Ask the analyst: Can this genius product create the next ASX software king?
Siteminder’s newly released product for hotel owners and travel agents could widen its moat and see revenue accelerate further.
Welcome to Ask the analyst, where I put questions from Morningstar readers and myself to our team of equity analysts.
Today we’re going to look at one of the standout performers from ASX reporting season: Siteminder (ASX: SDR). In case you missed it, the shares ended August around 30% higher after an acceleration in revenue growth during fiscal 2025 impressed markets.
More specifically, we’re going to look at why Roy Van Keulen thinks Siteminder’s new products can take the company’s growth trajectory and competitive position to the next level and why he thinks markets are still underestimating the company.
First, though, a quick look at how Siteminder makes money.
Shopify for hotels?
Siteminder is an e-commerce platform for hotels. It made its name as a leading provider of channel manager software, which lets hotels manage bookings from several online travel agents (think Expedia, Booking.com, et cetera) in one place.
Siteminder has expanded beyond this by providing additional services like Siteminder Pay (a suite of payment processing and refund tools) and more recently launched offerings like Channels Plus and Dynamic Revenue Plus.
This move to a fuller offering is why Roy Van Keulen called Siteminder “Shopify for hotels” in an interview with me last year. And this shift is becoming increasingly visible in Siteminder’s financials.
Siteminder has two reportable segments. “Subscriptions” covers payments from customers to use the platform and its core channel manager offering. Meanwhile, “Transactions and other” houses Siteminder Pay and the other new products.
In fiscal 2022, subscription sales delivered around 75% of total sales. By fiscal 2025, this had dropped towards 60% as non-subscription revenues have grown at an average of 43% per year. This was almost entirely thanks to Siteminder Pay.
Figure 1: Siteminder revenue growth by segment, Fiscal 2022 to Fiscal 2025. Source: Company filings
Gross margin remains skewed more to subscription as this revenue is much higher margin. This is because a lot of the costs of providing Siteminder Pay, which dominates the transactions segment, scale in lockstep with sales due to service provider fees.
This looks likely to change in the future as 1) growth in transaction revenues looks set to outpace subscription revenues and 2) new products like Channels Plus make a bigger contribution to non-subscription revenues at higher profit margins.
The three phases of SAAS revenue
Roy says that Siteminder is in the early stages of an important shift where revenue and profits are becoming increasingly linked to the value that it generates for clients.
This journey can be visualised as follows:
- Phase 1: Revenue derived mostly/all from number of users (seats)
- Phase 2: Revenue increasingly derived from transactions
- Phase 3: Revenue increasingly derived from sharing in value created
A revenue model based only on seats wouldn’t be ideal for Siteminder, says Roy, as each hotel usually only has one person using the software. If sales and profits are to scale faster, Siteminder needs to find ways to share in the value it creates for clients.
Siteminder Pay was the first act in this evolution and the next wave of platform features could usher in the next stage. In a moment we’ll look at why Roy is so optimistic about one of these products in particular. But first let’s look at Siteminder’s moat.
Not just switching costs
Siteminder has been awarded a Narrow Moat rating by Morningstar’s moat committee. This means we think that it benefits from competitive advantages that can sustain excess returns on capital invested into the business for at least ten years.
Like many other software companies, Siteminder’s moat is partly due to switching costs. These arise when a product is so embedded in a company’s daily operations that moving to another supplier becomes painful and riskier than staying put.
Roy has been keen to stress in his research, however, that switching costs aren’t Siteminder’s only source of competitive edge. An important one, he says, is Siteminder’s scale-based cost advantage over smaller players in its niche.
Channel management continues to be Siteminder’s bread and butter. And what hotels want from a channel manager is simple: they want the most reliable and highest quality channel integrations with the highest possible number of OTAs.
This reflects the nature of the hotel business, where the vast majority of costs are fixed and therefore any extra revenue falls increasingly to the bottom line as profit. As a result, opening yourself up to bookings from the highest number of OTAs makes sense.
Continually adding and maintaining integrations with these OTAs is largely a fixed cost for channel manager providers. After all, the costs of providing these integrations does not change if the integration is used by one paying client or one thousand.
At more than double the size of its next biggest competitor, Siteminder’s costs to add and maintain integrations (or develop or replicate new features) are fractionalised over far more revenue and cost them less on a relative basis.
