Let’s review the SABR checklist:
- CEO: Check.
- Execution: Check.
- Cycle: Mixed. As management noted, “we just see slight trimming on a year-over-year basis based on what is there right now.”
- CFO: Mixed. We like his view of the data opportunity but can’t agree with his focus on ‘recurring revenue’. Dear Doug, recurring revenue is a false god.
- Sabre has a chance to be a technology catalyst for the airline industry. But that means changing everything, and then changing it again. It means staying nimble, trying and failing, and driving new innovation to the market faster than ever. If you focus on ‘recurring revenue’ you risk lulling Sabre back to sleep and into the dust bin while the market changes without you.
- Don’t you dare budget next year based on ‘recurring’ revenue. Don’t do it. Volumes fluctuate. Stay nimble with forecasting. No major budget advancement unless Sean thinks he can sell this to the Street as a necessary catalyst. The Street will naturally push back and require going back to the well to carve out investment funds from within the pre-existing large investment categories at Sabre. Investments should be made on their merit, not because they can be presumably covered by recurring revenue that may disappoint.
- Hotels: No check. No urgency. We stopped believing in the digital marketing headwind about 180 days ago. Sean, it is nice of you to cover for Hotels in public, but between us, we know what is happening. Over the last # of years, growth in that business unit was driven mostly inorganically, and then Wyndham hit. With M&A and Wyndham in the rearview mirror, growth is slowing. Big surprise. If there is ‘huge’ market potential but unclear line of sight to when customers will adopt, then take that to mean the product needs to be revisited again. Web-based, mobile, lightweight, cloud, AI. Throw all the buzzwords into R&D. Bring out new development. Find the product/tech key that will unlock faster growth. Keep trying. But go ahead and reset expectations in that group. And be careful not to make the mistake of doing an acquisition now just to paper over the growth rate in that group (although we bet you are getting pressure internally to do so). Why? You might end up buying the wrong asset, i.e. for revenue growth, and there is no going back from that kind of mistake. Cash dollars are still precious.
There are many good things from today’s call worth highlighting. We are sure the used paper from other analysts will cover the key spots, ad nauseum. But from the guys who anticipated better than expected results in 3Q18 and shouted it from rooftops, this is not a day for ‘high fiving’ the team. Alarm bells should be going off now, if only just a starting point, as complacency and belief in ‘recurring revenue’ have to be shaken off. There is SO much risk for Sabre right now; time to press down further on the gas pedal. Call us if you want to discuss.
Ami Joseph
Managing Director
Yosef Vaitsblit
Analyst
