Booking Earnings: Strong Booking Demand and Marketing Returns; Shares Slightly Undervalued

Booking Holdings BKNG saw strong bookings and marketing return on investment in its first quarter, harmonizing with our existing forecast. As a result, we don’t plan to meaningfully change our $3,100 per share fair value estimate, leaving shares undervalued.

Total bookings grew 44% year over year in the first quarter and represented 155% of 2019′s level, an improvement from the 39% lift and 132% level posted in the previous quarter. The improvement was driven by a demand recovery in Asia-Pacific, where room nights were up around 100% annually, and by an extended booking window as travelers booked more summer trips to Europe and the U.S. earlier than a year ago. Notably, BH is not seeing any signs of trade down or shortened length of stay, which would be an early warning sign of weakening travel demand. We plan to maintain our 2023 booking forecast to reach 132% of 2019′s level, given tougher comparisons the rest of the year.

Encouragingly, BH’s acquisition cost improved, with marketing as a percent of gross bookings measuring 3.8% versus 4.2% a year ago. We believe the company is positioned to generate leverage marketing spending over the coming years, aided by strong data capabilities and an expanding and strengthening network offering (the source of its narrow moat). To this point, BH is seeing a growing mix of direct bookings (unquantified), which we think illustrates that the platform is resonating with users. Further, the company continues to add flight (air tickets up 73% year over year), payments (45% of transactions on booking.com used the company’s offering), and alternative accommodation (33% of booking.com room nights) content, which should make its network increasingly valuable to travelers. Finally, the company noted that its underlying take rate remains stable, which we see as highlighting the value the platform holds for suppliers. We plan to maintain our 2023 EBITDA margins in the low-30s, above the 31% reported in 2022.