Current Price: $2,207 Target price: $2,400
Position Size: 1.8% TTM Performance: +35%
Key Takeaways:
- Booking trends well ahead of expectations ($22B vs $16B) as they saw meaningful sequential improvement
- Beneficiary of strong leisure and European recovery
- Only modest Delta variant impact – newly imposed travel restrictions from Delta variant so far has led to a “modest pullback” in July booking trends relative to June
· Weak environment strengthens their position w/ suppliers (i.e. hotels) as they are a key source of demand
- Return of capital to shareholders remains on pause
Additional Highlights:
- Beneficiary of strong leisure and Europe recovery:
· Compared with 2019, gross bookings were down 12% and Q2 room nights were down 26%, with average daily rates up vs 2019. In the month of June, room nights continued to improve and were down only 13% from 2019.
· US was again the strongest performing major country in Q2, Domestic room nights grew in the mid-teens versus 2019 for the full quarter, while international room nights remain down significantly versus 2019
· Leisure is their key demand segment – has been tracking ahead of 2019 in the US
· Europe is their primary market and saw room night growth from June 2019, a meaningfully sequential improvement driven by intra-Europe travel
· Europe was lagging last quarter due to continued lockdowns and slower vaccine distribution
· alternative accommodation room night growth was flat versus June 2019 – has their highest mix of alternative accommodations.
· Asia partially offset improvements in other regions with greater room night declines in Q2 than in Q1 due to the increase in COVID outbreaks with related travel restrictions
· Mobile bookings, particularly through their apps represented over 60% of total room nights
- Quotes from the call:
- “The sharp return to growth, initially in the US and then the European markets that we have witnessed this year shows us clearly that leisure travelers are eager to get back to booking trips on our platform when restrictions are lifted and customers are able to travel.”
- 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 than 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.
· 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]