyndham CEO 10/25/17)
- A Labor Union presented itself to management during the quarter to try to represent the workers of Sabre, who by now, may be feeling a fair bit of uncertainty from layoffs but also due to some efforts by Sabre management to change the terms of employee contracts in certain geographies
- Sabre launched a new AI based solution for hotels – already embraced by Hotels, despite the late-to-bandwagon launch, it actually makes sense to have this kind of effort underway at Sabre and is encouraging that the company is looking for new product
- Avianca Airlines renewed as a customer of Sabre
- More smoke around AA potentially leaving Sabre (potentially ~$40-50m per year of lost revenue for AHS)
- AA promising major IT based cost savings in the coming year
- AA launched NDC based capabilities in June
- More employees writing into public forums around the subject
- LoganAir added to Sabre GDS
- Exiting Sabre SVP of Enterprise Tech Operations hired to be VP of Technology at Southwest Airlines (yikes)
- New management appointments:
- New CTO: Vish Saoji, Effective Date: 9/5/17, Priors: GE Healthcare Digital, CTO for Software Engineering, product portfolio and cloud platform strategies. Prior to GE Healthcare Digital, he held engineering and management positions at GE Digital, EMC, and Oracle.
- New President of Hospitality Solutions: Clinton Anderson, Effective Date: 8/7/17, Priors: Anderson joined Sabre in 2014, and he currently serves as senior vice president of strategy where he has been instrumental in key product, technology, business and investment strategy initiatives. Prior to joining Sabre, he co-founded Emerson/Anderson, a private investment fund focused on small cap businesses. He was also a partner at Bain and Company where he served as a leader of consumer products
- New CIO: Joe DiFonzo, Effective Date: 7/10/17, Priors: Most recently, eight years at Syniverse, a global provider of communication and information services for network operators, where during his tenure he served as both chief technology officer and CIO. He previously spent 20 years at Convergys/Cincinnati Bell Information Systems, leading architecture and product development teams, among other assignments.
Net: the only positive going into the Q so far looks like the headcount reduction. Sad.
