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This commodity aboriginal appeared on SumZero, the world’s bigger analysis association of buyside beforehand professionals. In some cases Barron’s edits the analysis for brevity; able investors can admission the abounding adaptation of this apriorism and tens of bags of others at

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Disclaimer: The author’s armamentarium had a position in this aegis at the time of announcement and may barter in and out of this position afterwards allegorical the SumZero community.

Contempo price: $13.15

Timeframe: 6-12 months

Credibility International (Nasdaq: PCOM) is a tech aggregation with similarities to Booking Holdings (Priceline) and Expedia . It serves the biking industry’s bigger adherence programs through a software-like model. PCOM is on clue to abound ebitda 35% in 2018 and I apprehend will barter at 2019E EV/FCF of 7.3x. In a airy macro ambiance PCOM has the accommodation to buy up to 10% of the aggregation aback every year.

The elevator pitch:

PCOM operates in the adherence industry with an arbitrary advantage in airline adherence programs. They assignment with:

7/10 bigger airlines in North America

2/10 bigger airlines in Europe

2/10 bigger airlines in AMEA (Emirates was onboarded this year)

Large addressable market: $50B Per year amount of points/miles issued and awash by North American adherence programs alone

PCOM’s Amount business = Re-selling airlines afar to the end consumer

15 years of affairs miles/points application proprietary processes and technology

Lost alone 2 audience in the aftermost 7 years admitting industry consolidation

6 new launches/expansion in 2017, 3 new chump launches in 2018

Little/no complete antagonism except centralized systems developed by airlines

Asset ablaze OTA like business with complete alive basic benefits

Long aerodrome for growth:

Existing customers: Single-digit assimilation provides allusive amplification befalling through approach expansion, add-on functionality, new-use cases

New chump befalling through bounded expansion

Core Ebitda H1 2018 = $13.2M | LTM = $24.1M |2017 = $20.7M | 2016 = $19.96M

Long-term beforehand guidance: Gross Accumulation (net revenue) = 10%, Ebitda = 15%

Massive alarm options with 2 arising businesses; but profits briefly depressed

Points Partners: A adherence affairs arrangement (In backward beforehand stage)

Ebitda from operation = -$1.3M (2018E), -$1.7M (2017), -$2.3M (2016)

Points Travel: White-labeled Hotel/Car OTA (In beforehand phase)

Ebitda from operation = -$6.3M (2018E), -$5.8M (2017), -$5.6M (2016)

Win amount of 60% in 2017/2018 adjoin Priceline and Expedia

Multi-year beforehand aeon consistent in

Rapid onboarding of audience aback H2 2017, accepted to abide into 2019

Operating advantage arch to accelerated accumulation growth

Incremental gross accumulation converts to Ebitda at 60% to 70%. (Q1 2018 antithesis alarm disclosure)

10% FCF crop accepted in 2019.

Valuation bargain admitting loss-making businesses.

Historically advantageous beforehand ante are accepted to accelerate

Share buyback: 9% of aggregation aback 2015. Accelerating to $5.8M in aftermost 2 abode combined

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Long-term activity of $120M in gross profit/net revenue: Anniversary business articulation estimated to accept $40M in gross accumulation pipeline. (March 2017 administration disclosure)

A 60% Ebitda/Net Acquirement (gross margin) about-face represents incremental

Ebitda befalling of $72M (4.3x LTM Adjusted Ebitda of $16.6M)

I accept the accident accolade is compelling. The abounding adventure follows.

Large adherence programs accomplish money by affairs their adherence points/miles to ample buyers; about banks who in about-face use points/miles as a promotional apparatus to admission new customers. The loyalty-based acclaim cards attempt with cash-back acclaim cards but accept commensurable economics and appropriately the banks are aloof amid the two forms of chump acquisition.

PCOM is about the 2nd bigger applicant of adherence credibility afterwards the banks.

The adherence industry is a ample and growing

Most bodies are blind of the calibration and robustness of the adherence industry. A abstraction by Accenture begin that in 2017, 77% of consumers participate in a retail adherence program, 46% accept aing a auberge program, and 40% are allotment of an airline program–up from 72%, 36%, and 31% over 2016, respectively. Another address appear by Colloquy, a all-around analysis aing for adherence professionals, begin that Americans are signing up for adherence programs in droves, with memberships accepting jumped 2.5 percent to 3.3 billion amid 2012 and 2014.

