Why Booking Holdings’ Agency Revenue Will See Single-Digit Growth in 2019?

Booking Holdings (NASDAQ: BKNG) is the largest online travel company in the world. In addition to its well-known namesake website Booking.com, the company operates Agoda.com, Villas.com, and Kayak.com. Customers can rent a hotel or book a vacation stay through these. In addition, the company also operates restaurant booking site OpenTable.com and car rental site RentalCars.com.

In 2019, we expect Booking Holdings to report single-digit revenue growth in Agency revenues followed by double-digit growth in the last 3 years, due to certain uncertainties in the global macro environment. Europe was somewhat impacted by sluggish GDP growth this year. Markets like China, and particularly Hong Kong, continue to place pressure on the company’s overall growth rate. In addition, International travel to the U.S. has also been negatively impacted by a strong dollar.

Booking Holdings’ Agency segment, which makes revenue by travel reservation commissions, is expected to contribute $10.6 billion to the company’s 2019 revenues, making up 69% of the company’s $15.4 billion in revenues for 2019. On the other hand,  Merchant revenue contribution is expected to be 24%, which includes revenues from transactions where travelers book accommodation reservations from travel service providers. Booking Holdings’ Agency division is set to provide $2.6 billion, that is 56% of $4.7 billion, in total revenue the company is expected to add between 2016 to 2019. This Agency revenue growth has been key to Booking Holdings’ 35% price appreciation during the same period, further helped by growing margins, and strong expansion in the company’s valuation multiple.

We discuss Booking Holdings’ business model in our dashboard, Booking Holdings’ Revenues: How Does Booking Holdings Make Money, followed by sections that review past performance and 2020 expectations for the company’s revenue drivers, and competitive comparisons with Expedia and TripAdvisor. We discuss Booking Holding’s valuation analysis in full, separately.

Booking Holdings’ Total Revenue has grown 35% from $10.7 billion in 2016 to almost $14.5 billion in 2018, and is expected to grow over 10% to around $16.2 billion in 2 years

• Booking Holdings has added $3.8 billion to its revenue over the last two years.
• Increasing sales from both its Agency and Merchant segments is likely to add $1.6 billion in revenue over the next two years

(A) Revenue from Agency segment could increase 4% (about $370 million) in the next two years, with its share of Total Revenue expected to be about 67% by 2020

• Segment revenue increased from $8 billion in 2016 to $10.5 billion in 2018, driven by growth in agency accommodation room night reservations at Booking.com.
• We expect revenue to grow by about 4% in the next two years, to about $11 billion in 2020, driven by stable gross bookings and increasing take rate.
• Agency sales contributed 72% of total revenue in 2018. Although this share is expected to go down to 67% by 2020, it will still contribute to a larger share of the company’s revenues.

(B) Revenue from Merchant segment could increase 40% (adding about $1.2 billion) in the next two years, with its share of Total Revenue expected to be about 26% by 2020

• Segment revenue increased from $2 billion in 2016 to $3 billion in 2018, driven by increases in the merchant price-disclosed accommodation and rental car reservation services.
• We expect revenue to grow by about 40% in the next two years, to about $4.2 billion in 2020, driven by growing gross bookings.
• Merchant sales contributed 21% of total revenue in 2018. This share is expected to go up to 26% by 2020.

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