Sabre Discloses a Disappointing Russian Headwind to 2023 Growth

While narrow-moat Sabre’s air bookings recovery is pacing in line with our forecast, investors were caught off guard by a law change in Russia, which will have a material impact on total 2023 IT revenue growth and reduce our $12 fair value estimate by around 10%. Although former filings mentioned this risk, we are disappointed that management had not emphasized it in prior investor calls. We understand the frustration investors are voicing regarding the Russian news (even though the event was out of their control), evident in today’s double-digit decline in shares. We see shares as undervalued but think management and shares might remain in the penalty box in the near term.

Fourth-quarter sales grew 35%, above our 33% estimate but missing FactSet consensus forecast for a 46% lift. Weaker results were due to slower corporate and Asia-Pacific growth in late November and through December, resulting in air bookings in the quarter reaching 58% of 2019′s level versus our 59% forecast and management’s target of low-60s. That said, investors should be willing to look past this weakness given that year to date (through Feb. 9) air bookings are at 62% of 2019′s level, and the recovery trend remains bumpy but upward. Further, Sabre’s outlook for air bookings in 2023 suggests that a gradual recovery will continue, harmonizing with our estimate for 64% of 2019′s level in the year.

That said, Sabre noted that its IT business would see a $100 million sales headwind in 2023, mostly due to a Russian law instituted in the fourth quarter that requires all travel IT activities to be owned and operated within the country, resulting in the decommissioning of a former customer. While this was not a competitive loss, it results in 2023 revenue and EBITDA guidance of $2.8 billion-$3 billion (versus our $3 billion estimate) and $300 million-$320 million ($406 million estimate), respectively.