However, alive use of these programs has steadily beneath aback 2010 at a amount of 2 to 3 percent per year. According to a abstraction by London-based adherence aing Collinson Latitude, 78 percent of consumers adumbrated that they would like a arrangement that allows them to redeem their rewards added easily.

PCOM provides assorted means to admission and redeem points, that are accepting absorption from businesses in assorted industries. In fact, the two arising businesses of Credibility Biking and Credibility Ally is an addendum of this charge in the market.

Points International Business Segments in detail:

PCOM has 3 business segments:

(1) LCR – Adherence Bill Retailing

(2) Credibility Ally and

(3) Credibility Travel.

In addition, PCOM has developed a software/technology band that provides accepted functionality to all three businesses. This technology band is what the aggregation calls “Loyalty Commerce Platform”. In the aftermost 5 years PCOM has invested heavily into developing this belvedere which now enables applicant onboarding in as little as 3 weeks. It additionally provides operating advantage as the arrangement manages abounding of the functions advanced managed by people.

Highlighted beneath are some of the capabilities of the Adherence Commerce Platform.

Processed 7 actor affairs and 85 billion afar annually

Transaction/Banking akin admission to 1 Billion adherence affairs associates from 60 adherence partners.

It is annual acquainted that for this akin of access, anniversary of these 1 Billion associates and the brands that own these associates had to actually acquiesce PCOM into their accounts

It takes years of alive with multi-billion-dollar brands to get admission to their chump base. This represents a akin of delicacy that cannot be congenital bound with adventure basic money. It is additionally advancing to confusing technology.

$1B in miles/points amount candy annually

Configure, architecture and actualize 1B adherence accomplice business emails

Functional appearance include: analytics, business intelligence and automatic business tools

In the accomplished these tasks were handled manually, which meant best time to onboard new audience and abacus cadre to do the affiliation assignment or captivation audience in the activity while accepted implementations are completed

“Loyalty Commerce Platform” is chip to 60 adherence programs today

Loyalty Bill Bartering (LCR) = Alone 3rd affair Adherence credibility transaction belvedere at scale

PCOM currently provides Bill Bartering solutions for 30 of the world’s arch adherence programs. This includes buy, sell, gift/transfer casework that PCOM provides to the adherence affairs in confined their adherence members. However, best of the affairs baby to affairs of miles. Examples of the arch programs are: Southwest Airlines – Accelerated Rewards, United Airlines- MileagePlus, Air Canada – Altitude, Air France/KLM – FlyingBlue.

PCOM provides a affirmed charge to the adherence affairs to advertise “X” miles/points at a anchored amount that is bound in a multi-year contract. The LCR business is commensurable to the OTA businesses of Priceline and Expedia, area instead of miles/points they advertise auberge room/airline admission annual for a assertive commission/take-rate.

This is how LCR works: An archetype of a archetypal transaction

I am attractive to fly from Montreal to New York. My Air Canada annual has 45,000 miles, but a admission sells for 50,000 afar or $500. In this case I am bigger off affairs 5000 afar from the Air Canada for $80 to ability 50,000 afar for my ticket. This is abnormally accurate during tougher times aback I am beggared for cash.

The acquirement of 5000 afar and the consecutive accretion of 50,000 afar appear in the Air Canada website or App but is facilitated by PCOM in the background. Airlines accommodate PCOM admission to all business channels such as the website, App, Alarm Center to facilitate such transactions.

PCOM can booty 2 roles in LCR – “Principal” or “Agent” (similar to Expedia and Priceline)

As allotment of this arch role, the Corporation may accept a acknowledged obligation to accomplish a acquirement agreement to the adherence affairs based on the agreement of the arrangement amid the Corporation and the adherence program. As such, the Corporation will accept acclaim and/or annual accident in the anatomy of acquirement agreement to the adherence affairs and will accept a abundant akin of albatross with account to marketing, appraisement and bartering transaction support. PCOM about alcove the affirmed obligation in the 7th or 8th ages of the year and afresh goes above the apprenticed minimum miles/points. In fact, PCOM:

Has provided acquirement guarantees aback 2008

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Management declared they accept absent 3 or 4 times aback 2008

Historically PCOM’s achievement has been far bigger than centralized program

Alternatively, the Corporation may accept an bureau role in the bartering and bartering of adherence currencies, area it takes a beneath alive role in the accord and receives a bureau on anniversary transaction. Acquirement becoming beneath an bureau role is included in Added Accomplice Acquirement in the Corporation’s circumscribed banking statements.

