Current Price: $2,437 Target price: $2850 (raised from $2,400)
Position Size: 1.8% TTM Performance: +35%
Key Takeaways:
- Booking trends well ahead of expectations ($23.7B vs $21.6B) as they saw meaningful sequential improvement
- Beneficiary of strong leisure and European recovery aided by higher rates
· Weak environment strengthens their position w/ suppliers (i.e. hotels) as they are a key source of demand
- They look to reinitiate return of capital to shareholders in 1H22.
Additional Highlights:
- Beneficiary of strong leisure and Europe recovery, led by higher rates:
· Bookings recovered to 94% of 2019 levels (vs 88% of 2019 last quarter). Bookings declined less than the decline in room nights, due to the increase in average day rates.
· Recovery driven by rate – average daily rates up 10% vs 2019 (part of that is geographic mix – excluding that, ADRs were up ~4%). This is similar to what we heard from Hilton – rate is strong, particularly w/ leisure, which is Bookings focus.
· Room nights recovering but still lagging 2019 – Compared with 2019, Q3 room nights were down 18% (an improvement from down 22% in July and down 26% in Q2). Improvement since July was primarily driven by stronger room night trends in Europe. They’ve seen a further improvement in room night trends in October, including early signs of a pickup in room night trends in Asia.
· Opening of US borders on Nov 8 should be a demand catalyst
- Mobile bookings, particularly through their apps, represented 2/3 of total room nights. Direct bookings aids their ad spending efficiency which is key as this is a major expense for them.
· recently rising COVID case counts in many countries including several important European countries adds to the uncertainty around how November and December trends will progress
- Quotes from the call:
- Guidance: “Given the ongoing uncertainty around COVID, it’s difficult to predict how room nights in November-December will compare with a 10% reduction we saw in October. Looking forward to November-December the rising case counts across many important Western European countries and across much of Eastern Europe as well as a start of the winter season in the Northern Hemisphere, which in 2020 contributed to an increase in COVID cases creates unpredictability.”
- Pent-up demand: “we absolutely know there is huge pent-up demand because anytime, any government let’s go restriction, we see immediate demand.. So for example, the announcement, that November is opening for people to come to the US, immediately we saw demand in the UK, when they changed restrictions… immediate demand.”
- Connected trip, payments & 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 (1/3 of bookings) which enables alternative forms of payment like WeChat, it enables payment to companies like tour operators through their platform, and offers buy-now-pay-later offered via partnerships with 3rd parties. 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 are 30% of the mix 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 ~4.8% yield on 2022. Consensus is now for revenue to recover to 2019 baseline in 2022.
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]