Introduction: eDreams, a frequent subject of my Substack articles, has executed a transformation from its original transaction-focused business model to a subscription-focused model. It grew Prime subscriptions from 0.3mm in Q1 2020 to 4.9mm as of August 22, 2023. What is most impressive about eDreams during this time, setting aside a year of COVID lock downs, is that it grew its subscription business in a profitable manner (using economic profits, but IFRS are catching up). eDreams’ stock price is up an impressive 66.1% YTD (as of 8/31/2023). Despite eDreams’ strong stock price performance this year, its current price is a fraction of my estimate of its intrinsic value.
Thanks for the article. I am still learning about the business model and would like to learn more about the basics on why they are winning market share and the value proposition for customers. After listening to the latest conference call management is cagey about churn and doesn't offer much about the benefits of the business model except for platitudes about NPS and delighting customers.
Too be clear, I own shares and looking to increase my position. Looks very interesting at these levels and just exploring bear cases.
I found this comment from NOLA18 on VIC interesting. Curious if you have any thoughts on it?
"However, I really struggle to square a few things here. It seems very clear to me that the actual prime savings claimed by eDreams are not real. For example, the snapshots below are using a French IP address and looking at flights on the eDreams website from Paris to Barcelona. The “prime only” member rate they claim as a ~25% discount to the normal fare, is actually usually only 1-2 dollars/euros off of the widely available fare. From a high level view this makes sense, because even in markets like Europe where flights are highly fragmented, you are talking maybe 5-7% margins. eDreams would be taking massive losses on every transaction if they actually were offering the kind of discounts claimed. You can change your IP address to dozens of different countries across Europe and search hundreds of flight pairs, and the results I come up with are the same, a difference of a few euros at best.
So with that as the starting point, you have a management that is hesitant to discuss churn, and claims that the majority of prime growth is via word of mouth. However, it seems obvious that the real reason, or at least a major reason, why Prime is growing is actually because for any transaction that occurs on eDreams, you have to opt out in the checking process not to get signed up for a membership. I know online reviews skew negative, but there are literally thousands of reviews out there with people saying they don’t know why they are being charged 59 euros a month. So with a business that likely does 8-10m transactions a year, and given the structure in checkout of being opted into prime, maybe the current growth isn’t all that surprising?"
Great write up! Any idea if the big players like Expedia or Booking will get in the flight booking business in Europe and take away the niche market share eDreams built.
It seems like gross bookings is falling YoY and not being disclosed, except for a footnote in the financials, whereas in past reports, when bookings was growing nicely, it was more readily disclosed. Is this a concern as bookings is also a leading indicator?