Well, while it sucks for me since I have a Short on this stock, and all my fact gathering + data gathering + sleuthing in the quarter added up to a total miss, but net- I am actually happy for the company. Good for them to finally pull out a beat.
Sabre reported $901m of revenue and $103m of FCF versus the Street at $885m and $87m ($0.31 of adjusted EPS versus $0.29). We were below Street on topline by -2%.
The negatives - things to think about even for the bulls:
- Guidance implies slightly lower than Street revenue for 4Q (maybe management just being cautious)
- Price discounting ticked up (upfront incentive consideration)
- Non-GAAP GM % still sucks
- Non-GAAP OPEX went up in 3Q17 despite the massive RIF…
- Deferred revenue continues to drop (see below) which maybe implies they are eating into backlog
- Gross debt and net debt continue to climb which is really disconcerting even against a decent OCF quarter
Re: what happened to my tracker?
In the last few quarters my tracker was accurate to within 0.7% of revenue for the Sabre Travel Network. How did it go so wrong this time? The answer: the tracker is for volumes and it was spot on. It is up to me to figure out the pricing side, and that is the big miss for me this morning, where $s per TN transaction are up 6% y/y. What is the driver of the big step up in pricing? It could be the growth of ancillaries, which means I have more work to do to capture that data set.
Where will the stock go? ~20x EV/FCF gets a $17.70 and I am not even sure it is worth 20x (yes yes I am aware of the ad-back of int expense but I am using the multiple to comp to peers using same mechanics just to get a point of comparison multiple). LTM FCF yield is ~8%. But the mid-point of the bull/bear debate on the FCF yield side (which ignores terrible + worsening balance sheet) gets me over $20. That’s a big move, and painful on a heavily shorted stock. We will have more after the call but based on what I know now, I’d love to short the stock again over $20. Why? ~$400m LTM FCF yet net debt still ticking higher as FCF is already pre-spent at the start of the year.
More after the call