The best affair about “Loyalty Bill Retailing”: There is “no complete competition”! This is a admirable book for any business. PCOM competes alone with the Airlines or Adherence programs themselves who usually accept a civil agnate of the PCOM system.

For example, Emirates aing in 2018 afterwards evaluating their centralized arrangement adjoin that of PCOM’s and award that PCOM after-effects were advisedly bigger than Emirates’ centralized results. With one of the fastest growing ample airlines in the arena aing PCOM, added airlines in the Middle-east and Asia should alpha attractive at PCOM seriously.

In fact, I accept PCOM has absent alone 2 audience (American Airlines and US Airways) in the aftermost 7 years. The acumen for the accident was their acceptance that post-merger a above adherence affairs should beforehand to bigger achievement of the centralized system. PCOM administration continues to accept that PCOM’s achievement can bigger the new American’s performance. Time will acquaint if PCOM can will the business back.

Continuous Artefact development

At accepted calibration PCOM has the analytical accumulation to put allusive basic into acceptable their software systems than anytime before. This includes industry arch artifice detection, analytics, automatic business tools

Deep acquirements above abounding adherence programs above what a archetypal distinct adherence affairs can accomplish additionally lays the foundation for apparatus acquirements capabilities

60% of PCOM acquirement is committed through abiding contracts

Most affairs ante are bound in for the appellation of the contract. In some cases, there is a accumulated abatement or a accumulated achievement allurement depending on how the affairs is designed, which creates some variability

With a massive transaction abstracts set that PCOM has analyzed over a decade above a aggregation of altered adherence programs, the aggregation is able to body and consistently enhance chump profiles to actuate the optimum business strategy.

6 launches/expansion in 2017, 3 in 2018

Emirates was launched in backward Q2 and is still expanding. Emirates flew an estimated 58.5 actor bodies in 2017. Abounding appulse of Emirates is accepted to breeze through starting Q4 2018/Q1 2019.

Gaining absorption in Asia and middle-east with contempo wins presents a ample opportunity

Points Biking = A white-labelled Hotel/Cars booking Agent for Adherence Programs

The Credibility Biking band-aid enables adherence programs to accord their associates miles/points for booking auberge or hire a car on their website. Their basic competitors are Priceline and Expedia with PCOM demography the beforehand from Priceline with a 60% win-rate while Expedia languishes at a abroad aftermost with about no wins.

Priceline has won deals with “Loyalty Program’s” biking solutions as a aftereffect of RocketMiles accretion in 2015 for $20m. RocketMiles was a Chicago startup that offered airline afar in barter for auberge bookings. Priceline/ has been the ascendant champ until PCOM’s band-aid was actually developed in 2017.

This is advantageous business for the airlines! I accept every airline in the apple will eventually accept the Credibility Biking or an agnate platform. Actuality is why! – Expedia swears by auberge attach ante for air admission sales.

In fact, one of the active factors for the Orbitz accretion by Expedia for $1.2B in 2015 was that Orbitz had a aerial accumulated of airline admission sales and with Expedia’s attach rates, the accretion would be successful.

Dara Khosrowshahi afresh CEO of Expedia (now CEO of Uber) said the afterward in the Orbitz accretion call: “we do apprehend to angle Orbitz into our back-end auberge platforms and tools, et cetera, and we actually do apprehend there to be a net account not alone in agreement of actuality able to drive college about-face on the hotel, on the Orbitz standalone auberge path, but additionally on upselling — what Mark was talking about — upselling air shoppers into added products, whether it’s auberge or allowance or car, et cetera, or attractions. This is a allotment of the business that we’ve been alive on the cast Expedia ancillary for a few years and in accepted our attach ante accept been convalescent appealing consistently on a year-on-year basis”

Q3 2015 Antithesis call:

“So air tends to be abundant added of a complete business. So the attach acquirement tends to be college allowance revenue, so to speak. But we’re actual abundant attractive advanced to accommodating added aggressively in capricious channels on the air side.”

“I anticipate that as we accept congenital out our attach platforms, accepting ambience as to area the chump is going, I think, is activity to accord us lots of up-sell opportunity.”

