MakeMyTrip's Structural Risks in a Shifting Travel Market: Assessing Long-Term Viability

The post-pandemic travel landscape has reshaped consumer behavior, regulatory dynamics, and competitive pressures, testing the resilience of online travel agencies (OTAs) like MakeMyTrip. While the company has reported robust revenue growth in Q1 2025—driven by international travel recovery and ancillary services expansion—its reliance on commission-based revenue and escalating costs pose critical long-term risks. This analysis evaluates MakeMyTrip's strategic vulnerabilities, assesses the sustainability of its growth model, and concludes with actionable insights for investors.

### The Commission-Driven Growth Model Under Strain
MakeMyTrip's financial engine remains heavily tied to transaction-based commissions. In Q1 2025, its Hotels & Packages segment—the highest-margin business—contributed 53% of total revenue with a 17.8% adjusted margin, while air ticketing and bus ticketing segments generated lower margins of 6.4% and 10.2%, respectively.

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However, this model faces three structural challenges:
1. Erosion of Commission Margins: Direct booking platforms (e.g., hotel websites, airline apps) are siphoning traffic away from OTAs. For instance, the Hotels segment's 15% contribution from non-contracted affiliate partnerships indicates reliance on less profitable channels, compressing margins.
2. Competitor Aggression: Rivals like Expedia and India's own Yatra are investing in AI-driven personalization (e.g., dynamic pricing, chatbots) to undercut MakeMyTrip's value proposition.
3. Regulatory Risks: India's tourism reforms and data privacy laws could increase compliance costs. The $20.9M liability from Go First's collapse highlights exposure to supply chain fragility.

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### Rising Customer Acquisition Costs and Diminishing Returns
Despite a 34% YoY increase in marketing spend to $165M annually, MakeMyTrip's customer acquisition costs (CAC) have paradoxically trended downward—thanks to its multi-brand ecosystem (Goibibo, Redbus) driving cross-selling and repeat bookings. However, this masks deeper issues:
- Erosion of Fixed-Cost Leverage: Marketing efficiency (4.8% of gross bookings vs. 4.6% prior) is still below pre-pandemic levels.
- Seasonal Volatility: Q1's delayed leisure travel due to India's elections underscores dependence on cyclical demand.

The company's 30.4% gross bookings growth in Q1 was fueled by one-time tailwinds like pent-up demand for international travel. Sustaining this without over-investing in marketing will be challenging.

### Ancillary Services: A Double-Edged Sword
The Aadhar segment (car rentals, fintech, corporate travel) nearly doubled in revenue, offering diversification potential. However, its margins depend on cost-heavy services like cab integration (Savaari) versus low-overhead products (e.g., insurance).

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While ancillary streams reduce reliance on commissions, they require upfront capital for technology and partnerships—draining cash flow in a low-margin core business.

### Peer Comparison: MakeMyTrip vs. Global Peers
| Metric | MakeMyTrip (FY25) | Expedia (2024) | Booking Holdings (2024) |
|-----------------------|-------------------|----------------|--------------------------|
| Adjusted Operating Margin | 1.64% | 14.3% | 22.0% |
| CAC Growth (YoY) | 34% | 18% | 12% |
| International Revenue % | 37% (Air), 15% (Hotels) | 58% | 65% |

MakeMyTrip's margins lag peers due to weaker scale, higher marketing intensity, and a domestic-heavy revenue mix. Its international exposure (52%) still trails global rivals, limiting resilience against regional downturns.

### Investment Implications
- Risk Factors: Margin compression from direct booking shifts, rising CAC, and regulatory hurdles.
- Mitigation Pathways:
1. Accelerate AI-driven personalization to differentiate from competitors.
2. Expand high-margin ancillary services (e.g., premium travel packages).
3. Reduce reliance on volatile air ticketing via partnerships with airlines.

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### Conclusion: Proceed with Caution
MakeMyTrip's post-pandemic rebound is impressive, but its reliance on a shrinking commission-based revenue pool and escalating costs suggest structural risks. Historically, a strategy of buying MakeMyTrip following positive quarterly earnings surprises and holding for 60 days delivered an average annual return of 2.8% between 2020 and 2025, but faced significant volatility—a maximum drawdown of 19%—and underperformance versus the benchmark. This underscores the stock's high-risk profile, where gains are tempered by outsized swings. Investors should prioritize companies with stronger margin profiles (e.g., Booking Holdings) or wait for MakeMyTrip to demonstrate margin stabilization through innovation. Until then, the stock (MMYT) remains a high-risk, speculative play—ideal only for those willing to bet on its ability to navigate industry shifts.



Actionable Takeaway:
- Hold or Reduce: If margin pressures persist beyond Q2 2025.
- Consider: If valuation multiples compress (current P/E ~35x vs. Expedia's 22x) and management outlines a clear path to profitability.

The road to long-term viability is narrow—success hinges on pivoting beyond commissions to capture higher-value segments before competition closes the door.