Changing the Landscape of the Travel – A deep dive into Rategain’s Business

Rategain Travel Technologies Limited (RATEGAIN) is a software-as-a-service (SaaS) company providing business solutions to hotel chains, airline agencies, travel agents, car rental agencies, etc. in India and across the globe. It offers services such as Inventory Management, Dynamic Pricing Solutions and Digitisation Solutions across its various verticals. The company was founded in 2004 by Bhanu Chopra and is headquartered in Noida, Uttar Pradesh, India.   Traditional IT VS SaaS Before we head into further depth about SaaS, it is important to understand the basic differences between the Traditional IT and SaaS setup.

1. Traditional IT – When a company is looking for a customized solution that is tailor-made for the user with specialized functionalities that are not common. In this case, either the company creates a team or hires an IT company that has a team that runs a project. The software created is the Intellectual property of the company looking for customized solutions and the cost of the software is an upfront expense.
2. SaaS – When a company is looking for a solution that is plug and play with their needs can be satisfied with minimal changes to existing software. In this situation, the company does not own the Intellectual property and simply leases the software from the Service provider. Normally, the payments are made under a subscription model or a pay-on-user model to the Service provider rather than an upfront expense.

Industry    The SaaS market was valued at 108.4 billion USD as of 2020 which is expected to increase to 225 billion USD in 2025. An expected increase of over 100% in the US market (1). The growth of the market is being driven by factors such as customer acquisition cost, pricing, retention and ready availability of software solutions. While this is a description of the entire industry, Rategain works in a very specific niche of the SaaS market which is the Hospitality segment. Hospitality SaaS is currently valued at 2.68 billion USD and is projected to reach 3.64 billion USD by 2028 (2).   Key Market players

1. PriceLabs – It is a revenue management tool for vacation and short-term rental property managers that provides data-driven dynamic pricing and PMS integration.
2. Guestly – It is an end-to-end property management software for short-term property managers looking to save time, increase revenue and grow their businesses. The software allows users to manage listings across multiple channels, such as Airbnb, Booking.com, Vrbo and TripAdvisor Rentals, from a single platform.
3. Quibble – It bridges the gap in the vacation rental industry by offering a science-based approach to revenue management. With extensive expertise in the travel and hospitality sectors, quibble understands the challenges and uncertainties associated with revenue management.
4. Wheelhouse – It is a revenue management tool for your short-term rentals. We have dynamic pricing software that helps you automate your listings’ pricing on Airbnb, TripAdvisor, and our property management system integrations.

Business Models Rategain is a company headquartered in India that provides services in three distinct segments to its consumers, which range from hotel chains to car rental agencies and everything in between. While most of these segments have a subscription model, some of them also have a pay-per-use model. The business models are as follows:

• Distribution – It is a software bridge that is provided to the Hotel Chain, Car Rental Agencies, etc. so that their hotel is visible to audiences across various countries and geographies. It also provides solutions for making the hotels visible internationally as well as domestically. Rategain provides the hotel owner with the optimal prices for any date in the correct currency and for the right customer groups. As per their investor presentation, this segment has been growing at 37.3% Y-o-Y (FY23).

Products offered by Rategain in Distribution

• • RES gain – A subscription-based model provided to customers based on their needs.

• • DHISCO switch – A transaction Model, where if the number of transactions on the Online travel agencies’ website is greater than the revenue generated by Rategain is also larger.

• Martech – It is a social media marketing agency for the hospitality segment, it helps the hotel owner to increase visibility via social media platforms such as Instagram, Meta, Linkedin, etc. Post-booking of the room RateGain will help the hotel owners analyse the profile of their customers helping the Hotel owners provide customised experiences based on the likes and dislikes of the customer. In this segment, they provide services such as target content marketing, influencer tracking, 24/7 monitoring, personalized experiences and Analytics and Reporting modules. This service is provided via a subscription-based model. As per the investor presentation this segment has been growing at 73.9% Y-o-Y (FY23).
• Data as a Service (DaaS) – It is a dynamic pricing solution software that helps a hotel owner set the most competitive price based on various factors and price points such as demand, website traffic, searches, etc. They use AI to analyze various data points and provide the hotel owners with a form of checklist where on approval the user will get price parity across various platforms based on the best prices suggested by the software. In this segment, services are provided to the hospitality sector on a subscription-based model, while OTA customers are provided services in a hybrid model i.e. (subscription plus pay-per-use post-completion of a milestone). This segment is growing at 54.3% Y-o-Y (FY23) based on the Investor presentation.

undefined   Revenue Rategain’s revenue growth in Q4 2023 is impressive, growing by almost 70% on a Y-o-Y basis to 182.93 cr. They have clocked revenue of 565.13 cr for FY 2023, which is a growth of almost 55% on a Y-o-Y basis. The revenue has been divided among the various segments in the following manner:

• Marketing Tech – 208.99cr
• Distribution – 194.3cr
• DaaS – 161.84cr

With the advent of AI and the companies’ adoption of the same in the various segments through the introduction of new products such as Rev AI and Demand AI in the DaaS model, revenue growth will remain positive for the foreseeable future. One thing to look out for is the dependence on the North American Region, where more than half of the company’s revenue is generated. Any recession or economic slowdown may adversely impact the performance of the company. Gross Profit Margin Rategain’s gross profit margin (GPM) has been consistently improving, from 43.9% in March 2022 to 55.2% in March 2023. This increase could be due to several factors, such as improved efficiency among workers due to training, introduction of AI tools to supplement the systems, economies of scale for their hardware purchases, etc. In addition to this, during the current 12-month period, the GPM has risen to 57.1% which is where it is expected to be for the foreseeable future. (Based on estimates and management commentary. Earnings Rategain’s net income has been growing leaps and bounds, going from 1.8 crs to 5.74 crs within a span of a year. Achieving impressive growth in the bottom line of 200%. In addition, with the existing products reaching scale and efficiency increasing, this absolute number is going to keep growing in the future. Cash flow Rategain’s cash flow from operations for the period ended March 31, 2023, decreased to a negative 19.38 cr from a positive 18.08 cr the previous year. This is a significant decrease and could be a concern for investors. However, it is important to note that Rategain is a high-growth company that is investing heavily in expanding its business and gaining market share. As such, it is not unexpected for the company to have negative cash flow from operations, especially in the early stages of its growth. Rategain currently has 10.9 cr in cash and equivalents. Perspective While the company has shown an increase in revenue and is gaining market share, there is some growth risk with the geographic distribution of the revenue being concentrated in North America, which is currently going through an economic downturn. However, the industry and segments have seen some growth traction, and with travel returning to pre-covid levels, Rategain is perfectly placed to benefit from the recovery.   PS: This is not investment advice. Please use this article for informational purposes only and not as financial advice.