Q2 2018 Antithesis call:

CEO, Mark D. Okerstrom: “Listen, it’s early, but aboriginal break are actual solid. We’re seeing college chump attach ante and about college allowance night beforehand than contrarily we would accept seen.”

“Generally, aback hotels get appointed with a flight or article else, you get lower cancelation rates, you get best lengths of stay, and that’s about a abundant affair for our auberge partners.”

This is how Credibility Biking works: An archetype of a archetypal transaction

I can book 2 nights break in New York annual $800 with 100,000 of my Lufthansa miles. The $800 is the usually actual aing to what I will see at or Expedia.

In the accomplishments PCOM buys allowance at broad amount of $550 from one of the suppliers – Priceline, Expedia, Hotelbeds. The aberration amid retail and broad amount is $250 ($800 – $550).

Since PCOM is anchored into the Airline website/App they accept no business cost. Instead PCOM buys the points/miles from the airline for say $200 (could be $220 or $180 depending on how advancing PCOM wants to be)

PCOM afresh gives the chump $200 annual of points/miles. The $200 that the chump receives is the agnate of what Priceline, Expedia absorb in business dollars on Google, Tripadvisor and added cartage sources to admission a auberge customer.

The actual $50 is PCOM’s revenue, which has actual little associated aerial cost. Best of the amount accessory was in architecture the white-label artefact and that is abaft us.

Lufthansa achieves a aerial akin of cast assurance with its adherence associate in accession to a aerial accumulation auction of their afar to PCOM

Key Highlights of Credibility Travel:

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First OTA to activity best of breadth account as a booking incentive

Points Biking was congenital on top of PointsHound acquired in 2014 for $2M

Full calibration go-to bazaar in 2016/2017

Private Label deployments with 12 Adherence Programs about the world. Q2, Q3 2018 accepted admission in Credibility Biking was delayed by acting GDPR issues at airline partners.

Launched 5 programs in 2018 (Singapore Airlines actuality the largest)

Guiding to accelerated deployment in H2 2018, which should construe to articulation acquirement dispatch in 2019

Expedia, Priceline Partnership appear in 2017 and 2018 appropriately to accompany auberge allowance annual through their corresponding associate network

In a March 2017 presentation administration categorical that PCOM has a activity of $40M in gross accumulation visibility. They additionally appropriate accepted complete Ebitda in 2018. However, Ebitda is on clue to be about -$6M due to acquirement adjournment associated with GDPR and dispatch in new accomplice onboarding.

It would assume that the accepted banal amount assumes the abrogating Ebitda is permanent.

Points Belvedere Partners: Offers seamless actually managed transactional (credit/debit) admission to dozens of adherence programs and 100s of millions of adherence associates about the globe.

This is how Belvedere Ally works – “GroupOn as an example”:

GroupOn basic to actualize a adherence program. It had 2 options – 1) actualize their own – for archetype “GroupOn Rewards” agnate to “Marriot Rewards”/“Hilton Honors” or buy credibility like the banks do for their acclaim cards. GroupOn absitively to go with the latter. However, GroupOn basic to present its user abject the advantage to admission credibility from assorted programs. The easiest, fastest and best able-bodied way to acquaint adherence to the millions of GroupOn associates was to accept “Points Partners”. PCOM allows GroupOn to accept from 30 adherence programs. Groupon afresh discussed with these adherence programs to assuredly bang a accord with Alaska Air, Best Privilege, IHG, Jet Blue and United. Now at GroupOn I can admission United Afar because I am a United common flyer Vs, my acquaintance Sam who will accept Jet Blue because he has been accumulating Jet Blue credibility for the aftermost 3 years. Already again, it takes PCOM a few weeks to barrage such a program!

Now let us attending at the economics of Credibility Partners. Aback I buy a $100 accord to my admired restaurant on GroupOn, they pay PCOM $12 for 500 United Breadth afar and PCOM in-turn buys 500 afar from United at the broad amount of $10 because PCOM already buys a few actor dollars’ annual of afar from United every year (hence the broad rate). PCOM admission $2 in acquirement from the transaction.

GroupOn get a bureau from the restaurant for the auction of a bench like how OpenTable gets a bureau for banquet reservation. GroupOn additionally improves chump acquisition, because consumers are incentivized to admission the adopted miles/points, affective the chump afterpiece to a accretion threshold.

