Booking Holdings Earnings: Travel Demand Solid, Network Advantage Strengthening

We plan to lift our $3,310 fair value estimate for narrow-moat Booking BKNG by 3%-4% to account for a stronger finish to 2023 than previously expected. Investors should give Booking shares a review, as this high-quality company does not often trade at much discount to our intrinsic value.

Third-quarter bookings grew 24%, comfortably ahead of our 18% estimate. And despite October room night growth decelerating to 8% from 15% seen in the third quarter, management expects fourth-quarter room night growth of 20%, as booking windows remain extended and with leisure travel demand robust. As a result, we plan to lift our 2023 sales growth forecast to 26%-27% from 23% prior. Meanwhile, EBITDA grew 24%, with margins expanding 80 basis points, aided by marketing as a percent of bookings leveraging 51 basis points. We still expect around 33% EBITDA margins in 2023 versus 31% in 2022.

Importantly, Booking’s network advantage remains the strongest in the industry, in our view, as it continues to expand its travel supply offering. To this point, airline ticket volume grew 57%, as more travelers are coming to book fares as content is added across more countries on booking.com. Also, more alternative accommodation hosts are finding their way to the network, with supply up 9% to 7.2 million active listings. In turn, an increasing number of users are booking alternative accommodation content, with room night growth of 24%, amounting to 33% of all nights in the quarter, up about 3 percentage points from a year ago. This rental success is also being helped by the company integrating more payment options, which were used for 51% of its bookings in the quarter versus 40% last year. Encouragingly, 51% of all room nights were booked through the app, up from 45% last year, leading to a growing mix of traffic coming direct to the platform, which is aiding marketing cost levels and signals the platform is resonating with users.