A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that connects consumers with travel services in over 230 countries through six distinct brands.
Pat likes the company’s steadily recovering revenue and profit. However, investors should be cautious given its rapid expansion through acquisition.
Q: Hi. What is your opinion of Booking.com, with shares trading on the Nasdaq? Thanks.
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Booking Holdings Inc., $2,428.68, symbol BKNG on Nasdaq (Market cap: $94.2 billion; www.booking.com), is a world leader in travel and online reservation services. The company connects consumers with providers of travel services in over 230 countries, primarily through six brands:
Booking.com is, based on room nights booked, the world’s leading brand for making online reservations for accommodations.
KAYAK is a meta-search engine for travel services, including airline tickets, accommodation, and rental car reservations.
Priceline is a hotel, car rental, airline-ticket and vacation-package online reservation service in North America.
Agoda.com offers online accommodation reservations, catering primarily to consumers in the Asia-Pacific region.
Rentalcars.com is an online worldwide rental car reservation service.
OpenTable is an online provider of restaurant reservations.
Of the company’s revenue, 72.1% is from commissions earned on sales made through its websites, while 20.6% is merchant revenue—payments from consumers for services Booking Holdings provides. The remaining 7.3% is advertising revenue, primarily generated on KAYAK.
The company has actively acquired related reservation platforms and software companies.
In 2017, Booking Holdings acquired the Momondo Group for $550 million. That business operates Momondo, a leading European travel meta engine, offering flights, hotels and car rentals. It also operates Cheapflights, a leading global flight comparison and travel deals publishing platform.
Again in 2017, Booking Holdings bought Mundi, a Denmark-based tour group and vacation package portal, for an undisclosed amount.
In 2018, the company made several other acquisitions: it paid $300 million for Fareharbor, a provider of online booking software and support for tour operators; $140 million for HotelsCombined, an Australian meta-search engine; and $500 million for a minority stake in DiDi Chuxing, an app-based ride-sharing firm serving China. Under the terms of that last investment, Booking Holdings’ brands, through their apps, will have the ability to offer on-demand car services powered by DiDi. In turn, DiDi customers will have the option to book hotels through Booking.com or Agoda.
In 2019, Booking Holdings then purchased Venga for an undisclosed price. Venga operates a guest management platform for restaurants and other venues. By integrating a user’s preferences, purchasing history and social data, that firm’s technology personalizes the customer’s experiences. Venga aligns closely with Booking Holdings’ OpenTable brand, which is the world’s leading provider of online restaurant reservations, with more than 51,000 locations globally using its software to seat over 120 million diners each month.
Inner Circle: Pre-Covid revenue and earnings grow but economic uncertainty loomed
With the pandemic now easing and travel plans rising, Booking Holdings saw revenue rise 29% in the third quarter of 2022 to $6.1 billion. Earnings rose 117% in the quarter to $1.7 billion.
The company continues to face big rivals in its highly competitive business environments: online travel reservation services such as Expedia; online accommodation reservation services such as Airbnb; traditional travel and rental car agencies, as well as hotel loyalty programs; and ride-sharing services such as Uber. The company must also compete with other meta-search services such as Google and TripAdvisor.
The travel industry should benefit from an improving employment market, which usually encourages more consumer discretionary spending in the U.S. However, the industry is particularly exposed to the risk of a slowdown in the global economy as travel and restaurant visits are generally among the first personal expenditures cut in the event of financial uncertainty. Growth through acquisitions only adds to the company’s risk—especially with big foreign investments like paying $500 million for a stake in DiDi Chuxing.
The stock currently trades at 20.4 times this year’s earnings forecast.
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