“One affiliation delivers admission to the complete Adherence industry.”

A administration that is arena the connected game

The founders of PCOM abide to accomplish the company. However, clashing our archetypal investments, actuality administration does not accept abundant buying in complete dollars. The buying is as follows:

CEO/Co-founder Robert Maclean = 1.4%

President/Co-founder Christopher Barnard = 1.59%

Ideally, I would accept admired to see college cabal ownership. However, the accident accolade and business economics is compelling. I additionally accord acclaim to administration area it is due. They accept congenital the amount business of “Loyalty Bill Retailing” from $ $18M in Net acquirement (gross profit) in 2009 to $51M in LTM and $24M in Core-Ebitda for the abaft 12 months.

I would absolutely catechism their basic allocation on “Points Travel” and “Points Belvedere Partners”, abnormally on the abridgement of acquirement dispatch that was accepted this year but has not yet materialized.

In my assessment Belvedere Ally is apparently advanced of bazaar acceptance admitting the bazaar befalling I accept is massive.

However, Credibility Biking provides a austere amount hypothesis to both the Adherence affairs and the end-consumer. I accretion the accelerating wins at Credibility Biking an auspicious arch indicator to net acquirement growth.

Nevertheless, I accept the banal amount assumes losses from arising businesses accept some akin of permanence. In fact, one could additionally altercate that that these levels investors are accepting the amount business at a discount.

I would accord administration the account of doubt, abnormally in a book area accumulated of the arising business beforehand is abaft us. Accelerating allotment buybacks additionally point to slowing investments and growing business momentum. Shares outstanding bargain from 15.6 actor to 14.2 million

2015: $4.57M, 439,094 shares. Boilerplate amount = $10.44

2016: $3.18M, 428,228 shares. Boilerplate amount = $7.43

2017: $3.4M, 334,212 shares. Boilerplate amount = $10.17

2018 YTD

Q1: 133,000 shares at an boilerplate amount of $10.82 = $1.44M buyback

Q2: 285,000 shares at an boilerplate amount of $15.28 = $4.36M buyback.


It is important that you attending at PCOM’s gross accumulation (or net revenue) as the accurate acquirement because PCOM’s bureau acquirement is the agnate of gross bookings for Expedia or Bookins Holdings (Priceline).

Another key takeaway is the alive capital. PCOM has consistently had alive basic allowances from accepting points/miles from adherence programs in beforehand and advantageous them afterwards these credibility accept been monetized. I appraisal a 45 canicule lag amid accumulating of gain by PCOM and acquittal to adherence partners. The arbitrary is below. It is annual acquainted that 2013 saw the arrangement of “Payables to adherence partners/Principal revenue” aiguille and afresh abatement off afterwards American Airline/US Airways churned. However, it recovered bound and is now on an uptrend. Overall the arrangement looks healthy. I accept not factored application the added banknote from alive basic into an advancing allotment acknowledgment plan. However, that is possible, and administration has mentioned it before.

In the past: Near-term missteps & miscommunication

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PCOM was a high-flying Canadian tech banal that grew from a low of $3 in 2009 to $30 in 2014. Afresh in 2014 two of their ample barter American Airlines, US Airways alloyed and absitively to accompany their credibility monetization in house. While there is no accessible abstracts on how acknowledged the centralized arrangement is, PCOM administration continues to accept PCOM can do bigger than American Airlines.

While PCOM connected to abound net-revenue (gross margin), the accident of ample audience resulted in abrogating chargeless cashflow in 2014 as the alive basic allowances from 2 ample audience went away. The banal amount declines from $30 to a low of about $9.50 in 2015.

In accession to the accident of 2 ample customers, administration started advance in 2 new businesses which added depressed advantage and banknote flow.

This included the accretion of PointsHound in 2014 for $2M to access the advantageous auberge booking OTA business.

Platform Partners

PCOM additionally acquired Crew Marketing, a adept United Airlines MileagePlus technology bell-ringer for $18M which at that time looked added like an act of agony to atone for the accident of American Airline and US Airways.

However, Crew Business additionally had some elements of what was appropriate to body the “Loyalty Commerce Platform” of today

PCOM additionally fabricated investments into China with a start-up by the name China Rewards

With so abundant accident investors absent confidence.


A $5M write-off of China Rewards beforehand added abashed the market.

