Why Webjet Share Price is Dropping 12% Today – What It Means for Investors

Webjet Share Price: The Webjet Ltd (ASX: WEB) share price has taken a significant hit today, falling by 12% to $7.24. While such a drop may initially cause concern, there’s more to this decline than meets the eye. In fact, this share price drop might actually be a positive development for shareholders in the long term.

Understanding Why the Webjet Share Price is Falling

Unlike many instances where share prices tumble due to negative updates or poor financial performance, the Webjet share price decline today is not due to bad news. Rather, the sharp drop is a result of the company undergoing a strategic transformation.

Earlier this month, Webjet announced plans to demerge its business-to-consumer (B2C) division, creating a new entity named Webjet Group Limited (ASX: WJL). The demerger was approved by an overwhelming majority of shareholders. As part of the demerger, shareholders received one share in Webjet Group Limited for every share they held in Webjet Ltd.

This move marks the beginning of a new chapter for Webjet, which is being renamed as WEB Travel Group, and reflects the company’s strategy to streamline operations and unlock value for shareholders.

The Details Behind the Demerger

The demerger separates Webjet’s business into two distinct entities, each focusing on different areas of the travel industry:

• WEB Travel Group: The existing listed company will be renamed WEB Travel Group and will primarily focus on its business-to-business (B2B) travel distribution business, WebBeds. This segment has been a major growth driver for Webjet over the years, and the demerger will allow the company to sharpen its focus on B2B operations, which includes hotel bookings and other travel-related services.
• Webjet Group Limited: The newly created company, Webjet Group Limited, will focus on the B2C side of the business. This includes Webjet’s online travel agency (OTA) operations in Australia and New Zealand, as well as GoSee, a global travel e-commerce business specializing in car and motorhome rentals. Webjet Group Limited will also manage Trip Ninja, a platform designed to simplify the sale of complex travel itineraries.

Is the Share Price Drop a Bad Sign?

Despite the 12% drop in the Webjet share price today, shareholders shouldn’t view this as a negative development. In fact, the decline is a direct result of the demerger. The drop in Webjet Ltd’s share price is offset by the fact that shareholders now hold shares in two separate companies. Webjet Group Limited, the newly listed entity, is expected to start trading at $1.25 per share, which actually adds value for shareholders.

In simple terms, the share price decline in Webjet Ltd is balanced by the value of shares in Webjet Group Limited. Therefore, investors are not losing money; they’re simply seeing the value of their holdings divided between two companies.

Why This Move Could Be Good News for Shareholders

For many analysts, this demerger is seen as a value-creating move that will benefit Webjet shareholders in the long run. UBS, for example, had a “buy” rating on Webjet shares before the demerger, with a price target of $10.00. UBS believes that the separation of Webjet’s B2B and B2C operations will unlock value by allowing each entity to focus on its strengths.

With WebBeds’ B2B travel distribution business continuing to grow and the newly listed Webjet Group Limited concentrating on the fast-moving B2C sector, both companies have clear growth opportunities ahead. As independent entities, they may be able to attract more focused investment and achieve higher valuations than they would have as part of a combined company.

What’s Next for Webjet Shareholders?

As Webjet Ltd rebrands as WEB Travel Group and focuses on its B2B operations, investors should keep an eye on its performance in the global travel distribution market. Meanwhile, Webjet Group Limited’s debut on the ASX will offer an opportunity for shareholders to benefit from the continued growth of its online travel agency and e-commerce businesses.

In conclusion, while the Webjet share price decline might seem alarming at first glance, it’s actually a positive development for shareholders. The demerger has created two focused companies, each with strong growth potential. Investors who hold onto their shares in both Webjet Ltd and Webjet Group Limited may find themselves in a stronger position in the months and years to come.