Image source: MakeMyTrip.com.
Last week's biggest winner among Nasdaq-listed companies was MakeMyTrip (MMYT 3.30%). Shares of India's popular online travel website operator soared 34.5% after the company announced it will merge its operations with Naspers Limited's (NPSNY 5.02%) majority-owned ibibo Group.
The combined company will continue to trade under MakeMyTrip, and it will make MakeMyTrip the undisputed juggernaut of Indian online travel. The pairing will bring many of the country's top travel brands -- MakeMyTrip, goibibo, redBus, Ryde, and Rightstay -- under the same roof. Those brands combined to process 34.1 million transactions during fiscal 2016.
The ibibo ownership group -- 91% owned by Naspers and 9% by Tencent (TCEHY 3.49%) -- will receive a 40% chunk of MakeMyTrip. The transaction will also morph the $180 million investment in MakeMyTrip convertible bonds that China's Ctrip.com (TCOM 2.05%) made in January into a 10% equity stake. In short, Naspers, Tencent, and Ctrip will now effectively own half of MakeMyTrip, making this a who's-who of international dot-com giants betting on the rise of India's booming travel industry.
The rise and stall and rise of MakeMyTrip
This isn't the first week MakeMyTrip winds up being Nasdaq's biggest gainer. It also happened during the first full trading week of the year, when the stock soared 29% after Ctrip made its initial investment in the India-based portal. I argued at the time, tongue in cheek but accurately enough, that the move made MakeMyTrip the hottest stock of 2016. The call hasn't been prophetic, but the stock has easily beaten the market with its 66% gain year to date.
However, the stock's gain -- actually more than this year's entire gain -- stems from the 29% pop during the first week and the 35% surge last week. The stock inched slightly lower through the 39 weeks in between.
The deal with Ctrip turned heads, as a leader in the world's most populous nation was staking its claim in a top dog from the world's second most populous nation. India's online infrastructure and middle class are still well behind China and most of the developed nations, but the potential of the country in this early state of the internet migration is huge.
MakeMyTrip went public at $14 six years ago. It kicked off 2016 at $17.16, barely above where it was as a debutante. Slow growth has weighed on investor appetite. Revenue has grown between 12% and 17% in each of the past four fiscal years. That's ho-hum by growth stock standards, but the pace has started to accelerate this year. Profitability has been another challenge, or more accurately the lack of profitability. MakeMyTrip still has a long way to go on that front, and that explains why the two deals this year have accounted for more than the entirety of its gain.
The good news is that synergies of the combination of ibibo and MakeMyTrip should help move the combined company closer to realizing the juicy high-margin merits of the scalable online travel model. MakeMyTrip became more relevant last week, and now it will have to earn that relevance in the quarters to follow.