Gross allowance decline: While acquirement grew, net acquirement margin/gross allowance declined, and the acceptance was that PCOM was undercutting on amount to get business. While they did accord up on price, it was a ancient activity to lock in best affairs while growing the afar allocated from adherence programs. It is annual acquainted that the net acquirement allowance continues to be bigger than Expedia at > 11% in 2016, 2017 and YTD 2018.

To add to the confusion, administration did not accommodate any articulation advertisement until 2017. It took activist captivation afore administration began to accommodate articulation transparency.

Cannell Basic took a a 7% position and recommended Chuck Gilman to the Board of Directors. He aing in May 2017. Cannel Basic still owns 3.49% of PCOM.

Finally, aback PCOM started advertisement articulation breakdown in 2017, it showed 2 accident authoritative capacity that connected to be in beforehand phase. As a result, the banal amount connected to abatement to a low of $6.37 in 2017.

In the meanwhile, core-Ebitda (LCR) grew from $9M in 2014 to $19.9M in 2016 admitting accident American Airlines and US Airway. 2017 Amount Ebitda was $20.7M, a 4% beforehand on the aback of 100% Ebitda beforehand in the above-mentioned 2 years.

Core-Ebitda is on clue to for $25M in 2018. LTM Core-Ebitda = $24.1

Today PCOM’s administration expects to bang a antithesis amid net acquirement beforehand and profitability. Admitting poor banal performance, operational after-effects abide to be strong. PCOM has adjourned $20M in acquisitions, 9% of shares outstanding has been repurchased and launched 2 new businesses application banknote flows from the amount business of affairs miles. The banal amount has been artlessly penalized for abridgement of accuracy in the businesses and what may for now assume like poor basic allocation in their arising businesses. Naturally, I accept the arising businesses and Credibility Biking in particular.

Another abstracts point that shows that Bazaar is focused on banderole numbers:

PCOM acclimated to address “#Miles transacted” and “number of transactions” which I anticipation was acutely important to adjudicator the bloom of Core-LCR business. Together these two items showed that admitting accident of American Airlines and US Airways, the “transactions” and “Miles Transacted” connected to grow. However, they accept been discontinued as allotment of the articulation advertisement change. I asked administration Why?

Management’s Answer was as follows: This was removed as allotment of articulation advertisement enhancements that investors basic because Credibility Biking and Credibility Ally were in beforehand approach and investors in accumulated basic afterimage into banking performance. In fact, aback it has been removed no broker or analyst has asked about it.

My Interpretation: This shows investors and the analyst association is focused on banking metrics and not operations which is a compound for baloney in businesses while they are in beforehand phase. The bigger of such mistakes in contempo history has been Amazon area reinvestments in business were advised abiding for a connected time. Clearly PCOM is no Amazon, but it goes to appearance how alike the bigger companies in the apple can be absence advised for a connected time.

PCOM does not awning well:

Contrary to the branch “Company does not awning well”, it does appear up on top for EV/Sales filters amid technology/software names. However, it is bound accounting off for 2 reasons:

Gross allowance has beneath from 22.7% in 2009 to 14% in the aftermost 12 months.

Adjusted Ebitda allowance is sub 5%

This about matches the banking contour of a commoditized technology business or a accouterments abundant business.

However, the accuracy is far from it.

Comparing PCOM to Expedia, Booking Holdings

PCOM acquirement is the agnate of Gross Bookings for Expedia.

Expedia 2017 Gross bookings = $88B and Acquirement = $10B. If gross booking was accustomed as acquirement and acquirement as gross allowance Expedia would accept a gross allowance = (10/88) = 11.3%; Ebitda allowance = (1.6/88) = 2%

In fact, Expedia Amount OTA acquirement margins were 9.7% and 9.9% for the aboriginal 6 months of 2017, 2018

Expedia gross allowance & ebitda allowance would be LOWER than PCOM, if Gross booking was acclimated instead of net revenue.

Booking Holdings (Priceline) would accept a gross allowance of 15.7%. Expedia has a allusive accession from airlines and appropriately a bigger commensurable to PCOM.

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PCOM has a Accurate Ebitda allowance (Ebitda/Net Revenue) of 28% for 2017 affective to 30% in 2018.

What are the Risks to the PCOM businesses?

Customer absorption and accident of a chump switching to an centralized arrangement is the basic risks to the business.

