Monaker Group Inc fka MKGI (MKGI)

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Monaker: Ready For Launch

With 2.6 million properties, MKGI has achieved enough scale to enable Online Travel Agents to compete with Airbnb in the Alternative Lodging Rental industry

By Daniel Carlson -September 11, 2019

https://tailwindsresearch.com/2019/09/monaker-ready-for-launch/

I’m a big fan of Alternative Lodging Rentals (ALR). Having a large family that is now spread out around the country, when we travel we like to stay in one location. Hence, renting a house or apartment has become our preferred accommodations when we are meeting up somewhere. The ability to have shared common space along with a kitchen makes travel more enjoyable and, frankly, more affordable.

Our family is not alone in this regard. Since the advent of the internet, it has become much easier for property owners to list a property for rent and for renters to find a suitable location to stay. The trend started with early adopters like VRBO but has really blossomed under Airbnb. At this time, the ALR market has grown to be 25% of the whole lodging industry and it is continuing to grow much faster than traditional short-term lodging such as hotels.

Alternative Lodging Rentals is no longer a niche market. It has now entered the mainstream with more people using it annually. The convenience and flexibility of ALRs is very attractive to many travelers and it will likely continue to grow in popularity. However, the process by which travelers book their lodging, and the way the properties themselves are managed, hasn’t changed much since its beginning.

At this time, the vast majority of ALR stays are booked by directly by users. This is done through a process in which one basically requests a property and then is informed at a later time whether or not they have been accepted. Part of the logic behind this is that a majority of the early ALR properties on the market were owned by individuals and operated as a rental on a part-time basis.

This process of renting from homeowners and staying in someone’s personal space worked well to kick-start the ALR industry. But, as the market has grown and matured, the time has become ripe for a more professional process to enter the space.

Currently, the ALR market is reminiscent of the early days of on-line shopping. Remember that once EBay dominated that market with second-hand items on auction before Amazon started bringing new goods to the marketplace. People want to buy immediately and to know what they are getting. The same is true of ALRs; the days of requesting a property and staying in someone’s house, with pictures of Aunt Em and Uncle John on the table, are over.

For the ALR market to continue to expand, it needs to mature. Renters want to know that they are confirmed immediately. They also want lodging that is flexible in size and layout, but is run professionally like a hotel. Finally, they would like to be able to book an ALR through a travel agent or other service instead of searching for it as a one-off. Basically, the future of Alternative Lodging Rentals is to see it run almost in parallel to the hotel industry with the traditional big boys of the travel industry having ALR as a piece of their business offering.

This maturing of the market is happening in real time. Over the coming months you will begin to see Alternative Lodging Rentals available through your travel agent or as an option on a site such as an airline where they offer you other services once you have purchased your plane ticket. The ALR space is going to become more uniform in structure, like booking a hotel. It’s all starting to come together, and a little-known company called The Monaker Group could very well be the key to the story.

Sizing up the Alternative Lodging Rental market…

Much like Uber and Ebay, alternative lodging is completely disrupting the travel industry, especially the vacation rental market. In terms of Airbnb alone, more than 18% of travelers have used their services. According to Morgan Stanley, this number is expected to grow to over 25% of all travelers having tried Airbnb in the next few years.

This user growth is starting to take very meaningful bite into the market share of the overall lodging industry. From Monaker’s corporate presentation, we can see that alternative accommodations were over $100 billion in 2018.



The largest firms in ALR are taking the majority of that business; namely Airbnb and VRBO. In return they are getting tremendous valuations from the market. Expedia paid $4 billion for VRBO in 2015 and Airbnb’s enterprise valuation is greater than $50 billion.

But, like Ebay and Amazon dominating early online sales, don’t think that traditional lodging vendors are sitting on their hands and watching business walk away. As discussed on HotelManagement.Net, “Alternative Lodging is not an alternative fact – it’s the Uber of hospitality.”



At the same time the existing OTAs (Online Travel Agencies) are getting a rude wake-up call. These companies have enjoyed massive growth over the last 20 years, becoming an $800 billion dollar business. But, Airbnb is taking it to them rapidly.

