Our perception of narrow-moat Siteminder (SDR) as a future category leader in hotel e-commerce software isn’t reflected in current share prices, with shares significantly undervalued compared with our $10 per share fair value estimate. The shares have fallen close to 14% in the last 3 months. 

Market concerns seem to center around the company’s continuing lack of profitability despite an unusually supportive economic background in recent years. These concerns are understandable. Since 2022, markets have clearly expressed a desire for emerging tech companies to demonstrate that they have the potential to generate profits. SiteMinder’s string of losses can, therefore be read erroneously, as an inability to generate profits.

However, we see a clear path to profitability. We expect SiteMinder to achieve profitability in fiscal 2026 and to continuously expand earnings.

First, we see a limited impact from cyclicality. Although an increasing share of SiteMinder’s revenue is coming from its more cyclically exposed transaction revenue, this revenue has lower gross margins than the company’s subscription revenue, limiting the impact on the company’s bottom line. Given that we view the company as only being in the early stages of a long secular growth trend of digitization in the hotel sector, we believe the company’s results are primarily driven by secular trends, not cyclical ones.

Second, we believe that unusually high investment into research and development should ease. SiteMinder has launched more substantively new products than any company in our Australian technology coverage. These newly developed products are unique in market and therefore don’t require similar spending levels to stay competitive. Rather, these recent investments will allow the company to pull away from competitors. We expect research and development to stay relatively fixed in the future and to decline as a share of revenue.

On the road to profitability

We expect SiteMinder’s strategy to be wide-ranging, including a focus on attracting new customers, increasing penetration of its current product suite, and developing and launching new products. We view SiteMinder’s strategy as appropriate, despite its wide-ranging nature, as all three focus areas provide large and highly winnable opportunities.

We expect SiteMinder to take significant market share within the hotels industry. SiteMinder’s market share among hotels currently sits in the midsingle digits, yet SiteMinder is the leader in its space, and has twice the market share of its closest competitor. We expect scale-based cost advantages to drive consolidation in the channel manager industry, as subscale players are pushed out of the market and scaled providers, like SiteMinder, take share. Specifically, we expect SiteMinder to take dominant market share in larger single-location hotels, and in hotel chains outside of the largest chains.

We also expect SiteMinder to increase its take rate through increased penetration of its existing product suite, especially through adoption of its transaction-based products. We estimate transaction-based revenue currently makes up around 10 basis points of the gross booking value, or GBV, of SiteMinder’s customers. For comparison, SiteMinder Pay has a take rate of around 2%-3% of payments that are processed through a hotel’s website or, from fiscal 2025, also on payments processed at a hotel’s premises. Similarly, SiteMinder Demand Plus has a take rate of 15% on incremental demand generated through search engine optimization.

Finally, we expect SiteMinder’s new products to be significant growth drivers, especially Channels Plus. We expect Channels Plus, which aggregates several smaller channels into a single channel, will see rapid adoption among SiteMinder’s existing customers, and help attract new customers. Although the take rate of this product is like that of payments, we expect its uptake to be much higher, due to its more differentiated nature, as well as the clear value it provides.

SDR bulls say

  • SiteMinder is the world’s largest e-commerce software provider for the global hotel industry, at twice the size of its nearest competitor.
  • SiteMinder has a large and highly winnable market opportunity, consisting of increased market penetration, product penetration, and increased digitization of the hotel industry through new products.
  • SiteMinder’s Channels Plus product is a unique and highly valuable product that will accelerate customer acquisition and take-rate expansion.

SDR bears say

  • SiteMinder’s end markets are highly cyclical.
  • SiteMinder’s market share currently sits in the midsingle digits, which leaves significant room for new competitors to come in.
  • SiteMinder has a history of losses and may struggle to achieve profitability.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.