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Presentation
Investment Banking Case Competition
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Ice Point Solutions Darren Tan Darryl Tan Fangfei Li Will Wolf
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Company Overview
Valuation and Financial Overview
Orbitz Worldwide (OWW)
(In millions, except per share amounts)
Company Overview
Capitalization
OWW is a leading global online travel company that uses innovative technology to enable leisure and business travelers to search for, plan, and book a broad range of travel products and services. These include airline tickets, hotels, car rentals, cruises, and vacation packages. Growth Potential
Firm Specific Risks
1.10B 422 (188)
Enterprise Value
1.33B
FYE 31-Jan
2014A
Revenue Growth Adj. EBITDA Margin (%)
932.0 10.0% 139.6 15.0%
2015E
2016E
2017E
985.9 5.8% 158.9 16.1%
1043.9 5.9% 167.5 16.0%
1101.1 5.5% 197.1 17.9%
Historical & Projected Adj. EBITDA
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3 years historical CAGR: 5.85% 6 years projected CAGR: 8.42%
117.7
119.7
139.6
259.5 158.9
167.5
197.1
292.3
227.7
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115.1
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Competition from existing firms and new entrances Relatively small size impairs negotiating power for deals Reliance on search engines and their algorithms to generate traffic Disruptions in third-party providers could negatively impact services Ongoing legal proceedings may amount to additional litigation costs
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9.62 114
Market Capitalization Net Debt as of Feb 11, 2015 Cash & Cash Equivalents
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OWW is expected to experience revenue growths and cost efficiencies in future periods through the following: 1) Shift of business focus towards hotels 2) Emphasis on mobile app and rewards program to capture growing millennials market 3) International expansion into emerging markets
Share Price as of Feb 11, 2015 Diluted Shares Outstanding
Orbitz Worldwide, Inc. (OWW) - NYSE
2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Income statement ($ in millions)
Fiscal Year ended December 31, 2011 2012 2013
2014 Quarterly Breakdown Q2 Q3
Q1
$757.5 2.7%
$766.8 1.2%
$778.8 1.6%
$847.0 8.8%
Cost of goods sold % revenue
$138.3 18.3%
$139.4 18.2%
$147.8 19.0%
$154.4 18.2%
Gross profit % margin
$619.2 81.7%
$627.4 81.8%
$631.0 81.0%
$692.6 81.8%
S,G&A Marketing Depreciation & Amortization EBIT (Operating income) % margin Interest expense Pre-tax income
$244.1 232.8 72.9 ($11.8) (1.6%) 44.1 ($55.9)
$270.6 241.7 60.5 $4.7 0.6% 40.5 ($35.8)
$260.3 253.0 57.0 ($261.9) (33.6%) 36.6 ($298.5)
$280.4 292.5 55.1 $62.0 7.3% 43.8 $18.2
$66.2 76.8 13.6 $10.9 5.2% 9.6 $1.3
$72.0 89.6 15.3 $23.5 9.5% 8.6 $14.9
Adj. EBITDA % margin
$142.3 18.8%
$115.1 15.0%
$119.7 14.1%
$24.5 11.6%
$40.0 5.3%
$44.1 5.7%
$47.0 6.0%
$39.3 4.6%
$7.7 3.7%
LTM 12/31/2014
FYE 2015E
$248.1 18.0%
$253.1 2.0%
$220.6 (12.9%)
$932.0 10.0%
$932.0 -
$985.9 5.8%
$42.7 20.3%
$47.6 19.2%
$49.6 19.6%
$39.8 18.0%
$179.8 19.3%
$179.8 19.3%
$181.1 18.4%
$167.5 79.7%
$200.4 80.8%
$203.5 80.4%
$180.8 82.0%
$752.2 80.7%
$752.2 80.7%
$804.8 81.6%
$70.8 92.4 14.7 $25.6 10.1% 8.0 $17.7
$69.1 75.7 14.0 $22.0 10.0% 9.1 $12.9
$278.2 334.5 57.5 $82.0 8.8% 35.2 $46.8
$278.2 334.5 57.5 $82.0 8.8% 35.2 $46.8
$285.7 360.2 50.6 $108.3 11.0%
$117.7 15.1%
$38.8 15.6%
$40.3 15.9%
