|Booking Holdings Shareholders Need a Staycation|
Platform might soar once it reaches its final destination, but it has more hills to climb first
By Laura Forman
Wall Street Journal
March 2, 2022 6:30 am ET
After paring down his platform during the Covid-19 pandemic to focus on core homestay and with his business coming off its strongest year ever, Airbnb ABNB -0.32% Chief Executive Officer Brian Chesky is using a relatively inexpensive gimmick to sell long-term stays—becoming a nomad who lives on the site’s properties.
Chief Executive Officer Glenn Fogel of rival Booking Holdings BKNG -4.62% doesn’t have that luxury. The company has spent heavily to market its services and to diversify its business. To his credit, Mr. Fogel has led initiatives such as moving toward connected trips, pushing mobile, bolstering its airline mix, enhancing customer-service technology and augmenting Booking’s North American hotel presence, which should pay off in time.
But not yet. While Booking has been hard at work in recent years to enhance its U.S. presence, it is still a European-heavy business with a European identity. (Its namesake platform, Booking.com, is domiciled in the Netherlands, and 87% of Booking’s revenue came from businesses outside the U.S. last year.) Booking didn’t disclose precisely what percentage of its bookings were in Europe for the fourth quarter, but it did say its pre-pandemic international room night mix was over 50%.
The European travel market has been hobbled recently by Omicron and now by geopolitical tensions. Booking said on its fourth-quarter call last week that Russia and Ukraine combined as destination markets represent a very low single-digit percentage of its total gross bookings. Still, Richard Clarke of AB Bernstein says Russia’s short- and long-term travel restrictions can have a wider impact on the travel industry. Excluding non-Russians living there, he says Russia is the fourth-largest net spender on outbound travel globally.
Mr. Clarke has an Underperform rating on Booking’s shares, with key concerns about the cost of growth. Booking said last week it expects marketing as a percentage of gross bookings to be a little higher than it was in 2019 and in 2021. Airbnb, meanwhile, said last month it had its strongest fourth quarter ever in terms of adjusted earnings before interest, taxes, depreciation and amortization, helped by 25% lower marketing expenses than in the fourth quarter of 2019. The company also said it expected sales and marketing to be flat in 2022 compared with the prior year.
Of course, Airbnb has a fair amount of European exposure itself. Europe, the Middle East and Africa represented 31% of its gross booking value in 2021, according to its annual filing. Booking, Airbnb and Expedia Group’s shares are all down double digits over the past two weeks, but they have decidedly different risk profiles and approaches in the lodging space. Booking’s shares are currently trading around their pre-pandemic multiple of just over 5 times enterprise value to forward sales—a significant discount to Airbnb’s more than 10 times but a premium to rival Expedia’s 2.8 times.
Not every analyst is bearish on Booking’s recovery prospects, but most agree it will take a while for things to get better. In an upgrade note last week, Robert Mollins of Gordon Haskett was clear, though, that the war in Ukraine and a high likelihood of additional Covid-19 case-count surges could limit potential upside revisions. Scott Devitt of Stifel perhaps summed it up best in his alliterative (and alarming) fourth-quarter Booking earnings headline, “Rates, ‘Rona, + Russia Roiling Reopening Recovery?”
Booking Chief Financial Officer David Goulden acknowledged last week that “we’re still in a potentially volatile environment…especially in Europe,” adding that it would be difficult to predict how room nights for the remainder of the quarter would trend.
Investors tempted by Booking’s hard times should postpone check-in time.
Write to Laura Forman at firstname.lastname@example.org
Booking Holdings Shareholders Need a Staycation - WSJ