It has been about a month since the last earnings report for Booking Holdings Inc. (NASDAQ:BKNG) . Shares have added about 9.1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is BKNG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Booking Holdings Beats on Q4 Earnings & Revenues
Booking Holdings Inc. reported better-than-expected results in the fourth quarter of 2017.
Non-GAAP net earnings of $16.86 per share beat the Zacks Consensus Estimate by $2.74 and were better than the guided range of $13.4-$14.0 per share. Earnings increased 53% sequentially and 19% year over year.
Revenues of $2.8 billion beat the Zacks Consensus Estimate by $103 million. However, revenues were down 36.8% sequentially but up 19.4% from the prior-year quarter.
On a year-over-year basis, both agency and merchant business showed strong momentum. Room nights, Rental cars and airline tickets, all performed impressively. On the call, management stated that the company will continue to focus on investments in people, systems and marketing with a long-term outlook.
Overall, we remain positive about the secular growth trend in the online travel booking market, Booking Holdings’ strong position in international markets, growth opportunities in the domestic market, good execution, prudent marketing strategy and strong financial position.
However, weaker average daily rates for accommodations (ADR), macro headwinds, increasing advertising spend and occupancy tax-related litigation remain overhangs. In a year’s time, the stock has surged 10.5%, significantly underperforming the industry’s gain of 66%.
Let’s check out the numbers.
Revenues in Details
Booking Holdings generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 19/74% in the fourth quarter (previous quarter split was (16/77%).
Merchant revenues were down 25.7% sequentially but up 15.6% year over year. Agency revenues decreased 41.2% sequentially but increased 19.4% from the year-ago quarter.
Advertising & Other revenues were down 1.9% sequentially but up 29% from last year. These are basically non inter-company revenues from Kayak and OpenTable.
On a year-over-year basis, room nights volumes increased 16.8%. Also, rental car days increased 5.4% and airline tickets were up 3.1%.
Booking Holdings’ room night growth is attributable to geographically diverse inventory and brand recognition that tend to balance out macro uncertainties related to any one market, as well as growing competition from local and international players.
Bookings
Booking Holdings’ overall bookings were up 19% (14% in constant currency) year over year and above management’s guided range.
Merchant bookings were up 39% from the prior-year quarter and agency bookings increased 15.7% from the year-ago levels.
Margins and Net Income
Booking Holdings reported pro forma gross margin of 98.8%, up 16 basis points (bps) sequentially and 189 bps year over year.
Owing to the nature of its business and mix of agency versus merchant revenues, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Booking Holdings’ gross profit dollars were down 36.7% sequentially but up 21.7% (17% in constant currency) from last year. International gross profit grew 23% (17% on a constant currency basis).
Adjusted EBITDA for the fourth quarter was $1.1 billion, up 23% from the year-ago quarter.
Booking Holdings’ operating income was up 24.8% year over year. Operating margin of 35.2% was up 150 bps from the year-ago quarter.
Booking Holdings’ GAAP net loss was $5.6 billion or $11.41 a share against net income of $1.7 billion or $34.43 a share in the prior quarter and net income of $6.7 billion or $13.47 a share in the year-ago quarter.
Balance Sheet
Booking Holdings ended the quarter with cash and short-term investments balance of $7.4 billion compared with $7.3 billion at the end of the third quarter. As of Dec 31, 2017, Booking Holdings generated $1.2 billion of cash from operations. It spent around $64.1 million on capex. Free cash flow in the quarter was $1.1 billion.
At quarter-end, Booking Holdings had $8.8 billion of long-term debt.
Guidance
For the first quarter of 2018, Booking Holdings expects room nights booked to grow 8-12% and total gross bookings to increase 14.5-18.5% year over year (6-10% on a constant currency basis).
The company expects adjusted EBITDA in the range of $680-$705 million.
Pro-forma EPS is expected to come in the range of $10-$10.40. GAAP EPS is expected within $9.05-$9.45.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.
Booking Holdings Inc. Price and Consensus
VGM Scores
At this time, BKNG has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, BKNG has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Booking Holdings Inc. (BKNG): Free Stock Analysis Report
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