We’re not experts at technology. Many sectors within the industry are far too specialised and unpredictable for our liking. But you don’t need to be a technological genius to see the wide and deep moat surrounding some established technology businesses. US companies Sabre Corporation (Nasdaq:SABR) and eBay Inc. (Nasdaq:EBAY) are two examples, both 2015 additions to the Fund.
You probably won’t know Sabre, but odds are you have utilised its services. The company is a leader in travel-related software, supplying much of the IT infrastructure that allows airlines and hotel chains to carry out day-to-day operations. Check-in to a Virgin Australia flight on your mobile phone and you will notice you are using the Sabre platform rather than Virgin’s technology.
Sabre also operates one of the largest platforms that facilitates bookings for travel agents. Think of it as an online marketplace where travel agents get immediate access to products including flights, hotel rooms and rental cars. The platform is plugged directly into almost every travel supplier’s system (airlines, hotel chains, etc), so the data is comprehensive and any schedule changes are updated immediately. The platform handles ticketing, invoicing, and payment among other services. For the travel agent, this is the lifeblood of their business.
Over the years, Sabre has developed deep ties with customers and acquired a strong share of the market, resulting in enviable profit margins. It is relatively new as a public company, and its story is not well understood by the market. While 2015 has been a positive year for the business, 2016 should be a real standout as a number of new large contracts begin. It’s a high quality business with a significant growth opportunity.
eBay will be a name more familiar to investors. It’s something of an elder statesman within the technology industry, but we think it has a new lease on life. Recently separated from online payment platform Paypal, eBay is charting a new, independent path that should improve operational focus and financial performance.
When tethered to Paypal, insufficient strategic focus was placed on its ability to compete effectively with ecommerce peers like Amazon. We think that is changing and there is a huge reward if it is successful. The company also owns some of the best online classifieds businesses in the world (including Gumtree) which provide an underappreciated source of value. With a fresh spotlight now upon them, we believe the public markets will eventually appreciate eBay as we do.