Booking Holdings’ Stock Has Fallen Off The Cliff, But Its Stock Will Fare Better Than Expedia

Expedia‘s (NASDAQ: EXPE) stock has declined by close to 44% since early February after the WHO declared the Coronavirus a global health emergency, while Booking Holdings (NASDAQ: BKNG) stock has fared slightly better and lost 22% of its value. The lockdown in various parts of the world has had a negative impact on the travel industry, with more weakness to appear over the coming months. While both companies are seeing a weak travel demand globally, Booking Holdings is likely to weather the imminent economic slowdown better than Expedia because of its strong market presence and marketing advantage. Booking Holdings generates more direct traffic and is less dependent on Google as compared to Expedia. 

Expedia’s fiscal Q1 results (for the period ending March) early next month will confirm this and could come with fiscal-year 2020 revenue expectations 30% lower than 2019 as revenue and earnings expectation for fiscal-year 2021 will see a significant revision. This could potentially result in Expedia’s P/E multiple sliding to below 12, with the stock falling to below $50 for the first time since 2014 if the COVID-19 spread continues accelerating. Booking Holdings will likely suffer, but less so – with revenue expectations for 2020 being slightly less than the figure in 2019. 

Our conclusion is based on our detailed dashboard analysis, ‘Is Booking Holdings Expensive Or Cheap After A -22% Move vs. Expedia? ’ wherein we compare trends in key metrics for the two travel companies over the years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Why Has Booking Holdings Outperformed Expedia Over Recent Weeks?

Expedia derives a majority of its revenues from the U.S. which has become the new epicenter of the coronavirus outbreak, with the country recording the largest numbers of COVID-19 cases across the globe. On the contrary, Booking Holdings has more exposure to Europe. It has been observed that the coronavirus case growth is faster in the U.S. than in Western Europe (but the U.S. is a week or two behind). In addition, Booking Holdings uses the pay-at-the-hotel agency model, which led to only $1.6 billion prepaid bookings by the end of 2019. On the other hand, Expedia had a deferred booking of $5 billion during the same time period. This could have likely resulted in a significant outflow of cash refunds by both companies.  

Booking Holdings’ P/E based on 2019 earnings has declined from 18x in 2019 to 12x currently, while Expedia’s multiple has declined from 28x to about 15x. Expedia’s multiple still appears high, considering that the company’s revenues and margins are at a greater risk compared to Booking Holdings. Overall, it’s likely that Booking Holdings stock will continue to outperform Expedia, and has yet to see a meaningful correction to its P/E multiple through the current crisis. It is likely that the ground reality for Expedia will be confirmed during its Q1 results, providing weak results coupled with tough guidance for 2020, especially if there are still no signs of containment at the time of earnings.

Trends in Stock Price over the years: From 2009-2019 Booking Holdings Inc. stock has grown at 6.3x the rate of Expedia

• Booking Holdings Inc. stock went from $218.41 at the end of 2009 to $2,053.73 at the end of 2019, representing a change of 840.3%. 
• During the same time period, Expedia went from $46.10 to $107.74 representing a change of 133.7%.

Review of Fundamentals

• Trends in P/E Multiple over the years: Based on trailing 2019 P/E ratios, BKNG stock looks attractive compared to prior years and attractive compared to Expedia.
• Historical Revenue Growth: Booking Holdings Inc. 2014-19 annualized revenue growth of 13% is 0.8x that of 2014-19 Expedia’s annualized revenue growth rate of 16.2%.
• Historical EPS Growth: Booking Holdings Inc. 2014-19 annualized EPS growth of 20% is 4.4x that of the 2014-19 Expedia’s annualized EPS growth rate of 5.7%.

But How Long Will Expedia Stock Remain Under Pressure?

• The expected timeline for recovery in global economic conditions, and in Expedia stock, hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
• We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times.
• Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Expedia’s multinational peers, including TripAdvisor. The complete set of coronavirus impact and timing analyses is available here.
  

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