Global Business Travel Group, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

Global Business Travel Group (GBTG) is a travel management company that offers a range of technology and booking services to corporate clients and employees. It’s a large business in a very cyclical and competitive industry.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Global Business Travel (GBT) plays a role in the overall economy by helping corporations manage their travel needs. The industry is very cyclical, highly fragmented, and very competitive.

Business Overview and Industry

Global Business Travel Group, Inc. (GBTG) operates in the business travel management industry, where it acts as an intermediary between travel suppliers and corporate clients. GBTG’s operations have a global reach, facilitating business travel across various regions. The company provides technology, travel booking services, and consulting. Its clients mainly consist of corporations, as well as governments and non-profit institutions.

Revenue Distribution: GBTG generates revenue through two primary segments: (1) Travel Revenue, which is derived from client payments for travel management services, and (2) Product and Professional Services Revenue, from technology subscriptions, consulting, implementation, and other services. It should be noted that Travel Revenue constitutes the bulk of their revenue.
Industry Trends: The travel industry is highly cyclical, as well as very susceptible to sudden shifts in demand due to economic conditions, pandemics, political instability, and any other global event. Over the past decade, the industry has also seen the emergence of new competitors like online travel agents and new technology disruptors. The industry is also experiencing a shift towards a greater emphasis on digitalization, sustainability and personalization. The long-term trend, however, is positive, with continued growth in business travel.
Margins and Competitiveness: GBTG has highly fluctuating gross margins, which are affected by volume of sales and revenue. The margins from their product and professional services revenue is higher, though, there’s a lot more competition here. Competition is intense, as GBTG competes with large and well-established companies, along with the newer online travel agencies. GBTG does not have a very strong market-share and will depend on price, service, technology, and brand recognition to stand out.
What makes GBTG different: GBTG is a large player that has relationships with major companies that might allow it to maintain its customer base. However, compared to its competitors, it has no clearly defined competitive moat, other than its size. It seems to be relying on its technology platform to give it an edge, but even that can be imitated. The company has seen some success in growing faster than the industry and is betting big on continuing to grow fast.
Other relevant information: GBTG has a very long history with American Express but their partnership is set to end, so it will be interesting to see how it will impact the business. GBTG has also been focusing on integrating AI and expanding its product and service range, which is necessary to remain relevant in the future.

Moat Analysis

GBTG’s moat rating is a 2/5. Its competitive advantages are not very strong or sustainable.

Intangible assets: The company does have large brand recognition, particularly from its past relationship with American Express, but that is soon coming to an end. Also, the brand has limited pricing power. Further, the industry seems to prefer low cost options.
Switching costs: There’s not very much switching costs in the business travel sector. Businesses can just choose other providers without too much hassle. There may be some minor costs of re-training, but nothing significant.
Network effects: There’s no network effect involved.
Cost advantages: It seems that GBTG relies on having a good size and some efficiencies, but nothing beyond normal. Competitors can readily imitate any of their process.

Risks and Resilience

Macroeconomic Downturns: As stated above, travel is a cyclical industry, GBTG’s financial performance is highly correlated with the health of the global economy. A severe or protracted economic downturn can hurt GBTG’s revenue and profits by causing reduced travel volume by companies.
Increased Competition: The travel management industry is getting very crowded. If many other companies enter the market offering the same features, it could lower demand and put downward pressure on prices.
Technological Disruptions: If a new technology comes along that disrupts traditional travel booking and management systems, then the company can get disrupted if it does not innovate accordingly. This is the biggest threat, as a more flexible, cost-effective, and efficient tech can put a huge dent to their profitability.
End of American Express Partnership: The end of this relationship may severely impact their future revenues and profits. They rely on american express to provide access to their client base, which they might have to give up if they don’t come to a new agreement. Furthermore, there may be higher costs associated with generating their own credit and other financial infrastructure.

While it faces these risks, GBTG does have a certain level of business resilience, due to their strong market position, diverse client base, and strong technology. However, if things turn sour, the lack of a strong moat could severely affect its long-term survival and sustainability.

Financials

The company’s financial performance is not very impressive, but some improvements are showing.

Revenues: GBTG’s revenues are derived from Travel Revenue and product and professional services. Travel revenue usually comprises a larger percentage, but can be subjected to the economy and unforeseen external events. They have seen some very good growth and profitability in the recent year.
Profitability: GBTG’s profit margins are low and unstable, and highly dependent on the volume of travel bookings. They also face high operating expenses which further reduces profitability. The company has a highly fluctuating economic profit and WACC is high as well.
Debt: The company has very high debt levels that puts their financial position at risk and make it less resilient to economic changes. Their debt to equity ratio was over 1 at year-end 2021. This makes them vulnerable to a downturn in the business. The interest they must pay is also very volatile due to interest rate fluctuations, putting it at further risk.
Cash Flows: GBTG has struggled to have positive net cash from operations for a couple of years now. The cash flow from financing and investment is also unstable.

Understandability

The business model is not easy to understand. Hence the understandability is given a rating of 3/5.

While most people understand what a travel management company does, the complicated web of relationships, contracts and technology infrastructure required by GBTG is a bit too much. You have to be familiar with airline ticketing, pricing, hotel bookings, and a multitude of other travel aspects to appreciate this business. It is very tough to determine how well and for how long each of its segments will do, since they are closely tied to external factors like world economy.

Balance Sheet Health

The company has high debt which may bring significant issues in the near future, or at any unforeseen circumstance. Hence a rating of 3/5 is provided for balance sheet health.

GBTG has high levels of debt, and its free cash flow has been unpredictable and can turn negative. All of these combined can create significant downside to the business, especially when we see the debt of other companies in the travel industry. GBTG is highly leveraged, putting its financial stability and resilience at high risk.

Recent Concerns and Problems

End of the Amex partnership: The end of their partnership with American Express could significantly impact its customer base, as well as their branding and image. They might lose market share as well, and will need to invest heavily into infrastructure related to financial processes.
Economic uncertainties: The global economic outlook is very uncertain, and may affect GBTG’s financials. Inflation is a major headwind, which may limit travel bookings.
High operating expenses: The company continues to be plagued with high operating expenses, despite increased efficiencies from tech.

Conclusion

GBTG is a major player in a very competitive and volatile industry. The company does not have a clearly established and well-defined competitive advantage and this shows in its financials, which are not that impressive. If GBTG doesn’t manage to improve its sustainability and profitability, and also manage to create a moat around its business, there are high chances that its business will not be able to grow in the future. Their focus on increasing the use of AI for its clients and integrating and modernizing its platform will be critical to their success.