The bottom line here is that Alternative Lodging Rentals is a $100 billion dollar business that is still in its infancy and dominated by just a few upstarts. It will continue to grow, but expect the key players in OTA and lodging to adopt strategies that enable their participation in the space.

Monaker’s value add…

With the onset of ALR, we’ve got a new upstart in lodging that is growing rapidly, taking share of the lodging industry and grabbing a major piece of the Online Travel Agency’s business. Yet, it’s a business model that isn’t professionally managed on either end of the product. The property owners that have initially provided a majority of the listings are mom-and-pop type operations. Meanwhile, the bookings all have to be consummated directly by the end users instead of using third parties.

As discussed before, the problems of this model are twofold. First off, users of ALR spaces are looking for flexibility in space, but want some sort of uniformity in the offering. Meaning, they want accommodations that have more usability than a simple hotel room, but they like having a room that doesn’t have the feel of sleeping in someone’s teenager’s bed.

At the same time, the lack of ability to use travel agents or book immediately creates a very uncertain user experience. Someone booking on Airbnb doesn’t have a trusted source to use as a reference on a property, instead relying on unknown third parties. Plus, without instant booking, you aren’t guaranteed a space and may have wasted your time and effort when declined. It’s worked so far, however it’s not a great system nor a long-term solution.

This is where Monaker comes in. Monaker is providing OTAs with the ability to compete with Airbnb. At the same time, their offerings are creating better user experiences for travelers. Here’s how they are doing this.



Monaker has assembled a portfolio of property listings. These are all properties that have professional property managers in charge of them (rather than individuals listing a home or spare bedroom). These properties can be co-listed on Airbnb or other sites, but they are all available through Monaker’s engine. Importantly, they are all able to be immediately booked and will pay booking agents a commission.

Having assembled these (+2.6 million and counting) listings, Monaker provides a technology bridge between the properties and travel websites. By partnering with Monaker, any OTA can enter the market of Alternative Lodging Rentals. Immediately, the 25% of the market that had been the exclusive domain of Airbnb, VRBO and a few others is now available for any online travel agent to book. It’s a tide-turning event for the travel agency which had been losing market share in lodging on an annual basis.

Key partnerships in place…

My favorite line from the movie Field of Dreams is, “If you build it, they will come.” In the case of Monaker, they have been working on the dual goals of accumulating properties for several years while also creating the back end booking engine. This year they crossed the finish line in both arenas.



As shown above, Monaker has reached a scale virtually on a par with the largest companies out there. This breadth of assets and global reach will enable their OTA partners to compete on a level playing field with the largest ALR companies. Meanwhile, they have also accomplished the task of finalizing their booking engine. They have built their “field of dreams”.

In return, OTAs have taken notice and are starting to sign up for the platform. This is being done through partnerships with the largest conglomerators of lodging units in the industry. To date Monaker has disclosed that there are over 30 contracted distribution partners.

At this time, however, the only one that has been publicly disclosed is Trisept Solutions. Trisept a sister company to Mark Travel and now a wholly-owned subsidiary of Apple Leisure Group, a $6 billion enterprise, has been one of the industry’s leading providers of cutting-edge, award-winning technology for travel merchandising and distribution solutions. Initial distribution should soon occur to 100,000 travel agents on their VAX VacationAccess marketplace.

Monaker has since signed dozens of other companies with greater distribution potential than Trispet but observes a non-disclosure policy of customers. However, we should expect to hear more about the rest of the partners as the Company starts ramping sales with them in the fall of 2019.

A highly levered model to a fast-growing industry…

We believe that sales are about to hit a hockey stick styled inflection point for Monaker. With their enviable position of being the key component that enables OTAs to address the Alternative Lodging Rental market, a space in which they are a non-existent force, we can hope to see Monaker’s volumes start picking up shortly after distribution partners go live.

Admittedly, there may be some doubt about the onset of the sales ramp due to the lack of historical revenues, despite having some partnerships in place since late last year. We believe there is a logical explanation to this. Their first client, Mark Travel, was indeed announced a while ago, but they have yet to go live. This is due to technology issues (unrelated to Monaker) that have delayed Mark’s ability to perform the integration. This issue is expected to be resolved imminently.