$36.0 16.3%
$139.6 15.0%
$139.6 15.0%
$158.9 16.1%
$13.5 5.4%
$16.5 6.5%
$13.4 6.1%
$51.1 5.5%
$51.1 5.5%
$54.2 5.5%
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Capital expenditures % revenue
2014
$210.3 (0.7%)
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Sales revenue % growth
Q4
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2010
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Financial Summary
Orbitz Worldwide, Inc. (OWW) - NYSE
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Online Travel Agency Industry
The Online Travel Agency (OTA) Market Market Overview
Growth Potential
Potential Industry Risks
$463B industry
Steady growth expected in all regional markets
Projected to grow to $714B by 2017
Expected to comprise roughly half of all travel sales worldwide by 2020
Poised for rapid growth in all EMs, especially East Asia
Possible replication in other travel booking sectors
Potential entry to the market by traditional search engine firms
Largely shifting away from airfare bookings to high margin hotel and vacation package sector
Dependent upon global discretionary spending; tied to economic stability
Seasonal nature of industry
Positioned for global online penetration
Projected global discretionary spending expected to increase travel expenditures
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The Projected International Expansion for OTAs
800 600 200 0
2016
2017
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APAC
2015 LATAM
Europe
US
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2014
n
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400
Orbitz Worldwide, Inc. (OWW) - NYSE
Domestic OTA Industry Shares
Orbitz Expedia Priceline Other
Secure market position translates into strong and stable revenues
Considerable market share in the US, Europe and Asia Well recognized and diversified brands with global reach
Opportunities for organic growth
Effective cost management strategies
Global Platform technology enables cost reduction across subsidiary firms
Minimal capital expenditure requirement
Existing facilities and equipment are well positioned for growth objectives
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Innovative and visionary management Actively pursuing corporate contracts in addition to traditional consumer services
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Poised to adapt to a changing marketplace
Orbitz Stock Information
Ticker Symbol: OWW Industry Name: Online Travel Agencies Current Price (Feb 11, 2015): $9.62 52-week high: $11.8 52-week low: $6.5
Orbitz Stock Price
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Increasing traction of Orbitz mobile application and Orbitz Rewards captures millennial markets Improving business mix towards hotels with greater revenue margins International expansion in growing markets Positive industry growth prospects
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Investment Thesis
Orbitz Worldwide, Inc. (OWW) - NYSE
Feb 11: $9.62
Leading player in online travel
Recognized and diversified travel solutions
Strong revenues and stable cash flow : • 5 years of consecutive revenue growth with 6.3% CAGR • 12/31/2014 LTM Adj. EBITDA of $139.6 million, stable 15% margin
International Presence
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• Established presence in the United States online travel market with 21% market share • Operates out of 12 countries in Europe and has an expanding presence in Asia • High brand awareness and customer loyalty with 60% repeat customers
