Over the past year, it has been full steam ahead for Trainline (LSE: TRN). The share price has put on 27% (although it is still 39% below its 2019 listing price).
The shares have moved down 9% so far this year though.
The company said today its revenues in the 12 months to the end of February were well ahead both of the prior year period and also the equivalent pre-pandemic numbers.
But given the share movement over the past year, is that good news already fully priced in? The shares have moved slightly down in early trading, as I write on Wednesday morning.
Strategic opportunities
I do see reasons to be cheerful about the opportunities that lie ahead for the business.
Travel demand has bounced back in a big way. In today’s trading statement, Trainline spoke of a “strong resurgence” in net ticket sales and added that it sees ”early signs of a further step up in the year ahead”.
The European side of the business also strikes me as an exciting area.
Trainline’s UK consumer segment remains its largest one, accounting for 53% of revenues last year. But international consumer revenues soared 228% year-on-year and now account for 14% of revenues.
Meanwhile, the B2B Solutions division grew revenues 66% year-on-year, although they are still marginally below their pre-pandemic level. If Trainline can keep growing the UK business while rolling out its model across Europe, that could unlock a lot of value for the company, in my view. I think the Solutions business could also grow further.
Revenues not profits
However, the Trainline share price has stalled lately. Perhaps investors reckon that the business potential has long been evident, but now is the time to prove it can be realised.
After all, Trainline has never turned a profit since listing. Until the final results are published in May, we will not know whether last year saw yet another loss, or a break into the black.
At the moment, the company has a market capitalisation of £1.2bn. That seems high to me given the company’s revenues and lack of profitability. I have my doubts as to whether ticketing will ever be a massively profitable business. It requires heavy investment in technical infrastructure but the commission many train passengers are willing to pay a ticketing agent (if any) tends to be fairly modest.
There are other risks too. Business travel remains “subdued”, according to the company. I think some pre-pandemic business travel patterns may have gone away forever.
I also fear that, as an agent, Trainline can be squeezed by transport operators that continue to sell their own tickets directly. Ultimately, it needs them more than they need it.
On the right track?
So although I continue to see potential in the business, that was true on its 2019 listing day, but since then it has consistently bled red ink.
To justify the current Trainline share price, I think the company needs to prove that it can turn a profit consistently. It has not yet done this so I will not be adding the shares to my portfolio.