As well, the other clients who are live only generated $20,000 in fiscal Q1 (which is May of this year) despite having gone live late in fiscal 2019. This number is deceptively small and investors should focus on their revenue model before putting too much credence behind that number. Monaker only books revenues when the travel occurs. Since most of these vacation rentals are booked at least 3 and sometimes more than 6 months in advance, we are just now entering the time that revenues from their first adopters should pick up. I expect to see a meaningful increase in fiscal Q2 when it is reported in November.



Meanwhile, a major lodging distributor channel is going live in October with a number of their largest clients. This channel represents an order of magnitude increase over prior signed clients and bookings should start to see a substantial uptick in the next couple months.

How big can this get? Here are some stats, courtesy of PhocusWire, September 9, 2019, that show the size of the market that Monaker is addressing…

The number of vacation rental users worldwide was 64 million in 2015. It is currently more than 100 million. By 2023, it is expected to rise to 361 million.
The vacation rental industry is estimated to achieve a global market value of $194 billion by 2021. The industry is still in relative infancy, remains highly fragmented and lacks meaningful consolidation.
There are currently an estimated 115,000 vacation rental companies worldwide…the industry nonetheless remains relatively “infantile.” It is highly fragmented and ever-evolving.
Monaker’s model is simple; they receive approximately 4% of the revenue on a booking through a third-party OTA. When something is booked through one of their own travel sights, they get a much higher percentage. This is very high-margin business for them as it’s simply a software and connectivity solution. As such, the business is highly leveraged to sales growth and could start throwing off cash very quickly.



As the above model shows, just based on the current number of travel agents in their pipeline, if they get 1 booking per annum from just a quarter of the agents, they could generate over $0.30 per share in earnings. If they go up to all agents booking a rental, a 300% increase, earnings leap to over $2 per share. There is some leverage in this operating model indeed.

Don’t be fooled by the balance sheet…

One of the biggest risks in the current market environment is the risk of a dilutive financing. Many stocks are trading down recently on the back of a weak balance sheet and impending equity financing. On the surface, Monaker looks like it could be at risk of the same thing however don’t judge a book by its cover.

Despite the lack of cash on their balance sheet, Monaker is potentially funded through to cash flow breakeven. This is due to several factors which includes a minimal burn rate of only $300,000 per month. With a small burn and over $6,000,000 in marketable securities on the books (shares in other companies that can be liquidated), plus a management and board willing to loan the Company money as needed, Monaker has the ability to go forward for well over a year without requiring more equity capital.

A year should be plenty of time for Monaker. They are just now turning on their booking engine, bringing partners on to the system. I suspect the Company can achieve cash flow breakeven in the first half of 2020, if not sooner. It’s possible there will never be another equity raise required for little MKGI.

Risk Reward favors an investment…

When I look at Monaker I see what is potentially a piece of the maturing of the Alternative Lodging Rental industry. The days of people renting spare bedrooms or moving out of their own house for a weekend to make some money are going to end. Local jurisdictions are treating Airbnb owners as hoteliers and starting to regulate them.

Meanwhile, customers want a less intrusive package. Renters want to have flexibility in space, but not feel like they’re staying in someone else’s. The result of this is going to be more property management taking place in alternative lodging and a mainstreaming of the business.

Travel agents and online booking engines are missing out on the growth in ALR, which is now 25% of the industry. A few years ago it was a niche. Not it’s a problem and companies like Airbnb are offering packages; i.e. they are going after the travel agents.

Monaker provides an offering that levels the playing field for OTAs with Airbnb and VRBO. Instead of losing customers, they can now offer the same lodging experiences and get paid for doing so. As such, we should expect to see OTAs rapidly adopt the Monaker booking engine. With Monaker getting 4% of the transaction, at very high margins, any significant adoption should drive a rapid increase in sales and earnings. As such, with a market cap of under $25 million, MKGI offers what we believe to be substantial upside and are buyers of the stock.