What Is Booking Holdings’ Fair Value?

Booking Holdings (NASDAQ: BKNG) is a giant online travel company, providing travel and related accommodations at hotels, hostels, apartments, vacation rentals, and other properties. In the first nine months of fiscal 2018, the company’s revenues grew 15% year-over-year (y-o-y) to $11.3 billion. This revenue growth was largely driven by growth across operating segments. In addition, the company’s gross bookings grew 16% y-o-y to $73 million, largely due to a 13% growth in accommodation room night reservations, during this period. While the company’s focus on increasing its direct business and reducing the dependence on performance marketing channels will be a drag on its performance in the short term, we believe that its strategy to drive loyalty and build a larger direct brand could increase its long-term value.

Booking Holding’s stock grew slightly over the course of 2018. We have maintained our price estimate for Booking Holdings at $1907, which is almost 10% ahead of the current market price. We have created an interactive dashboard on What Is Driving Our $1907 Price Estimate For Booking Holdings, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for Booking Holdings can have on our price estimate.

Overview of Forecasts

Segment Overview

Booking Holdings generates revenue from three segments: Agency, Merchant, and Advertising and other revenue. The company primarily generates its revenues from commissions earned from facilitating reservations of accommodations and rental cars on an agency basis. The company also derives net revenues and travel reservation commissions on a merchant basis and customer processing fees from its accommodation, rental car, airline ticket, attractions, in-stay services, and vacation package reservation services. In addition, the company also generates advertising revenues primarily from sending referrals to online travel companies and travel service providers.

For full-year fiscal 2018, we expect Booking Holdings’ Agency gross bookings to reach $80 billion for full-year fiscal 2018. The company has witnessed increased gross bookings over the past couple of years, primarily due to the bookings on Booking.com. With a take rate of 14.2%, we forecast the company’s Agency revenues to reach $11.4 billion in 2018. Further, we expect the company’s Merchant gross bookings to hit $12.6 billion in 2018. Despite a slight decline in its average daily rate over the years in this segment, a significant growth across the night rooms booked has led to increased Merchant revenue. With a take rate of 18%, which is less than the previous year’s figure, we estimate the company’s Merchant revenues to grow to $2.3 billion in 2018.

Looking Forward

With travel bookings shifting from offline to online, the company’s leading position in terms of global gross bookings, as well as its focus on growing its properties globally and improving its technological capabilities, should help it continue its strong growth. The company made a strategic investment in China’s biggest ride-sharing company, Didi Chuxing, and also bought Asia Pacific-focused hotel search tool HotelsCombined – making ways for the company to connect its customers to travel accommodations and services.

Going forward, Booking Holdings now expects a 9% to 12% increase in hotel room nights booked in the fiscal fourth quarter, with a 6% to 9% rise in gross travel bookings and a 13% to 16% growth rate for revenue. Adjusted earnings of $18.90 to $19.40 per share would be well above the current investor expectations of $18.69 per share. It should be noted that the company expects to achieve these growth rates despite witnessing substantial pressure from unfavorable currency movement.

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