After a 41% growth year-to-date, at the current price of around $2850 per share, we believe Booking Holdings (NASDAQ: BKNG), the world’s largest online travel agency that offers services from lodging to airline tickets to car rentals – could see further upside. BKNG stock has increased from around $2004 to $2850 YTD, outperforming the broader indices, with the S&P growing about 12% over the same period. Booking Holdings has fully recovered from the difficult period caused by the pandemic. Its operating income of $1.67 billion in Q2 2023 was well above the pre-pandemic values ($1.25 billion in 2019), and it also improved compared to Q2 2022 ($1 billion). In Q1 2023, the Board of Directors authorized a share repurchase program of about $24 billion which shows that there is the potential to increase EPS in the coming quarters. The management mentioned that it remains on track to complete the share repurchases within four years from when the program started at the beginning of this year.
BKNG stock has shown strong gains of 30% from levels of $2225 in early January 2021 to around $2850 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the increase in BKNG stock has been far from consistent. Returns for the stock were 8% in 2021, -16% in 2022, and 41% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 12% in 2023 – indicating that BKNG underperformed the S&P in 2021. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BKNG face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?
In Q2 2023, the online travel agency’s revenues grew 27% year-over-year (y-o-y) to $5.5 billion, driven by a 15% y-o-y increase in gross bookings to $39.7 billion. Room nights booked increased 9% from the prior-year quarter, rental car days were up 24% y-o-y, and airline tickets booked jumped 53% y-o-y in Q2. Further, BKNG’s adjusted EBITDA was up 64% y-o-y to $1.8 billion. Also, its earnings per share came in at $34.89 compared to $21.07 in Q2 2022.
Going forward, BKNG expects Q3 2023 room night growth will be up low double-digits y-o-y, assuming some moderation in growth from July due in part to harder prior-year comparables in August and September. The company expects Q3 revenue as a percentage of gross bookings to be around 19%, slightly above last year due to a more positive impact from timing in the expanded booking window in the first half of this year, and from increased revenue from payments. In addition, BKNG’s fixed expenses in Q3 will grow about 30% y-o-y due to higher personnel and related expenses, indirect taxes, and IT expenses. For the full-year 2023, the company expects its adjusted EBITDA margin to expand by a couple of percentage points versus 2022.
We forecast Booking Holdings’ revenues to be $20.2 billion for the fiscal year 2023, up 18% y-o-y. Looking at the bottom line, we now forecast EPS at $138.22. Given the changes to our revenues and earnings forecast, we have revised our Booking Holdings’ Valuation to about $3163 per share, based on $138.22 expected EPS and a 22.9x P/E multiple for the fiscal year 2023 – almost 11% higher than the current market price.
It is also helpful to see how its peers stack up. Check out how Booking Holdings’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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