Serko boss sees massive revenue, staff surge on back of tie-up with US giant

Serko co-founder and chief executive Darrin Grafton sees his company's mainly Auckland-based staff increasing from just over 100 to up to 350 by the end of next year. Photo / Supplied

Travel software company Serko's revenue and staff numbers are both set to more than triple on the back of a hookup with US giant Booking.com, chief executive Darrin Grafton says.

Grafton sees annual revenue - forecast at $28m to $33m this year - hitting $100m in the medium term (that is, two or three years) by pulling $100m from each of Serko's three main regions (North America, Europe and Australasia), with $300m as his long-term goal.

And he says full-time equivalent staff numbers, which have already climbed from 107 to 208, will hit between 300 and 350 by the end of next year, with around 200 in NZ (Grafton says at any given time, around 20 per cent of his staff are contractors, which gives him the ability to quickly add bodies if a new product is a success, or quickly lose them if it's not).

In October, the Auckland-based, NZX-listed Serko raised $45m as it issued new shares and Grafton, chairman Simon Botherway and other founders sold $16m worth of script.

The equity issue saw Nasdaq-listed Booking.com (market cap: US$177 billion) take a cornerstone investment in Serko, paying $17.5m for a 5 per cent stake.

Serko

Beyond the capital injection, Grafton says the deal will be a two-way street in terms of technology exchange.

The New Year will see Booking.com start selling a white-label version of Serko's Xeno platform (used for booking flights and expenses) in Europe, branded as Booking for Business.

And for its part, Serko will expand its own service to include the likes of hotels, experiences like sports games and concerts, rental cars and meals as it feeds off Booking.com's capabilities in those areas through its stable of sites that includes RentalCars.com and OpenDining.com.

Some software development is required on Serko's side first, plus a softly, softly approach with reseller partners like CWT, Flight Centre, ATPI and Luxe Travel. "If we go too fast, we'd risk inadvertently breaking their systems," Grafton says.

The Serko boss is banking on the new features attracting more corporate travel clients to his company's platform but, more crucially, allowing it a bigger clip of the ticket on each transaction as it bundles more services. And he bills it as making it more profitable for the likes of Flight Centre to plug into Serko, too.

He sees Serko's clip of the ticket on each transaction that goes through its system rising from $6 to $7 in the medium term (to get to that aforementioned $100m revenue goal), then ultimately $20 (to get to $300m).

The Booking.com partnership, and Serko's attendant ability to offer every type of travel, dining or entertainment option, will also allow Serko to finally fill out the expenses side of its service, Grafton says.

The CEO says he travels around 100 times a year, and around 20 per cent of those flights are disrupted in some fashion - which in turn usually complicates expenses. His aim is for fully-automated expenses system "that does not have to be touched by traveller or approver."

Serko shares climbed 98c in a session to $4.42 on October 25 as it came off a trading halt and Booking.com was named as its new anchor investor.

"Investors always find it hard to value SaaS [software as a service] companies]," Grafton told the Herald. "So it was a tremendous validation to have the largest company in the world in our sector back us."

As Serko's first-half announcement was reported this morning, for the six months to September 30, shares slipped 1.75 per cent to $4.50 for a $409m market cap.

Investors could have been cashing in some of their gains after the stock's recent run-up.

But another factor is that for all first half-revenue growth, Serko slipped back into the red. And while Grafton stood by guidance for a full-year 20 to 40 per cent jump in revenue, his company have no ebitda or net profit guidance, and Grafton was wary of making any forecast of when it would be back in the black as it prioritised growth.

Serko slipped to a $866,000 loss for the six months to September 30 from a $920,000 profit for the year-ago period.

A 46 per cent surge in operating expenses helped overwhelm a 29 per cent increase in revenue to $15.2m for the half - in line with guidance of an increase of 20 to 40 per cent for the full year.

Ebitdaf fell to $1.4m from the year-ago $1.5m.

The debt-free company's cash reduced from the $19m last year to $10.3m. Cash was replenished by a $45m raise during October, but this morning the company said cash burn would accelerate in the second-half as it pushed into the US.

Serko said more than 1300 corporate customers used its Zeno booking and travel expense platform in the first half as net total customers increased by 327.

Travel platform revenue rose to $9.2m from $7.7m in the prior comparable half-year. While bookings out of Serko's home markets in New Zealand and Australia were softer, reflecting weaker economic conditions, that was offset by a combination of revenue growth in other markets and more bookings on the firm's new, higher-margin Zeno platform.

Its all-important metric of annual transactional monthly revenue which the company uses as a proxy for its growth outlook, reached a peak of $26.2m during the period, up 35 percent from $19.4m in the same period a year earlier. Total recurring revenue rose 38 per cent to $13.3m from $9.6m in the previous half-year.

The ultimate impact of higher costs, which included research and development expenses rising by $5.1m to $8.9m, saw half-year cashflow turn negative at $474,000, compared with positive cashflow of $14.3m in the first half of the previous year.

The numbers were in line with preliminary results released on October 24.

Serko has a consensus analyst rating of hold, according to Reuters.