Booking Holdings Stock: Recovery Well Understood, Hold (NASDAQ:BKNG)

Booking Holdings (NASDAQ:BKNG) is the owner behind many household names when it comes to travel. Booking.com is the world’s most visited website allowing consumers choose where to stay from over 400,000 hotels, motels and resorts in over 220 countries. Priceline offers discount travel reservation services mainly in North America. Agoda is a popular travel booking site in Asia. KAYAK provides price comparisons for airline tickets, hotels and etc (aka. meta search). Lastly, OpenTable offers restaurant booking services primarily in the US.

In 1Q22, BKNG delivered record gross bookings of $27 billion which was up 7% against Q1 2019. Revenue of $2.7 billion and EBITDA of $310 million both beat consensus estimates with top-line growth of +136% and -2% on a 3-year CAGR basis, indicating an almost full recovery. In April, room nights increased by 10%/16% (ex-Russia, Ukraine and Belarus) against 2019 with strength across all regions and Asia being the only market still below 2019 levels. Nevertheless, bookings in Asia have improved from -35% (vs. 2019) in Q1 to down high-teens % in April.

For summer, gross bookings are up 15% vs. 2019, where Europe and North America are both up more than 30%. Management did not provide guidance for 2Q22, but was confident that there will be an operating profit.

While BKNG has acknowledged that long-term take rates will experience pressure given higher penetration of flight bookings (now available in 40 countries), accommodation take rates are expected to remain healthy, with payment providing some cushion. In 1Q22, Booking.com saw 34% of its bookings processed by its own payment platform, a record quarter.

Before the pandemic, BKNG had an operating margin of ~35%-36% from 2017 to 2019. In its worst year of 2020, the company still delivered an EBIT margin of 8.5%, which has dramatically improved to 22.9% in 2021. Though management does not expect margins to return to pre-pandemic levels in 2022 and beyond, BKNG remains a competitive travel player with arguably the largest scale.

All told, there’s no question that travel will ultimately return to 2019 levels and BKNG should continue to deliver growing bookings and other business metrics going forward. The problem though, is that markets have sufficiently priced in the majority of the recovery upside, which should partially explain why shares haven’t gone anywhere on top of the broader market selloff. Looking back to 2021, BKNG saw its stock reach $2,500 in 1Q21 as investors looked forward to strong summer demand for travel, but subsequently had trouble staying above $2,600. Now that the company has officially become a successful turnaround story from the pandemic, I see expectations resetting to normal levels and think shares are likely to trade sideways amidst macro concerns.