Booking, the leader of online travel agencies

Transaction fees for online orders make up the bulk of revenue and profit.

Solid financial position

Despite the adverse effects of COVID-19, inflation and foreign exchange challenges that continue to weigh on near-term travel demand, we believe the company is in a strong financial position.

We believe that a healthy position in the Asia-Pacific region, continued leadership in Europe and growing participation in vacation rentals. , its position as the world’s leading online travel agency for restaurant reservations, experiences, flights and payments will deepen over the next decade. , all supported by economies of scale in marketing and technology.

Network effect

Booking has built an advanced network that is the source of a narrow competitive foothold in hotel reservations and other services, resulting in an increased user base.

We see this network effect continuing to spread across both developed and emerging markets, as well as across verticals such as rental, attractions, flights and payments (where short-term investments tend to focus), becoming a fully connected travel offering.

In developed markets, replicating Europe’s leading Booking network is costly and time-consuming for major competitors, given that approximately 60% of all hotels in the region are small properties.

Expansion in Asia

In emerging markets, the company is present in China with its partners Trip.com and Meituan-Dianpingand on their platforms Booking.com and Agoda.com, this is very important.

This growing network positions Booking well for the growing global shift to booking via mobile apps. Booking.com is one of the top 10 iOS travel apps, compared to 87 in 156 markets. Airbnb (“Narrow trench”) and for 22 Expedia (“Narrow Moat”), according to App Annie.

Google target login/Alphabet (“Wide Ditch”), Meta-platforms (“Wide Moat”), Alibaba, Amazon (“Wide Moat”) and others can double the number of dominant scale players, which will have a significant impact on profitability.

However, replicating the Booking network will take a lot of time and money, and we expect most operators to deploy a meta search model (which does not control the hotel relationship) rather than directly compete with the OTA Booking model (control). relations with hotels).

A fair value estimate was recorded

We increased Booking Holdings’ fair value from $2,900 to $3,050 per share to reflect stronger near-term demand and time value.

We currently accept the EUR/USD rate at 1.00.

Our fair value estimate assumes an enterprise value of 15 times Adjusted EBITDA.

The main parameters of our financial model are the growth of agency and merchant orders, online and offline advertising costs.

While global travel has gradually improved since mid-April 2020, COVID-19 has had a significant impact on demand in 2020.

As a result, the income in 2020 decreased by 55%.

However, Reservations sales reached 73% of 2019 levels in 2021.

We continue to expect a full recovery in 2022, with bookings up nearly 50% for the year (from the mid-40s previously) as travel demand expands to international travel, fueled especially by American demand. industrial recovery.

We estimate booking growth to average 9% (unchanged) from 2023 to 2031, as the company benefits from further investment in its online platform in 2022 and continued remote work leads to increased demand for travel.

We model an average growth of 14%, 10% and 20% in total orders, agencies and merchants during 2022-2031 respectively.

Our forecast is bolstered by the alternative accommodation industry’s average online booking growth over 2022-2031. Our view is that leisure (business/leisure) travel is increasing due to some increase in full-time and hybrid telecommuting in the US.

Our constructive position is shaped by the fact that high-paying professions (such as IT, finance, law, architecture) are the fields most likely to maintain hybrid or dual work models.

We expect the company to reduce marketing spend in 2022 as Booking spends during the year amid an expected recovery in demand and continues to invest in integrating experiences, alternative accommodation, flights, payments and supplies from emerging markets.

We then expect the business to benefit from the cost element from 2023 onwards due to the recovery in travel demand and the strength of a more established network.

We expect operating margin to reach 37.0% in 2031 from 35.5% in 2019.

© Morningstar, 2022 – The information contained herein is for educational purposes and is provided for informational purposes ONLY. It is not intended to be, and should not be construed as, an invitation or inducement to buy or sell listed securities. Any comment is the opinion of its author and should not be taken as an individual recommendation. The information in this document should not be the only source for making an investment decision. Be sure to consult a financial advisor or financial professional before making any investment decisions.