Booking Holdings was $405 14 years ago and today it is $5077. That is a compound return of 19.7% per year over 14 years.
Bookings of holding companies is an American travel technology company headquartered in Norwalk, Connecticut. It was originally known as Priceline.comThan The Priceline Groupbefore changing its name to Booking Holdings in 2018 after Booking.com became the largest brand. Booking Holdings operates as one global online travel agentthat connects consumers with travel providers through its portfolio of well-known brands.
Allows users to book:
- Hotels and alternative accommodations (e.g. holiday homes)
- To flee
- Car rental
- Restaurant reservations
- Travel packages and experiences
The company makes money primarily through three models:
- Agency model – Booking acts as an intermediary; travelers pay directly to the hotel and Booking earns a commission.
- Merchant model – Booking collects payment from the traveler and transfers the net amount to the hotel or service provider, which acts more like a reseller.
- Advertising and other revenues – Includes advertising costs, referral income from metasearch platforms and other ancillary services.
Booking Holdings reports its results as a single operating segment, but is best understood by its key to noticeeach serving different regions and parts of the travel market.
Main brands
- Booking.com – The flagship brand and the world’s largest accommodation platform. It dominates in Europe and offers hotels, apartments and alternative accommodation.
- Priceline.com – Mainly aimed at the American marketwith offers and discounts on hotels, flights and rental cars.
- agoda – Located in Asia Pacificstrong presence in Southeast Asia and the Pacific. Offers accommodations and flights with an emphasis on local pricing and mobile usage.
- KAYAK -A travel search/metasearch engine that compares prices from different providers (for flights, hotels, cars, etc.) and refers users to partners for booking.
- OpenTable -A restaurant reservation platform, mainly in North America, allowing users to reserve tables online.
- Rentalcars.com – Specialized in global car rental, integrated with Booking.com and other group platforms.
We can also view booking holdings through different revenue frames:
- Accommodation (bookings for accommodation) – The largest and most important source of income, accounting for the majority of total turnover.
- Air transport and ground transport – Including flights and car rental; smaller but growing.
- Advertising and other – Includes revenue from KAYAK’s metasearch and OpenTable’s restaurant services.
- Geographic mix – Most of the turnover comes from international marketsspecial Europe And Asiawith the US being smaller in comparison.
Valuation
The following table shows the historical PE of Booking Holdings:
Current earnings per share (EPS) of $221 will put Booking Holdings’ PE at $221 23 times. If we use the next fourth quarter guidance of $257 (16% growth in earnings per share), 20 times.
A price that yields an average of 29 times is not cheap, but you have to see what you are buying. Do you buy Cai Png or do you buy Shake Shack?
The chart below shows Booking Holdings’ PEG:
PEG takes the PE as the numerator, divided by the growth rate in the denominator. What we see is a relationship between appreciation and growth. If the number is small, preferably less than 1.25, the stock is relatively cheap when we take growth into account.
In this case, I take the annual PE divided by the net income growth for the year. If the income is negative, I don’t charge for it. As you can see, there are many years where the PEG is less than 1.
But we have to be careful about drawing conclusions based on one year of growth, because earnings can have crazy growth in one year and how likely that kind of growth is to repeat. We’ll come back to this point later, but for those who have calculated PE before, notice how small most of these numbers are… that should give you some clues.
What we buy if we pay $5077 today
The chart below shows Booking Holdings’ revenue growth year-over-year:
The decline in turnover in 2020 is caused by… the pandemic shutdown, while all of us cannot travel easily. The increase in revenues over the next two years corrected the shutdown as we started to travel, and in a more intense way.
Apart from that, Booking has achieved an average of 20% annual revenue growth over the past 14 years. The expectation for the fourth quarter of 2025 is a more moderate 12%. Perhaps this explains the correction in the share price.
The chart below shows the gross margins of booking positions:
Gross margin is an insane 97% since 2018.
Gross margin is one of the areas where we can see whether a company is able to maintain its economic position. A reduction in gross margin may indicate that the moat is not as strong.
Part of the growth in gross margin in booking companies is how they’ve moved from a model where they charge full price first and then ask the merchant (hotels) to reimburse them, to a more agency model, where revenue is recorded after fees have already been deducted.
This explains why gross margins can be very high.
The costs below show operating margins:
Operating margins take into account marketing, general administration, interest charges and any research and development costs. As we can see, Booking was able to maintain an operating margin of around 30%, which is very healthy. I wanted to see if there is any observable operating leverage here. If so, I should see gradually better operating margins. Covid disruption may mean we need more time to observe.
The chart below shows Booking holdings’ outstanding shares since 2011 and how that has changed to date (in blue bars):
Booking’s number of shares outstanding has been reduced from almost 50 million to 33 million today, or a decline of 33% over the past 14 years. The orange line shows the annual share reduction, which has averaged 4% per year since 2014, when they decided to reduce the number of shares.
This share reduction has a meaningful impact on profit growth.
The chart below shows the growth in net income and earnings per share:
I’m capping growth at 200% because 2021 growth is about 1800% after the devastating earnings decline in 2020. Average growth is an insane 160%. This explains why the PEG is so low. You could argue that 100% annual earnings growth isn’t common, but look at annual earnings growth that’s above 30%.
The share buybacks have shown a difference of approximately 10% in profit growth in recent years.
One thing you should also keep in mind is that currently Booking Holdings is active has negative equity.
This means that total liabilities are higher than total assets. Booking has 17 billion in debt and 16 billion in cash. Their current liabilities are more than their total assets minus cash.
Booking is probably one of the companies that focuses heavily on shareholder returns. When you have such a company that is so resistant to competition, it is like a golden goose laying more and more eggs. So you would just keep handing out the eggs.
But instead of handing out the eggs, if the $1 held in Booking’s holdings grows at 15-20% per year, would shareholders benefit by paying out that 4%-5% as dividends (which are taxable), or buying back shares so that shareholders earn more from Booking?
Is it irresponsible to have debt if the long-term growth of at least 10% per year is much higher than the interest rate?
I leave the final thinking up to you.
Epilogue
There are many good resources for learning more about booking holding companies
- Steady composition: the travel offering that flourished when travel collapsed.
- Long-form interview with Glenn Fogel, CEO of Booking, about travel and aggregation.
Beyond the numbers, you probably want to figure out why Booking Holdings is a good company that has been able to grow at this rate for so long. There will undoubtedly be competition like Air B&B, but how can their alternative accommodation business, which is the same industry as Air B&B, become almost bigger than Air B&B?
If this company is so easy to compete with and Google is a lead generation front end, why can’t they just make a better interface and take the business away from Booking?
The crazy numbers probably show us that it’s been useless so far, but will AI be additive or subtractive for a company like Booking Holdings? That’s the next stage you have to figure out.
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