What To Expect From Booking Holdings Stock Post Q4 Release?

Booking Holdings (NASDAQ: BKNG), the world’s largest online travel agency that offers services from lodging to airline tickets to car rentals, is scheduled to announce its fiscal fourth-quarter results on Wednesday, February 24. We expect the company’s stock to likely trade lower as its earnings could miss Q4 consensus estimates while revenues come in-line. The travel sector was beaten down in 2020 as the onset of the pandemic led people to stop traveling, forcing travel companies such as BKNG to close global offices and eliminate a quarter of their workforce. While Booking Holdings saw demand rebound in Q3, its numbers were still far below 2019 levels. In fact, air travel and vacation trends likely won’t fully recover until the Covid-19 threat has passed. The fact of the matter is that leisure travel shall return at some point, but business travel has a very tough road ahead as virtual collaboration tools have never been cheaper or more easily accessible. With Covid-19 cases still surging and many parts of the world back into lockdowns, Booking Holdings will continue to see a difficult time in the near-term despite the vaccine rollouts.

(1) Revenues expected to be in-line with the consensus estimates

Trefis estimates Booking Holdings’ Q4 2020 revenues to be around $1.2 Bil, in line with the consensus estimate. Booking Holdings’ revenues declined a major 53% year-over-year (y-o-y) so far in fiscal 2020. For Q3, the travel booking site saw demand rebound, but the numbers were still far below 2019 levels. The company’s revenue grew sequentially from only $63o million in Q2 2020 to $2.6 billion in Q3 2020. But the revenues were still down 48% from year-ago quarter levels in Q3. A similar sequential rebound was seen in rental car days, airline tickets, and room-nights booked in Q3. For the full-year, we expect Booking Holdings revenues to decline 55% y-o-y.

(2) EPS likely to marginally miss consensus estimates

Booking Holdings’ Q4 2020 earnings per share (EPS) is expected to come in at a loss of $3.90 as per Trefis analysis, marginally lower than the consensus estimate of -$3.85. In the first nine months of 2020, profits were down 94% y-o-y. That said, the online travel booking site stock could still weather the Covid storm based on its strong liquidity position. The company has $14.9 billion in cash and investments, and almost $850 million in free cash flow (generated in Q3), as compared to a heavy debt load of close to $11 billion. With roughly half of its expenses coming from sales and marketing, Booking Holdings has high variable costs, making it easier for the company to conserve cash and survive the crisis, including a tough 2020 holiday period and likely limited gains in travel demand in the first half of 2021. 

(3) Stock price estimate lower than the current market price

Going by our Booking Holding’s Valuation, with a revenue per share (RPS) estimate of around $165 and P/S multiple of just over 13x in fiscal 2020, this translates into a price of $2164, which is 6% lower than the current market price of around $2293.

While BKNG stock could trade lower post Q4 earnings, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Google vs Corcept Therapeutics shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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