Being at this cost disadvantage may force smaller peers to cut spending in other areas like marketing or sales to keep up. Roy says this puts Siteminder in a strong position to build new products with which it can win and defend market share in the years ahead.
Enter Channels Plus
Channels Plus is perhaps the most exciting of Siteminder’s new products. Here is a quick explainer of how it works.
Channels Plus combines several second and third tier demand channels (like Agoda, Ctrip, et cetera) into a single channel that, in aggregate, can become a substantial channel in addition to Booking and Expedia.
Instead of needing to set up integrations with several smaller demand channels individually, hotels can tap into several of them with a single integration. Meanwhile, OTAs can access a vast array of room inventory from one place.
In return for generating bookings through this channel, Siteminder takes an additional commission - a good example of the platform being able to increase revenue and lifetime value per user by sharing in the value it creates for them.
Widening the moat
Roy also thinks that network effect dynamics in Channels Plus could eventually widen Siteminder’s moat quite significantly.
Hotels benefit from every additional OTA that integrates with Channel Plus because it opens them up to additional demand with no additional effort. Meanwhile, the OTAs benefit from new hotels joining Channels Plus because they can offer more rooms.
All in all, Channels Plus offers a highly attractive feature to clients and turns Siteminder’s 2.4 million hotel client rooms – a third more rooms than those operated by the world’s biggest hotel group, Marriot – into a monetisable asset for the firm.
Even better, it is unlikely that smaller competitors could offer anything nearly as attractive an offering to OTAs due to their inferior network of rooms. Meaning that Channels Plus could both capitalise and expand Siteminder’s scale advantage.
A plus for revenue, earnings and market share?
Roy thinks that Channels Plus could deliver over $200 million in additional annual revenue by 2030. And this revenue should have increasingly high profit margins as most of the costs to provide the service will be fixed.
If Roy is right, then we could see the shift to non-subscription revenues at Siteminder accelerate further, only with less of a dilutive effect on overall gross profit margins than has been the case with payments. And the potential benefits do not stop there.
On the customer acquisition side, Channels Plus and other new products could widen the gap between Siteminder’s value proposition and that of the competition. This could make winning new customers easier and see the costs of doing so continue to fall.
Turning to retention, strong client uptake of additional features like this could increase the stickiness of Siteminder’s platform. And if they deliver the value they intend to by generating more revenue for clients, could reduce churn from hotels going bust.
Taken together, Channels Plus could meaningfully improve the metrics that matter most to any SAAS business – lowering customer acquisition costs and increasing customer lifetime values and retention.
Channels Plus only launched in the first half of fiscal 25, but 8% of hotels and 9% of rooms are already using the product. Roy estimates that 80% of eligible new Siteminder clients use it and thinks the product can scale to 35% adoption by clients by 2030.
Only the beginning?
I find it hard not to be impressed by Channels Plus.
As Roy makes clear, it has the potential to widen Siteminder’s moat, provide real value for clients, and accelerate revenue for the firm all in one go. It also boosts my confidence in Roy’s comparison with Shopify (TSX: SHOP) from last year.
In a recent shareholder presentation, Shopify featured the following slide showing the array of features it offers e-commerce stores. All with the potential to improve customer outcomes, increase stickiness and add value that Shopify can share in.
Figure 2: Shopify’s range of offerings for e-commerce stores. Source: Shopify
Could Siteminder one day offer a similarly broad offering for hotels? Roy definitely sees a long runway for reinvestment in new products. After all, the hotel industry still has low levels of digitisation, especially in the smaller operators that Siteminder serves.
Taken alongside the switching costs, cost advantage and nascent network effects he sees in Siteminder’s existing products, Roy thinks markets still underestimate Siteminder’s potential to grow far beyond the single-digit market share it has today.
Roy’s valuation factors in revenue growth of 22% per annum for the next decade as Siteminder continues to take market share and non-subscription revenue continues to accelerate strongly, helped by new products like Channels Plus.
At a recent levels below $7, Siteminder shares traded around 35% under Roy’s Fair Value estimate of $10.75 and had a Star Rating of four.
Roy has assigned an Uncertainty Rating of High to his valuation, partly because of the cyclical nature of the travel industry. This is especially relevant now that transaction-based revenues are set to make up an increasing percentage of sales and profits.
