Is the Price(line) Right?

BOOKING.com (BKNG) - $2,197/sh 7/9/21

Booking.com (“Booking”) is the world’s largest online travel agent with $90B in gross bookings in 2019. Booking’s brands include Booking.com, Priceline, OpenTable and Kayak. These platforms aggregate information and prices about hotels, flights, restaurants, and alternative accommodations, allowing consumers to compare a wide selection of prices, services, and products. By centralizing this information, Booking provides consumers with convenience and selection during travel planning. Booking generates revenue by earning fees for travel reservations booked on its platform.

Booking has built a dominant competitive position and a defensible business model. By aggregating the largest supply of travel-related listings, Booking can serve the largest customer base and reinvest the most revenue into acquiring more customers and improving its customer experience. The Company has over 20 years’ experience honing its layout, language, and booking process. Booking’s service is supported by talented software engineers, marketing experts and customer service representatives whose sole focus is to drive online bookings and optimize the consumer experience.

Booking’s management, led by CEO, Glen Fogel, are not overly promotional or outspoken, but they are focused and disciplined and have a sensational long-term track record of solid growth and execution. Booking grew revenue from $9.2B in 2015 to $15B in 2019, a 13% compound growth rate, while earnings per share grew from $49.95 to $111.82, a 22% compound rate. Bookings’ high profit margins combined with low levels of capital intensity have resulted in 35% operating margins and nearly 30% free cash flow margins, a highly attractive financial profile.

A global rebound in travel combined with a secular shift of consumers researching and booking travel plans online, should provide Booking with strong earnings growth for many years. Booking’s gross bookings have grown more than ten-fold in the last ten years. Despite this large expansion, online bookings still only account for between 40%-to-50% of all hotel bookings worldwide. By contrast, online airline ticket bookings have reached 70% penetration worldwide. This suggests significant runway remains for online accommodation penetration to increase. Coupled with the continued global growth in tourism volumes, these tailwinds should drive high single digit revenue growth for the foreseeable future. Coupled with margin expansion from cost cuts made during Covid, and capital return through share repurchases, Booking could grow EPS at 10-12%, which approximates our estimated annualized return in the stock. In Booking, we see a high-quality franchise, run by a capable and proven management team, with strong secular growth tailwinds driven by the adoption of online travel booking and the unfurling of pent-up global travel demand.

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