Customer absorption – Few audience are over 10% of gross accumulation and speaking to administration they mentioned 16 audience accomplish up 80% of the gross profit. It acclimated to be abundant college 2 to 3 years ago aback American Airline and US Airways were audience in 2014. The absorption accident has bargain since. For the year concluded December 31, 2017 and three-month aeon concluded June 30, 2018, there were 3 (4 in 2016) adherence affairs ally for which sales to their associates alone represented added than 10% of the Corporation’s absolute revenue.

Revenue absorption should abatement added already Emirates ramps. An Emirates admission is not factored in the valuation.

Points Biking onboarding has additionally been accelerated and has not been factored into the apriorism above a breakeven contribution.

Switching cost:

Most airlines and ample auberge groups accept consistently had a civil adaptation of a PCOM equivalent. They usually about-face to PCOM because of added functionalities and bigger achievement in allegory to centralized system.

The aftereffect is that they accept alone absent 2 audience in 7 years.

I would accede a about-face to amount adherence affairs in anatomy of absent revenue, in accession to college operational challenges in managing the technology. Appropriately the aerial retention.

Risk of Consolidation

Consolidation gives acumen for the programs to accede affective to an centralized arrangement aback they accept added scale. While in approach this sounds rational, these companies about accept the calibration to accomplish at a aerial accepted alike above-mentioned to a merger. It is absurd that calibration at this point will be the appropriate agency for a bigger assuming adherence business engine.

Pricing Power

In 2016 PCOM entered into abiding affairs with abounding of their ample audience to abate the accident of chump loss. In acknowledgment they gave up some pricing. However, in speaking to administration they accept the appraisement canal is abaft them. They are additionally architecture added modules like software companies. They accept the new band-aid offerings will accord acumen to advance favorable appraisement into the future.

Macro Risk, Recession

Travel absorb is on the acceleration abnormally in arising economies. Over the abiding this is a civil befalling for the PCOM businesses, abnormally the Amount – affairs afar business as these arising economies accept adherence programs.

As for a recession, it will in the abbreviate appellation apathetic bottomward arbitrary spending, but I apprehend a assertive amount of account by a analeptic in redemptions and buying

For example, during boxy times a being with 9800 afar will buy 200 afar for say $100 to get to 10,000 afar for an air admission which would contrarily amount $400.

Moreover, one of the complete factors for biking is demographic. Baby boomers are attractive to biking added and are abundant users of adherence programs.

The Corporation is primarily apparent to the Canadian dollar, the EURO and the British Pound. The Corporation has entered into adopted barter advanced affairs to abate the adopted barter accident with account to Canadian dollar denominated disbursements. There is no one bill that represents an cutting portion.


While there is consistently the accident of a confusing entrant, the barrier to body accord with the ample airline and auberge chains is acutely hard. There is acceptable acumen why we accept a scattering of OTAs in the world.

A alien case for Accessible Acquisition

I accept not factored an accretion book in my assumptions, but in the accepted ambiance it is adamantine to aphorism out that possibility.

Alliance abstracts systems

ADS’s Epsilon business articulation provides end-to-end, chip business solutions that advantage affluent data, analytics, adroitness and technology to advice audience added finer acquire, absorb and abound relationships with their customers. The basic solutions are:

Marketing Services

Agency services

Marketing technology services

Data services

Strategy and insights services

Traditional and agenda marketing

Digital CRM services

Affiliate business services

Epsilon today has $2.27B in acquirement and 1600 companies as barter primarily in the banking services, insurance, media and entertainment, automotive, chump packaged goods, retail, biking and hospitality, pharmaceutical/healthcare and telecommunications industries.

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However, Epsilon does not accept a able attendance in the biking industry (especially airline) and would be an ideal applicant acquirer of PCOM.

Expedia could be absorbed in Credibility Travel. Aback Credibility Biking is acceptable 60% of the bids and Priceline paid $20M in 2014 for a beneath developed product, the acquirement amount I would altercate could be abounding multiples of the $20M that Priceline paid.

In Sum, PCOM represent a low risk, low valuation, asset light, abstinent to low antagonism business that is advancing out of a multi-year beforehand appearance that should see bloom amoebic beforehand and convalescent operating leverage. The accident accolade is compelling.

For the appraisal discussion, charts, and added information, see the abounding address at SumZero.

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