BENGALURU: India’s largest online travel agent MakeMyTrip will continue to spend aggressively in the hotel’s space even after its acquisition of main rival Ibibo Group, as it feels there is big headroom for growth and competition will continue in the space. The Nasdaq-listed online travel player reported over 228% increase in marketing and promotional expenses, which is customer acquisition spends, to $48.4 million during the September quarter.
“Over time as penetration improves you will see marketing and sales promotion expenses get optimized. But it will not change overnight and the idea is not to do that because of the underlying momentum,” said Make-MyTrip India CEO Rajesh Magow, adding he sees the penetration of online hotel booking increasing from 12-15% now to 35-40% in the next three years. “All our stakeholders are quite supportive of this approach,” Magow added.
Even as it becomes the market leader by a margin post the transaction, MakeMyTrip will see competition from players like Yatra, Cleartrip, OYO, Stayzilla besides international players like Bookings.com and Expedia for the hotel market. On Wednesday, MakeMyTrip reported a 13.6% increase in gross bookings during the September quarter to $493.5 million, but the net loss also went up by 350% to $25.3 million. The company’s management stated in an analyst call that growth will continue to be a priority over profitability even after the Ibibo transaction, indicating that losses will continue.
The MakeMyTrip scrip closed at $28.45 on Wednesday, up marginally by 0.15% giving the company a market capitalization of $1.19 billion. MakeMyTrip has spent about $53 million each in the first two quarters of the calendar year 2016 on marketing and promotion this year, as the battle for domination of high-margin hotel booking space with Ibibo hit a tipping point. Last week, MakeMyTrip announced a stock acquisition of Ibibo, where the latter’s shareholders will get a 40% stake in the combined entity. Magow said that there will be opportunities to rationalize customer acquisition cost in the domestic flight segment, where online penetration is already 50% but overall expenses will not be “dramatically reduced.” He said the combined entity will not increase the commission charged to hoteliers significantly. “We are not going overboard on margin and take rates. On a blended basis, it will remain in 15-20% range and will not change dramatically,” said Magow.
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Source: Economic Times