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Secure Market Position
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• HotelClub is a global hotel-only brand with an Asia Pacific focus • Ebookers is strategically focused on the European market • Strong global brands specifically catered to corporate travel clients and private label partners • Orbitz for Business service creates custom made flight, transportation, and, hotel package bundles for corporate clients
Orbitz Worldwide, Inc. (OWW) - NYSE
• Transition to a hotel centric revenue source looks to take advantage of an expanding, high margin market •Focus on ROI-positive variable marketing spending for hotel bookings •Double digit percentage growth in hotel growth for 7 consecutive years •Orbitz for Business service creates custom made flight, transportation, and, hotel package bundles for corporate clients
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Increased Focus in Hotel Sector
Membership for Direct Booking and OTAs
Nonmember Member
Hotel Booking % by Mobile
27
Q2'13
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Q1'13
Q3'13
Q4'13
Q1'14
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Q4'12
2014
2015
2016
Air
257
256
256
Hotel
350
381
416
Vacation Package
150
158
166
30
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22
OTA
Projected Breakdown of Revenues
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25 21
28
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Direct Booking
Orbitz Worldwide, Inc. (OWW) - NYSE
Unique Customer Rewards Programs Orbucks are earned on vacation packages which can only be redeemed on hotel reservations
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Offers instant redemption with no blackout dates and no minimum redemption hurdles
•
Orbitz Rewards Visa credit card is expected to boost international sales
Mobile Applications
•
Loyalty programs are deeply integrated into mobile applications
•
Intuitive user interface that is available to both Android and Apple IOS operating systems
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Incentivizes members’ further use of OWW’s mobile apps by offering additional Orbucks on bookings
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Key Business Value Drivers
Operating schedule ($ in millions)
FYE 2013
LTM 12/31/2014
2021
2022
$932.0 10.0%
$985.9 5.8%
$1,043.9 5.9%
$1,101.1 5.5%
$1,158.1 5.2%
$1,215.2 4.9%
$1,272.3 4.7%
$1,329.5 4.5%
$1,386.6 4.3%
Cost of goods sold % revenue
$154.4 18.2%
$179.8 19.3%
$181.1 18.4%
$191.8 18.4%
$202.3 18.4%
$212.8 18.4%
$223.3 18.4%
$233.8 18.4%
$244.3 18.4%
$254.8 18.4%
Gross profit % margin
$692.6 81.8%
$752.2 80.7%
$804.7 81.6%
$852.1 81.6%
$898.7 81.6%
$945.3 81.6%
$991.9 81.6%
$1,038.6 81.6%
$1,085.2 81.6%
$1,131.8 81.6%
SG&A % revenue
$280.4 33.1%
$278.2 29.8%
$285.7 29.0%
$291.6 27.9%
$297.5 27.0%
$303.4 26.2%
$309.2 25.4%
$315.1 24.8%
$321.0 24.1%
$326.9 23.6%
Marketing % revenue
$292.5 34.5%
$334.5 35.9%
$360.2 36.5%
$393.1 37.7%
$404.2 36.7%
$414.3 35.8%
$423.2 34.8%
$431.1 33.9%
$438.0 32.9%
$443.7 32.0%
EBIT % margin
$62.0 7.3%
$82.0 8.8%
$108.3 11.0%
$120.2 11.5%
$153.1 13.9%
$187.0 16.1%
$222.0 18.3%
$258.1 20.3%
$295.3 22.2%
$333.6 24.1%
Depreciation & Amortization % revenue
$55.1 6.5%
$57.5 6.2%
$50.6 5.1%
$47.3 4.5%
$44.0 4.0%
$40.7 3.5%
$37.4 3.1%
$34.1 2.7%
$30.9 2.3%
$27.6 2.0%
$117.1 13.8%
$139.6 16.5%
$158.9 18.8%
$167.5 19.8%
