Current Price: $1,778 Target price: $2,400
Position Size: 1.8% TTM Performance: -8%
Key Takeaways:
· Better than expected results aided by cost cutting. Beat on revenue and EPS.
· Demand continues to improve each month since April. Improved from April room nights down 85% YoY to July room nights down 35% YoY.
· Seeing strongest trends w/ domestic driving travel and alternative accommodations (e.g. home rentals). Alternative accommodations were 40% of booked room nights. Europe and the US had the highest contribution to the improved domestic booking trends.
· Weak environment strengthens their position w/ suppliers as they are a key source of demand. Dramatic demand mix shift away from business towards leisure benefits BKNG’s leisure focus.
· CEO Glen Fogel said…”as business travel has been significantly curtailed…it may be a help to us in the long term. As the shift from business to leisure continues for a long time, we will be in a better position with our supply partners because we’re able to provide them with what they need, which is heads in beds.”
Additional Highlights:
· Revenue down 84% and net income down 88%. Net income was $122M, but this includes a gain on marketable securities – excluding that, they had a net loss of $443m.
· Room nights booked down 87% YoY. That number includes cancellations. Newly booked room nights, excluding the impact of cancellations, declined 68% in the quarter.
· Improving trends – Once shelter-in-place rules were relaxed in a geography, they saw booking trends improve quickly. Saw the greatest negative impact from the virus in April as newly booked room nights in that month declined over 85% YoY. After April, room night trends steadily improved with newly booked room nights in July declining 35% YoY. Notably, this is better than EXPE, which reported a weakening in July compared to June.
· Strength in domestic travel – booking trends were primarily driven by domestic travel with international trends seeing much more limited improvement. In July, they had slightly positive YoY growth for overall domestic newly booked room nights – though there were still many countries that had negative YoY growth rates. Domestic business obviously benefiting from prohibitions/restrictions on international travel, which forces consumers who want a holiday to travel domestically. Note that “domestic” is just intra-country, so travel between countries w/in Europe is international.
· Weakness in areas w/ new outbreaks – “in some regions, they’re dealing with new outbreaks after having significantly lowered their infection rates. As a result, after a period of relatively steady improvement in many geographies, in recent weeks, we are seeing these growth rates worsen in some countries.”
· Cost cutting – big headcount reductions with more to come. Also cutting marketing expense which is the biggest part of their cost structure – typically ~30% of rev. This is an important lever for cutting costs. As direct traffic grows as a % of bookings (over 50% now and increasing), this is an area where margins can structurally improve over time.
· Connected trip is a long-term growth driver – The long-term vision for them continues to be the “connected trip.” The idea is to be a platform for not just hotel, but a portal for all aspects of travel including flights, activities, restaurants etc. A key part of this is building up the “supply” (e.g. tour operators). The current environment could be a catalyst for supply as weaker travel trends spur suppliers to look to Booking as a necessary source of demand. They continue to invest behind this despite the current environment including their payment platform which enables payment to companies like tour operators through their platform.
· Cost cutting and improved marketing efficiency likely to lead to profitability recovering before top line does. Additionally, the current environment may be a catalyst to traction in their new growth areas – alternative accommodations and “connected trip”.
· Stock is cheap and expectations are reasonable. Trading at >5% yield on 2021. Which still presumes revenue well below 2019 baseline.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$BKNG.US
[category earnings ]
[tag BKNG]