Whether you are an individual concerned about your stock portfolio or a business, you always need to be concerned about diversification.
TRX, the data-reporting and reservations-processing firm majority-owned by BCD, is well aware of that reality as Expedia Inc., TRX's largest client, phases out a big chunk of work that TRX has been performing for it.
It is a familiar story. Expedia often transitions out of its relationships with tech suppliers in favor of a build-your-own strategy. However, this change has been a long-time coming as Expedia was the TRX's premier launch client in 1996.
And, cutting the cord could hurt, big-time.
TRX, which executed an IPO in 2005 at $9 per share and has a history of operating in the red, was trading at 67 cents per share this morning.
TRX noted earlier this month that Expedia Inc. accounted for 42% of its revenue in the third quarter of 2009. The two companies' contract runs through 2010 and they are negotiating to extend it in a pared down way through 2011.
But, the bottom line is that TRX expects a big hit from Expedia at the end of 2010.
"Based on discussions with Expedia, we expect that licensing and services that will generate over half of our 2009 revenues from Expedia will cease at the end of 2010," TRX stated in an SEC filing Nov. 13.
If TRX is successful in extending its Expedia agreement, which would not have minimum volume clauses, the company expects its 2011 revenue from Expedia to be about one-third of the 2009 amount, TRX stated.
As its revenue per transaction from its customer base also declines, TRX, whose clients include Expedia, American Express, BCD Travel and Citibank, is hustling to trim costs, bring on new clients, implement them faster, and to transition to being more of an SaaS provider, which it sees as a higher-margin business.
TRX hopes these moves will cushion the blow from its diminished Expedia business, which occurs as the travel downturn has already impacted TRX's operations.
One industry insider offers that TRX's finds itself in a "perfect storm" and its current "quandary" because it "turned its back" on medium-size travel management companies, was slow to implement and innovate, and was "leveraged to the hilt."
TRX didn't pay bonuses in 2009, eliminated its 401-K plan and has lost some key people -- including implementation specialists and programmers -- to competitors.
It remains to be seen whether TRX can execute its turnaround plan and remain a viable, public company.
If not, cushioning itself from Expedia's blow in 2011 may become a moot point.