$197.1 23.3%
$227.7 26.9%
$259.5 30.6%
$292.3 34.5%
$326.2 38.5%
$361.2 42.6%
$2.6 0.3%
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– –
– –
– –
– –
– –
– –
– –
– –
$119.7 14.1%
$139.6 15.0%
$158.9 16.1%
$167.5 16.0%
$197.1 17.9%
$227.7 19.7%
$259.5 21.4%
$292.3 23.0%
$326.2 24.5%
$361.2 26.0%
$39.3 4.6%
$51.1 5.5%
$54.2 5.5%
$57.4 5.5%
$30.8 2.8%
$31.8 2.8%
$33.4 2.8%
$35.0 2.8%
$36.6 2.8%
$38.1 2.8%
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Capital expenditures % revenue
Expansionary Phase for the first 3 years: • Higher marketing projections as a percentage of revenue • Adjusted EBITDA growth stagnant for 2016 due to costs
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Adj. EBITDA % margin
2017
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2020
$847.0 8.8%
EBITDA adjustments % revenue
2016
Fiscal year ended December 31, 2018 2019
Sales revenue % growth
Unadjusted EBITDA % margin
2015
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Operating Model and Discussion of Assumptions
Orbitz Worldwide, Inc. (OWW) - NYSE
COGS increased sharply in 2014 due to the purchase of TPN
Capital expenditures decreasing after the expansionary phase of the first 2 years
Discounted Cash flow ($ in millions)
$187.0 40.7 – 56.9 31.8 13.4 $125.6 94.7
2020
WACC
Implied Share Price 6.3% 6.8% 7.3% 7.8% 8.3%
8.6x 21.5 20.9 20.3 19.7 19.2
Exp. Share Price Growth 6.3% 6.8% 7.3% 7.8% 8.3%
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Orbitz Worldwide, Inc. (OWW) - NYSE
8.6x 123.5% 117.1% 111.0% 105.2% 99.5%
9.1x 22.5 21.8 21.2 20.6 20.0
Exit Multiple 9.6x 23.4 22.8 22.1 21.5 20.9
9.1x 133.6% 126.8% 120.3% 114.1% 108.2%
Exit Multiple 9.6x 143.6% 136.5% 129.7% 123.1% 116.9%
2022
2021
$333.6 27.6 – – 38.1 13.5 $309.6 176.1
$295.3 30.9 – 110.9 36.6 13.4 $165.3 100.9
$258.1 34.1 – 89.4 35.0 13.4 $154.5 101.2
$222.0 37.4 – 72.6 33.4 13.4 $140.0 98.4
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$153.1 44.0 – 42.4 30.8 13.5 $110.4 89.3
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Terminal Value: EV/EBITDA multiple 9.6x WACC 7.3% Terminal value $3,467.3 Discounted terminal value 1,971.9 Equity Value Enterprise value 2,759.9 Less: Total debt (421.9) Plus: Total cash & cash equivalents 188.5 Equity value 2,526.5 Share Price Calculation Total shares outstanding 114.3 Implied share price 22.1 Current share price 9.6 Expected share price growth 129.7%
$120.2 47.3 – 29.2 57.4 13.7 $67.2 58.4
Fiscal year ended December 31, 2019 2018
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$108.3 50.6 – 17.8 54.2 12.7 $74.2 69.2
WACC
EBIT Plus: Depreciation Plus: Amortization Less: Taxes Less: Capital expenditures Less: Changes in working capital Unlevered free cash flow Discounted free cash flow
2017
2016
2015
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DCF Analysis
10.1x 24.4 23.7 23.0 22.3 21.7
10.6x 25.4 24.6 23.9 23.2 22.5
10.1x 153.7% 146.2% 139.0% 132.1% 125.5%
10.6x 163.8% 155.9% 148.4% 141.1% 134.2%
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Cash Flow Model
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Free Cash Flow Summary
2019
2016
2017
2018
2020
2021
2022
IRR given different exit (9.8%) years
1.8%
13.0%
17.1% 18.7% 19.2%
19.2%
19.0%
1.0x
1.4x
1.9x
2.4x
2.9x
3.4x
Orbitz Worldwide, Inc. (OWW) - NYSE
$3,000.0 $2,479.09
$1,973.0
$740.2
$2,500.0 $2,000.0
$1,650.21
4.0x
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0.9x
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MOIC given different exit years
