Current Price: $2,284 Target price: $2,400
Position Size: 1.8% TTM Performance: +64%
Key Takeaways:
- Stronger-than-expected gross bookings, but missed on revenue and EBITDA.
- Recovery uneven across geographies driven by the pace of re-opening. Results weighed down by slower recovery/continued lockdowns in Europe. Seeing encouraging booking trends in places benefiting from successful vaccine distribution programs e.g. Israel, the UK and the U.S.
- Saw positive room night growth in the US in Q1 versus Q1 2019. It was their strongest performing major country. They continue to strengthen the booking.com brand in the US.
· Weak environment strengthens their position w/ suppliers as they are a key source of demand. Demand mix shift away from business towards leisure benefits BKNG’s leisure focus.
Additional Highlights:
- Room rights declined 54% versus Q1 2019, which was a 6% improvement versus decline reported in Q4. April room nights continued to show sequential improvement with a decline of 43% versus 2019 with room night declines over the last seven days April at about 38%.
- Gross bookings declined 53% in Q1, less than the decline in reported room nights due to strong performance in their flights business and partially offset by a 1% decline in average daily rates for accommodations versus 2019 (excluding regional mix effects, ADRs were down approximately mid-single digits).
- Airline Tickets booked in Q1 were up 49% versus 2019 driven by strong growth at Priceline and by flight processing just added on booking.com and Agoda both of which did not have it in Q1 2019.
- Demand recovery…
- Generally saw improving trends, but case counts are still rising in some parts of the world with corresponding increases in lock-downs and re-imposed travel restrictions that will continue to impact travel in the near-term.
- US improved significantly during the quarter w/ positive room night growth year-on-year which is great given international business is down.
- Europe was the least recovered region in terms of room nights booked in Q4 and it remained the least recovered region in Q1. While Europe did improve compared with Q4, trends softened towards the end of March driven by rising COVID case counts and new imposition on travel restrictions. With increased vaccinations, things improved in April versus March and Europe is now no longer the least recovered region.
- Asia recovery retreated a bit in April w/ an increase in infections.
- Pre-covid, their mix was about >50% Europe, ~20% Asia and ~30% US.
- Their booking window remains shorter than it was in Q1 2019 as they continue to see a higher mix of near-term bookings.
- Connected trip & alternative accommodations are long-term growth drivers – 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. This is a multi-year endeavor to transition from their accommodation only focus in the past. As these grow over time it will drive a mix shift that will add revenue and grow profit dollars, but at a lower margin than traditional accommodations. An offsetting factor to this could be increased direct book (especially via their app), lower customer acquisition costs and lower performance marketing. Alternative accommodations were 30% of the mix in 2020 and are skewed towards Europe, but they are focused on growing their US business particularly w/ building inventory w/ multi-property managers.
- Will see an impact to profitability as travel recovers that is just a timing factor– with continued recovery in 2021, there will be more bookings made in 2021 that will check-in 2022 then there were bookings made in 2020 that checked-in 2021. This timing factor will have a negative impact on revenue as a percentage of gross bookings and drive some deleverage in their marketing expenses b/c they incur the majority of marketing expenses at the time of booking.
- Guidance – No specific guidance other than they expect Q2 room night declines to be a few potential points better than the decline in April (which improved from March). And they expect Q2 gross bookings to decline slightly less than room nights driven by the same trends seen in Q1.
· Stock is not expensive and expectations are reasonable. Trading at ~4.5% yield on 2022. Consensus is for revenue not to recover to 2019 baseline until 2023. Consistent w/ mgmt. commentary that it will be years and not quarters before the travel market returns to pre-COVID volumes.
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]