The Trainline (LSE:TRN) share price started 2021 relatively well. But after making a near-complete recovery from the disruptions of the pandemic, the stock fell off a cliff. Last Thursday morning, it dropped by more than 30%. As a result, over the previous 12 months, the Trainline share price is down by around 43%. What happened? And is this a buying opportunity?
The collapse of the Trainline share price
2020 was a challenging year for Trainline. With travel restrictions preventing people from moving around, this train ticket sales business struggled to generate an income. Looking at its latest results, between February 2020 and 2021, the firm only achieved £67m in sales. That’s about 75% less than a year before. But as the vaccine rollout progressed and travel restrictions eased, the money started flowing in again. And the Trainline share price began recovering.
Last week, the UK government published the Williams-Shapps plan for rail report, which outlines the long-anticipated overhaul of the railway sector. Under this plan, a new state-owned railway body called Great British Railways will be formed. It will be in charge of developing and maintaining infrastructure, running the rail networks, and setting rail fares. So, why were Trainline investors spooked? Because in addition to these responsibilities, Great British Railways will also have its own online ticket-selling platform that directly competes with Trainline.
Trainline has been a leader in online train ticket sales for decades. But even during that time, it struggled to turn a profit. And now that a government-backed enterprise is entering the arena, it could significantly impact its revenue stream. So, I’m not surprised to see the Trainline share price collapse on this announcement.
Taking a step back
While the appearance of a competing ticket sales platform undoubtedly poses a threat, there are some reasons to be optimistic. Firstly, the proposed alternative selling platform doesn’t actually exist yet. Building an integrated online rail ticketing system is not an easy achievement. And it will likely take several years to match the quality and popularity of Trainline’s own platform.
The potential eventual loss of revenue from UK ticket sales is concerning. However, over the last few years, the proportion of international ticket sales has been growing at a considerable pace. In 2019 these represented 13% of the revenue stream versus 10% a year before. And in 2020, the proportion was closer to 30%, although it was an exceptional year.
Is the sell-off a buying opportunity?
Trainline’s management team has several options available regarding the impact of Great British Railways in the coming years. But at this stage, there are quite a lot of unknowns as to how much impact this new enterprise will actually have on Trainline’s bottom line.
For now, I’ll be keeping this company on my watch list, even after its most recent decline.
