While the market leader in travel portals Booking Holdings increased its forecast, its competitor Expedia disappointed investors with the results. Is the number one stock continuing to lag behind the competition?
Summer in the northern hemisphere and with it the peak of the annual travel season worldwide is gradually coming to an end. How it went will be reflected in the quarterly figures from Booking Holdings and Expedia, which are usually published at the beginning of November.
The results will show whether many people around the world’s desire to travel remains unbroken after the restrictions imposed during the pandemic, or whether high inflation and sharply increased interest rates could have prompted many consumers to slow down a bit in this area.
A look at the shares of Booking Holdings, which have shot up by more than 50 percent since the beginning of the year and are therefore trading close to a record high, signals that many investors are counting on business to continue to flourish, as it did during the spring season.
Numbers are well above expectations
In the second quarter, gross travel bookings, i.e. the value of travel services brokered including taxes and fees, rose by 15 percent to a record $39.7 billion. That was well above analysts’ estimates of $38.1 billion. While the number of overnight stays booked increased by 9 percent, room prices also increased.
The demand for alternative overnight stays, i.e. outside of hotels, has increased significantly, meaning that their share of overnight stays has increased by 2 percentage points to 34 percent. At the same time, the number of bookings via mobile apps continued to rise sharply, with these bookings now accounting for an impressive 48 percent of the total overnight stays booked. In addition, the number of rental car days and flight tickets booked has increased significantly.
As a result, Booking Holdings’ sales shot up by an impressive 27 percent to $5.46 billion. This was well above expectations of $5.17 billion. “We continued to see robust demand for leisure travel in the second quarter,” said CEO Glenn Fogel.
The strong trends continued in July, which is why the group is preparing for a “record travel season” for the third quarter. He has great expectations of the travel assistants from the subsidiaries Booking.com and Priceline, which work based on generative AI.
The assistants are intended to make booking much more personalized and thus encourage consumers to book more overnight stays, flight tickets and rental cars. Priceline offers cheap deals on hotels, car rentals and cruises, among other things. In the next few months, the AI solutions will be increasingly integrated into the group’s offerings.
The strong increase in sales has had a significant impact on profitability. Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) shot up 64 percent to $1.8 billion, meaning the margin improved sharply from 25.3 to 32.6 percent.
Due to the excellent half-year figures and the expected booming business in the third quarter, Fogel has raised the forecast for the full year. According to this, gross travel bookings are expected to increase by just over 20 percent, compared to the previous expectation of growth in the lower range between 10 and 20 percent. The CEO also confirmed that the adjusted Ebitda margin should increase by a few percentage points compared to 2022.
The analysts’ estimates are as follows: They predict a sharp 23.5 percent increase in sales for 2023 to $21.11 billion. Adjusted Ebitda is expected to rise by a third to 7.03 billion euros, which would significantly improve the margin from 31.0 percent to 33.3 percent. Adjusted earnings per share are expected to rise by 45 percent to $144.56.
Weak numbers from Expedia
In contrast to Booking Holdings’ results, investors were less than enthusiastic about those of the world’s number two Expedia, after which the share price suffered its biggest decline in more than three years before recently recovering somewhat.
Gross bookings in the second quarter increased by just 5 percent to $27.3 billion. That was well below analysts’ estimates of $28.9 billion.
Sales climbed 6 percent to $3.36 billion, slightly missing expectations of $3.37 billion. It was also the weakest growth since the start of the pandemic.
“Travellers worldwide continue to prefer shorter stays in urban areas compared to longer trips to sun and ski destinations,” said CEO Peter Kern. While that doesn’t sound bad, it still reflects a disruption to Expedia’s business.
Revenue from overnight stays increased by 12.4 percent to $2.7 billion (equivalent to 80.3 percent of group revenues) and thus slightly exceeded expectations. However, revenue from the sale of airline tickets and advertising revenue fell short of expectations.
When it comes to sales distribution by region, it looks like this: US sales fell slightly to $2.2 billion, making up 64.7 percent of group sales. The rest was accounted for by foreign business, which grew by more than 20 percent.
This means that Expedia is much more dependent on US business than Booking Holdings, where the home market only accounted for 12.9 percent of group revenue in 2022. The Expedia share is all the more dependent on the economic data from the USA.
The group’s adjusted Ebitda increased by 15 percent to $747 million in the second quarter. The margin therefore improved from 20.4 to 22.2 percent.
CEO Kern is all the more committed to the new “One Key” bonus program, which was introduced in the USA in July. It combines the previous bonus programs of Expedia and its subsidiary Hotels.com, while the subsidiary Vrbo has its own bonus program for the first time.
Vrbo is the merger of the HomeAway and VacationRentals brands, meaning customers can now book vacation rentals under one central brand. However, Kern warned that the migration of the two brands and the integration of the systems would further impact their business in the short term, although Vrbo had recently suffered from the trends towards city trips and shorter stays.
In addition, the “One Key” program will only boost business in the fourth quarter. Therefore, only then will there be a more significant acceleration in the growth of the group’s sales and profitability.
This means that sales should grow by a double-digit percentage for the year as a whole, while the margin should improve.
Analysts are predicting an increase in revenue of just 10 percent to $12.83 billion in 2023 – that is the smallest possible double-digit growth. Adjusted Ebitda is expected to increase by 13 percent to $2.66 billion, which would improve the margin slightly from 20.1 to 20.7 percent. Earnings per share are expected to increase by 41.5 percent to $9.61.
Conclusion: The forecast from Expedia and Booking Holdings as well as the analysts’ estimates show that the industry leader is expected to grow much faster than Expedia in terms of sales and adjusted Ebitda in the current year, and the growth in adjusted earnings per share is similarly high.
What’s next for the stocks?
The performance of the two securities is likely to depend on economic developments. While there have recently been some mixed economic data from the USA and experts therefore expect that the economy could continue to grow solidly, I fear that the sharp rise in interest rates will have a significant impact on the economy in the next few months, which should also significantly dampen the business of travel portals .
At the same time, data from the Eurozone is fueling concerns that the region is heading for a recession.
Overall, I assume that the gap between the two stocks will continue to widen. Booking Holdings is likely to remain on record, while Expedia shares should continue the sideways trend of the past months and years.
The paper from Booking Holdings is very highly rated. The market value is a whopping $112.2 billion. Including the net cash balance of $1.2 billion, the so-called Enterprise Value (EV), which is important for analysts and investors, is a whopping $111.0 billion.
That’s 15.8 times the adjusted Ebitda predicted by analysts for 2023 and shows the enormous growth priced into the stock. In doing so, investors are honoring the rapid growth in sales and profitability. And the P/E ratio is 21.8.
However, the price drop is likely to be even greater if Booking Holdings disappoints investors when it presents its figures at the beginning of November.
In contrast, Expedia’s market capitalization is only $15.7 billion. Including the net cash balance of $2.5 billion, the EV is only $13.2 billion. That’s just 5.0 times adjusted Ebitda for 2023, showing investors’ skepticism. The P/E ratio of 11.5 is miles below the S&P500’s 18.6.
BNP Paribas has invested in the shares of Expedia (A1JRLJ) and Booking Holdings (A2JEXP) various products on offer, which you can view alongside the real-time charts below.