It’s been over a year since I (Growth Gauge here) started covering SiteMinder for A Rich Life. Back on 13th June 2024, I wrote an introductory article about SiteMinder explaining its business model. You can check that out here. I also wrote about FY24 results and its “Smart Platform” strategy, which you can find here. 

Most recently, when I analysed SDR’s 1H FY25 result here, I ended the article with the following thoughts:

“In theory, SiteMinder is building a scale advantage in terms of access to data, and is also expanding its moat with smart platform technology. The upcoming couple of years will decide if it is a genuine compounder or just another business with high promises that cannot ultimately maintain growth and profitability.

Nonetheless, it is interesting to see that market expectations have come down if you consider the multiple of trailing revenue Siteminder currently trades at.”

I concluded that, despite the caution, the company still has plenty of long-term potential and definitely deserves a spot on your watchlist.

In my view, the reason expectations softened ahead of the FY25 results was that investors were looking for evidence of three things:

• Consistent revenue and ARR growth
• Higher ARPU driven by Smart Platform adoption
• Continued progress toward profitability and positive cash flow

So with that in mind, let’s analyse how it has performed,

Operational Performance

If SiteMinder continues to grow the total number of properties using its platform and keeps finding new ways to upsell or increase revenue from existing customers, it should perform well over time. Two key factors are:

• The number of properties (customers) using its services and 
• The average monthly revenue generated per customer. 

Both need to keep trending upward. The chart below highlights these trends.

In FY25, SiteMinder added a total of 5.6k net new properties (2.9k in the second half and 2.7k in the first half). The company also continued to focus on larger hotel properties, which offer significantly greater long-term value since SiteMinder earns revenue based on the transaction volume that flows through its platform.

Financial Performance

SiteMinder’s revenue model combines both subscription and transaction-based income. Its earnings grow when existing customers purchase additional products or when their Gross Booking Value (GBV) increases, since transaction revenue scales with customer activity. This setup allows SiteMinder to benefit from customer growth without relying heavily on new sales. However, the transaction component also makes its revenue somewhat sensitive to the broader travel cycle.

By the end of FY25, subscription revenue accounted for 62% of total revenue, while transaction revenue made up the remaining 38%. Subscription revenue carries a gross margin above 85%, compared to roughly 32% for transaction revenue. At the company level, SiteMinder’s overall gross margin sits around 65%. While this appears to have declined slightly over recent years, it’s largely due to the faster growth of transaction revenue which is not necessarily a bad thing, given it reflects deeper product adoption and expanding customer activity on the platform).

Profitability

SiteMinder isn’t profitable yet, so the best way to assess its progress is by tracking trends in EBIT and EBITDA. The chart below shows a steady improvement over time, with losses narrowing and a clear upward trend in EBIT, showing that the company is moving closer to profitability.

During FY25, SiteMinder recorded a $6.7 million restructuring cost, which temporarily affected both EBIT and EBITDA margins. Excluding that one-off impact, the underlying trend remains positive, and investors should expect to see margin expansion in FY26 as the business continues to scale.

It is also worth mentioning that SiteMinder’s treatment of software development costs, whether expensed or capitalised, has an impact on reported profitability. I will discuss this in more detail later in the article.

Annual Recurring Revenue Trends

While revenue reflects past performance, Annual Recurring Revenue (ARR) offers a better indication of future income over the next 12 months. SiteMinder calculates ARR by multiplying the previous month’s subscription revenue by 12 and adding four times the previous quarter’s transaction revenue, assuming any promotional discounts have ended.

The chart below shows SiteMinder’s steady ARR growth over time, with clear momentum following the launch of the Smart Platform.

To ensure this growth isn’t simply a result of currency fluctuations, the constant-currency ARR growth (year-on-year) is also shown below.

ARR continues to grow strongly, although this strength hasn’t yet fully flowed through to reported revenue. That’s largely because SiteMinder offered discounts to attract larger hotel properties. These early promotions mean that ARR already includes the full value of those contracts going forward, while actual revenue will take some time to catch up. In addition, the timing of contributions from the Smart Platform has also created a short-term gap between ARR and revenue growth, as shown in the chart below.

