Booking (NASDAQ:BKNG) Reports Q1 In Line With Expectations But Stock Drops

Full Report / May 04, 2023
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Online travel agency Booking Holdings (NASDAQ:BKNG) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 40.2% year on year to $3.78 billion. Booking made a GAAP profit of $266 million, improving on its loss of $700 million, in the same quarter last year.

Booking (BKNG) Q1 FY2023 Highlights:

  • Revenue: $3.78 billion vs analyst estimates of $3.75 billion (0.87% beat)
  • EPS (non-GAAP): $11.60 vs analyst estimates of $10.74 (8% beat)
  • Free cash flow of $2.8 billion, up 33.5% from previous quarter
  • Room Nights Booked: 274 million, up 76 million year on year

Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.

Its businesses span the range of travel offers including Booking.com, Rentalcars.com, Priceline, Agoda (Asia Pacific focused OTA), Kayak (price comparison site), and Opentable (restaurant reservations).

For consumers, Booking Holdings simplifies planning travel, by aggregating supply of hotels, flights, and experiences and using its scale and rewards programs to offer the best prices, while for suppliers, Booking delivers the largest audience of travel shoppers online.

Historically, Booking has held its largest market share in Europe, specifically in hotels, while it has long sought to take market share from market leader Expedia in North America. In 2015 it acquired HomeAway to build up an alternative accommodations business to compete with AirBnB.

Because of the enormous number of flights, hotels, and accommodations available, travel is a natural fit for marketplaces that aggregate suppliers, simplifying the shopping process for consumers. Online travel platforms today make up over 50% of the industry’s bookings, a percentage that has been rising for 20 years, and will likely continue in the years ahead.

Booking Holdings (NASDAQ:BKNG) competes with a range of online travel companies such as Expedia (NASDAQ:EXPE), Airbnb (NASDAQ:ABNB), TripAdvisor (NASDAQ:TRIP), Trivago (NASDAQ:TRIV) and Alphabet (NASDAQ: GOOG.L).

Sales Growth

Booking's revenue growth over the last three years has been impressive, averaging 46.4% annually. This quarter, Booking reported an excellent 40.2% year on year revenue growth, roughly in line with what analysts expected.

Booking Total Revenue

Ahead of the earnings results the analysts covering the company were estimating sales to grow 12.1% over the next twelve months.

Usage Growth

As an online travel company, Booking generates revenue growth by a combination of increasing the number of stays (or experiences) booked, as well as the level of commission charged on those bookings.

Over the last two years the number of Booking's nights booked, a key usage metric for the company, grew 109% annually to 274 million. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.

Booking Room Nights Booked

In Q1 the company added 76 million nights booked, translating to a 38.4% growth year on year.

Revenue Per Booking

Average revenue per booking (ARPB) is a critical metric to track for every consumer internet product and for Booking it measures revenue per each of the nights booked, a function of the cost of the service and the commission Booking's charges.Booking ARPB

Booking’s ARPB growth has been decent over the last two years, averaging 5.93%. The ability to increase price while still growing its nights booked shows the value of Booking’s platform. This quarter, ARPB grew 1.3% year on year, reaching $13.79 for each of the nights booked.

User Acquisition Efficiency

Consumer internet businesses like Booking grow by a combination of product virality, paid advertisement and occasional incentives, unlike enterprise products that are typically sold by sales teams.

It is relatively expensive for Booking to acquire new users, with the company spending 51.7% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency indicates Booking has to compete for users and points to Booking likely having to continue to invest to maintain growth.

Earnings & Free Cash Flow

Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.

Booking's EBITDA came in at $586 million this quarter, which translated to a 15.5% margin. Over the last twelve months the company has been amongst the handful of the most profitable consumer internet business with EBITDA margins of 28.8%.

Booking Adjusted EBITDA Margin

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Booking's free cash flow came in at $2.8 billion in Q1, up 76.5% year on year.

Booking Free Cash Flow

Booking has generated $7.4 billion in free cash flow over the last twelve months, an impressive 40.7% of revenues. This robust FCF margin is a result of Booking asset lite business model and scale advantages and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Booking's Q1 Results

With a market capitalization of $98.2 billion, more than $14.5 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by Booking’s strong user growth this quarter. And we were also excited to see the really strong revenue growth, and all units sold (room nights, airline tickets, rental car days) exceeded expectations. However, operating income missed. The company did not issue guidance. Zooming out, we think this was a solid quarter, but the market might have been expecting more and the company is down 5.35% on the results and currently trades at $2,463.19 per share.

Is Now The Time?

When considering Booking, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Booking is a great business. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last three years. On top of that, its powerful free cash generation enables it to sustainably invest in growth initiatives while maintaining an ample cash cushion, and its user growth has been strong.

At the moment Booking trades at next twelve months EV/EBITDA 14.5x. Looking at the consumer internet landscape today, Booking's qualities really stand out, and we really like it at this price.

The Wall St analysts covering the company had a one year price target of $2,802.8 per share right before these results, implying that they saw upside in buying Booking even in the short term.

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