Booking (NASDAQ:BKNG) Delivers Impressive Q1, Stock Soars

Full Report / June 23, 2022
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Online travel agency Booking Holdings (NASDAQ:BKNG) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 136% year on year to $2.69 billion. Booking made a GAAP loss of $700 million, down on its loss of $55 million, in the same quarter last year.

Booking (BKNG) Q1 FY2022 Highlights:

  • Revenue: $2.69 billion vs analyst estimates of $2.52 billion (6.61% beat)
  • EPS (non-GAAP): $3.90 vs analyst estimates of $1.18 (231% beat)
  • Free cash flow of $1.58 billion, up from $178 million in previous quarter
  • Room Nights Booked: 198 million, up 99 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.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission paying sellers, generating flywheel scale effects which feed back into further customer acquisition. 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. Phocuswright estimated that the annual global travel market will reach $1.4 trillion of bookings in 2022 and 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. Covid lockdowns in 2020 halted global travel for months on end, and may have fundamentally reduced the market for business travel, a long term threat for the profitability of online travel platforms.

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 strong, averaging 29.1% annually. Booking's revenue took a hit when the pandemic first hit, but it has since rebounded strongly, as you can see below.

Booking Total Revenue

This quarter, Booking beat analyst estimates and reported a very impressive 136% year on year revenue growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 40.9% 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 103% annually to 198 million users. This is among the fastest growth of any consumer internet company, indicating that users are again excited about the offering.

Booking Room Nights Booked

In Q1 the company added 99 million nights booked, translating to a 100% growth year on year.

Revenue Per User

Average revenue per user (ARPU) 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 ARPU

Booking’s ARPU has declined over the last two years, averaging 3.49% annually. While it is not great to see the company losing pricing power, at least the strong user growth somewhat compensates for it. This quarter, ARPU grew 18% year on year, reaching $13.61 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 very expensive for Booking to acquire new users, with the company spending 57.6% of its gross profit on marketing over the last year. This low level of sales and marketing efficiency indicates a highly competitive environment, with little differentiation between Booking and its peers.

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 was $310 million this quarter, which translates to a 11.5% margin. Over the last four quarters Booking has demonstrated a very strong profitability with average EBITDA margins of 22.6%.

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 $1.58 billion in Q1, turning positive year on year.

Booking Free Cash Flow

Booking has generated $4.37 billion in free cash flow over the last twelve months, an impressive 34.9% 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 $85.8 billion, more than $10.5 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 impressed by the exceptional revenue growth Booking delivered this quarter. And we were also glad to see the user growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company currently trades at $1,889 per share.

Is Now The Time?

Booking may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Booking is a good business. We would expect growth rates to moderate from here, but its revenue growth has been good, over the last three years. And while its ARPU has been declining, the good news is its user growth has been strong, and its powerful free cash generation enables it to sustainably invest in growth initiatives while maintaining an ample cash cushion.

The market is certainly expecting long term growth from Booking given its EV/EBITDA ratio based on the next twelve months of 16.2x is higher than many other consumer internet companies. There are definitely things to like about Booking and there's no doubt it is a bit of a market darling, at least for some. But when considering the company against the backdrop of the consumer internet stock landscape, it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.

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