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2015
$1,500.0
Net equity
$1,000.0
Total debt
$500.0
$910.0
$506.1
Purchase
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Exit
Online Travel Agencies ($ in millions)
Stock Price
Orbitz
$9.62
The Priceline Group Inc. (PCLN) 1,221.1 TripAdvisor Inc. (TRIP) 82.8 Expedia Inc. (EXPE) 98.9 Travelzoo Inc. (TZOO) 13.0 Extended Stay America, Inc. (STAY) 20.4
52-Week % of 52TEV High Week High High % of 52-Week $12.03 80.0% $1,333.4 1,329.9 111.2 100.1 19.7 24.2
91.8% 74.4% 98.8% 66.1% 84.3%
TEV / EBITDA 9.6x
53,789.0 10,895.0 11,831.0 142.0 6,920.0
18.7x 31.0x 16.7x 5.4x 12.9x
Gross margin
EBITDA margin
80.8%
15.6%
10.3%
4.5%
3.0x
7.4%
11.8x 15.5x 8.7x 12.0x 6.8x
26.1x 53.4x 33.3x 14.2x 106.0x
89.8% 96.8% 79.5% 87.5% 51.4%
39.0% 30.0% 13.1% 9.2% 44.4%
18.1% 16.0% 9.2% 18.4% 11.0%
19.1% 12.5% 4.4% 8.2% 4.9%
1.2x 0.9x 2.3x -4.1x
27.8% 26.4% 8.0% 3.0% 8.6%
11.0x 11.8x 15.5x 6.8x
46.6x 33.3x 106.0x 14.2x
81.0% 87.5% 96.8% 51.4%
27.1% 30.0% 44.4% 9.2%
14.5% 16.0% 18.4% 9.2%
9.8% 8.2% 19.1% 4.4%
1.7x 1.2x 4.1x --
14.8% 8.6% 27.8% 3.0%
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63.6x
Equity purchase multiple 9.6x 10.1x 15.7% 13.5% 17.2% 15.1% 18.7% 16.5% 20.1% 17.9% 21.4% 19.2%
10.6x 11.6% 13.1% 14.6% 15.9% 17.2%
IRR 1.8% 2.3% 2.8% 3.3% 3.8%
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9.1x 18.0% 19.6% 21.1% 22.5% 23.9%
8.0x
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8.6x 20.7% 22.3% 23.9% 25.3% 26.7%
P/E ratio
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IRR 8.6x 9.1x 9.6x 10.1x 10.6x
16.9x 16.7x 31.0x 5.4x
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Equity exit multiple
Mean Median High Low
TEV / 2yr EBITDA
2017 - 2022 capex as % of revenue
Company Name
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Market Comparables and IRR Analysis
Orbitz Worldwide, Inc. (OWW) - NYSE
3.5% 18.1% 18.2% 18.2% 18.1% 18.0%
4.5% 17.8% 17.9% 17.9% 17.8% 17.7%
ROIC
ROA
Total debt / EBITDA EBITDA 10yr CAGR
2017 - 2022 growth rate 5.5% 6.5% 17.8% 18.1% 17.9% 18.2% 17.9% 18.2% 17.8% 18.1% 17.7% 18.0%
7.5% 18.8% 18.9% 18.9% 18.8% 18.7%
Description
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Risks & Mitigations
Mitigating Factors
Orbitz looks to expand into the high growth East Asian market that still possesses the potential to see major swings in market share, currently 26% international revenues
Travel suppliers may choose to sell to consumers directly through their own sites
While major airlines have seen success in promoting their own booking sites, most hotel chains lack the geographic presence to successfully forgo a third-party service
Smaller Relative Size
Relatively small amount of vendors exposes Orbitz to greater risk stemming from overall health of travel industry
Orbitz rapid shift away from providing primarily air travel bookings will further diversify and expand its current industry vendors
Volatile Travel Industry
Most revenues at the mercy of the performance of entire travel industry, which has been recently rather volatile
Projected slow global emergence from recession should steadily ensure a general positive trend in the travel industry for the foreseeable future
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Travel Agency Independence
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OTA market is heavily saturated and highly competitive
Domestic Industry Crowding
Orbitz Worldwide, Inc. (OWW) - NYSE