Cash Flow

SiteMinder’s software development costs are now almost entirely capitalised, meaning they are recorded as assets on the balance sheet rather than as immediate expenses in the profit and loss statement. In earlier years, a portion of R&D was expensed (roughly half, according to the prospectus), but since listing, the company appears to have shifted to fully capitalising development costs. This is common among software companies, though it can make it harder to see the true level of operating spend.

Investors should generally be cautious when management has an incentive to make profits appear smoother through accounting choices. In SiteMinder’s case, however, management’s incentives are linked to underlying free cash flow rather than accounting profit, which provides some comfort. The best way to cut through the accounting noise is to keep an eye on free cash flow trends over time. If free cash flow continues to strengthen, the capitalisation policy becomes less of a concern.

The chart below shows SiteMinder’s free cash flow, calculated as the net change in cash after adjusting for loan drawdowns or repayments and cash received from share issues. The impact of employee share-based payment expenses has not been included in this graph.

As I mentioned earlier in my 1H FY25 analysis, it initially looked like SiteMinder had taken a step back due to restructuring costs and heavier investment. However, with the full-year results now out, it appears that the company’s growth investment strategy is beginning to pay off, and we should start to see the benefits of restructuring flow through from FY26 onwards.

Valuation and my thoughts

SiteMinder has about 281 million shares on issue, trading around $7 per share, which gives the company a market value of around $2 billion. Its Annual Recurring Revenue (ARR) currently sits at $273 million, meaning it trades at a bit below eight times ARR.

To be fair, the quality of SiteMinder’s ARR isn’t quite the same as it was in FY21 or FY22. In recent years, a larger portion of ARR has come from transaction-based products, which carry a lower gross margin of around 32 percent. That said, these products also make the business much stickier. Once a hotel relies on SiteMinder’s platform to manage bookings and optimise revenue, switching becomes extremely difficult.

SiteMinder is guiding for around 30 percent medium-term revenue growth, and with a few years of consistent execution and operating leverage, the current valuation can be justified.  Of course, execution risk always exists, but the FY25 results (specifically the 2nd half) show encouraging signs that management is delivering on what they’ve promised. It is clear that SiteMinder is valued on its future potential, not its current earnings, so the key question is, how bright does that future look? 

In my view, SiteMinder is quietly building a strong competitive advantage in a niche market. The company benefits from a network effect similar to what you see in marketplaces: more distribution partners attract more hotels, and more hotels attract more partners. On top of that, its products are becoming stickier every year as they integrate deeper into customers’ workflows and revenue management processes. With over 50,000 hotels and $85 billion in bookings processed annually, SiteMinder now sits at the centre of the global hotel commerce network. That scale gives it incredible visibility into real-time travel trends and booking behaviour, insight that few others can match.

The next phase of this advantage will come from SiteMinder IQ, its data and AI engine. Every booking, cancellation, or rate change feeds into a system that learns and improves. Over time, SiteMinder IQ should be able to forecast demand, recommend pricing, and help hotels make smarter decisions automatically. The more hotels join, the better the data gets and the smarter the system becomes. This kind of self-reinforcing loop is difficult to replicate, especially for competitors without SiteMinder’s data scale or deep integrations.

So while the stock might appear expensive today, if the company continues to build genuine scale, pricing power, and a lasting competitive moat, today’s price may look cheap in the long term. ith that long term view in mind, I’m continuing to hold (at this point in time) and will keep monitoring the execution from here.  A few key things I’ll be watching:

• How much incremental revenue translates into free cash flow? My expectation is 25+%. 
• Can management maintain the balance between growth and free cash flow?
• Can SiteMinder turn its scale advantage into lasting pricing power?
• Will adoption of the Smart Platform continue to accelerate as planned?

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Disclosure: The author of this article owns shares in SDR. The editor, Claude Walker, doesn’t own shares in SDR. Neither will trade SDR shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).

The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. A Rich Life does not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.