Is Booking Holdings Stock A Buy?

Booking Holdings Inc (NASDAQ:BKNG) is the parent company for some of the most popular travel agent sites online. From Booking.com to Priceline, Kayak, and OpenTable, its portfolio of companies are well-known brands that are the gateway to vacations, hotels, and restaurant reservations.

Now that travel has been hindered, restaurants restricted and hotel vacancies spiking, is Booking Holdings stock a Buy?

Whether you want a flight, cruise, hotel, rental car, or full vacation package, this company has you covered. Except its unclear when people will want these things again.

Analysts expect global travel and tourism to bring in under $400 billion for 2020, which is a 42.1 percent decrease from 2019.

That number should increase over the next few years, as people move to “Zoom towns” to work virtually and go on vacation from a year-long quarantine. But that doesn’t mean Booking’s sites are what they will use. Competitors like Expedia (EXPE) and Airbnb are in the same race, and the latter is worth both than the other two.

The sharing economy could overtake professional hospitality in a tough economy. So, should investors have reservations about holding Booking?

Booking Holdings Disrupted The Travel Industry

The travel agency empire now known as Booking started with Priceline founder Jay S. Walker. He disrupted the traditional travel agency by giving users an online price aggregation tool. By “naming your own price,” people could check pricing across airlines, hotels, and other travel sites.

What used to be a long, expensive process that involved going into a third-party travel agency became a simple, intuitive website. It went public during the 1999 dotcom bubble and deflated in the early 2000s before becoming a powerhouse in the 2010s.

The company expanded horizontally through acquisitions. It bought Booking.com in 2005 for $133 million, Kayak for $1.8 billion in 2013, OpenTable for $2.6 billion in 2014. It owns over a dozen travel site brands and sticks to that niche after failed attempts to serve markets like mortgages in the early 2000s.

In 2019, travelers used its websites to book 845 million rooms, 77 million rental car days, and 7 million airline tickets. Over 90 percent of revenues come from commissions paid to Booking Holdings for reservations made using its site.

That propelled the company into the Fortune 500, where it ranked 216th prior to the coronavirus pandemic.

Is Booking Holdings Stock A Buy?

Booking Holdings has an average analyst target of $118.44 per share. Unsurprisingly, 20 analysts have placed the company on a Hold rating with just 9 posting a Buy rating. 

It’s not surprising that sentiment is not more bullish given that third quarter 2020 results released in November showed a 47 percent year-over-year decrease in travel services. This is entirely attributed to the travel restrictions put in place to combat the COVID-19 pandemic.

The company generated $504 million in non-GAAP net income in the third quarter and $12.27 earnings per share. This represents a 73 percent plunge from 2020. Still, it generated $2.64 billion in revenue, so it’s not dead in the water.

Indeed, some bullish investors think now is the time to buy. The stock rose through the last month of the year. Many say travel expectations are high once the pandemic ends as people look to get out of the houses in which they are quarantined.

But it’s not clear exactly when that may happen, leaving risk to the investment.

BKNG Share Price Remains At Risk Of Declines

Booking Holding share price got eviscerated by the pandemic because its business model is intrinsically tied to the travel and tourism industries.

Many countries stopped international travel, and major events in 2021 are still virtual, leaving fewer reasons for business travel.

And the company faces stiffer competition in this strained market. Airbnb (ABNB) nearly doubled its value during its December 2020 initial public offering (IPO). This P2P marketplace thrived as a struggling economy leaned on the gig economy.

While it showed exponential growth, the sheer size of the internet made it easy for dozens of competitors to negotiate the same deals and earn revenues in a similar manner as Booking. At this point, there are nearly as many travel booking sites as the travel companies they’re aggregating.

Can Booking Holdings Competitors Win?

Booking’s large array of travel sites still only represents one piece of a large market. Other innovative business models have captured enormous investor interest and market valuations. 

It’s not just Airbnb doing it either – travel subscriptions are popping up everywhere from Costco (COST) (which offers a private jet subscription for $17,499.99) to TripAdvisor, which launched its premium subscription model.

Should this trend take off, we may see the travel industry enter a Netflix-like phase over the next decade to make up for lost revenues. That could spell trouble for Booking if it’s not quick enough to adapt.

Of course, these could all be failed experiments. Nobody knows when or how travel will resume to normal, and former tourism hotspots are falling into disarray.

Is Booking Holdings Stock A Buy? The Bottom Line

Booking Holdings is the parent company to dozens of travel booking website brands, including Priceline and OpenTable. This enabled the conglomerate to scale revenues through the 2010s until it hit a wall in the 2020 pandemic. Although still generating revenues, it’s much less than before.

A second round of government stimulus payments will keep the economy floating through 2021. Eventually things should return to normal, but there’s no telling what the new normal will be or when it will happen.

Until then, Booking is doing what it can to generate interest in booking more travel. If it can fend off competitors, it could be smooth sailing for the next decade.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.