Booking Holdings: Rich Valuation, Fragile Profitability

Booking Holdings (BKNG) provides an online platform for making travel and restaurant reservations.

The company offers its services through the following brands: Booking.com, KAYAK, Priceline, Agoda, Rentalcars.com, and OpenTable. Booking Holdings was founded in 1997, and is based in Connecticut.

I like the portfolio of online travel services that Booking Holdings has, as it is expected to rebound to solid revenue growth when the pandemic ends.

However, I am bearish on BKNG stock now as the company has a lot of debt, and the Omicron variant of the coronavirus can make the rebound of the global travel industry lengthier.

BKNG stock has outperformed Nasdaq year-to-date as the stock has gained 6.7%.

Booking Holdings Business News

On February 3, 2022, it was announced via a Press Release that “Priceline’s New Ad Campaign Kicks Off with an Incredible Offer – $100 off $500 Priceline Express Deals.”

“At Priceline, every trip is a big deal, both in terms of the experience itself and the savings we provide. Our new ad campaign shows that with Priceline, you can enjoy significant savings on your travel and get more out of your trip,” said Brett Keller, Priceline CEO. “More savings means more opportunities—whether that be to experience more on your vacation, upgrade your travel plans, or just take more trips.”

On January 13, 2022, it was announced that “KAYAK’s free corporate travel solution has integrated Southwest Airlines® into its platform making the process of booking a business trip and earning Southwest Rapid Rewards points easier. Through the integration, travelers and travel decision-makers will be able to compare all available travel options in one place, making KAYAK for Business a one-stop-shop designed for small and medium-sized businesses.”

On December 30, 2021, Booking Holdings “announced that it has completed its previously announced plan to acquire Getaroom from Court Square Capital Partners for approximately $1.2 billion. Getaroom is a B2B distributor of hotel rooms, and will roll into Booking Holdings’ Priceline brand to form a new Strategic Partnerships business unit with the Priceline Partner Network.”

Q3 2021 Earnings

Booking Holdings reported mixed Q3 2021 financial results. GAAP EPS of $18.60 was a miss by $12.92, but revenue of $4.68 billion was a beat by $385.44 million. BKNG stock earnings have been very volatile and impacted heavily by the pandemic.

Year-over-year, revenue increased 77%.

Net income for Q3 2021 was $769 million, a 4% decrease from the prior-year quarter. It is notable that in Q3 2021 the financial results included net losses of $1 billion on equity securities, with readily determinable fair values. Net income in Q3 2021 was $18.60 per diluted common share, a 5% decrease from the prior-year quarter.

Year-over-year, Booking Holdings reported an increase in Agency revenues, Merchant revenues, Advertising, and other revenues.

The operating income of $2,015 million increased significantly compared to the operating income of $315 million in Q3 2020.

Fundamentals – Risks

There are several warning signs for BKNG stock. Booking Holdings keeps issuing new debt. Over the past three years, it issued U$4.5 billion of debt.

Its D/E ratio as of last quarter was 1.83. Booking Holdings’ operating margin has been on a five-year decline. The average rate of decline per year is 18.4%. On top of that, Booking Holdings’ revenue per share has been in decline over the past three years.

Compared to the Hotels, Restaurants & Leisure industry, BKNG stock has a Return on Assets of 1.64%. This is comparable to the industry average of 1.39%.

The profit margin of 4.15% is in line with the rest of the industry’s 3.38%.

However, Booking Holdings has a return on equity of 6.89%, which is worse than the rest of the industry’s 16.74%.

Valuation

The stock price is now close to a 10-year high. BKNG stock is relatively expensive based on its P/E Ratio (286.8x) compared to the U.S. Hospitality industry average (22.8x).

Wall Street’s Take

Booking Holdings has a Moderate Buy consensus based on nine Buys and five Holds. The average Booking Holdings price target of $2,799.17 represents 6% upside potential.

Conclusion

The company’s results have been materially and negatively impacted due to the COVID-19 pandemic.

In 2021, Booking Holdings has made a rebound in revenue growth but still, the economic conditions and government restrictions are highly uncertain with the Omicron variant of the pandemic and coronavirus cases that are still at high levels. The valuation remains elevated and debt is a major concern.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.