Reservation holdings: Leisure Travel at Risk (NASDAQ: BKNG)

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investment thesis

holding collectibles (Nasdaq: BKNG) The results for the first quarter of fiscal year 2012/2022 highlighted positive management comments on total bookings in April 2022 that reached pre-pandemic levels. Despite this positive data, stocks have reacted minimally. We think the cost of living is a crisis It will adversely affect holiday behavior in the second half of the 2012/2022 fiscal year, slowing the pace and scale of the recovery. Since the consensus estimates appear to be very bullish, we are classifying the stocks as neutral.

Main financial statements and consolidated earnings estimates

Main financial statements and consolidated earnings estimates

Main financial statements and consolidated earnings estimates (Refinitiv Corporation)

Our goals

The easing of travel restrictions after COVID19 should herald a period of strong demand for Booking Holdings, which is coming in the form of pent-up demand from both business and leisure travelers. Booking shares have outperformed the NASDAQ index in the past 12 months but not by a very large margin.

Data by YCharts

In this article we want to evaluate the following:

  • Assess the current level of travel demand, and its outlook given the softer outlook on consumer sentiment.
  • Reconsider our sell recommendation as of March 2021, taking into account consensus estimates for the next two years.

We will take each one in turn.

Demand is still weak

Our conclusion is that unfortunately for the travel industry, demand is currently still lower than expected. With many parts of the world facing a cost-of-living crisis, and the Russian invasion of Ukraine significantly increasing the cost of basic commodities, we believe this will have a significant negative impact on the future recovery of leisure travel.

We find data revealed by the United Nations World Tourism Organization (UNWTO) as an indicator of the health of the tourism industry. Although the available data is not fully up-to-date, the Tourism Recovery Tracker highlights positive year-over-year data in the recovery in travel sentiment and short-term rental demand for April 2022. However, what remains extremely negative to date range from bookings Actual flights down 70% from last year, hotel bookings down 69%, and hotel occupancy rates down 58%. There is evidence of recovery elsewhere, for example, Japan saw a 1185% year-over-year increase in foreign travelers in April 2022, but this is still 95% lower than levels seen in April 2019 before the pandemic. Too high.

The risk of higher costs will affect customers as well as the hospitality business itself, which is also facing rising input costs in energy, food and wine and payroll. A possible drop in supply will also be negative for travel sites as merchant volumes begin to decline.

Business travel seems to be going much better. American Express Global Business Travel (which merges with SPAC Apollo Strategic Growth Capital (APSG)) commented that the first three weeks of April 2022 saw transactions reach 72% of 2019 levels. There appears to be stronger momentum here versus entertainment as the corporate world returns to travel. The problem here is that business travel makes up about 20% of the total market, and the industry can only really be saved with the return of leisure volumes.

The consensus looks very bullish (again)

In our previous comment in March 2021, we felt the consolidated outlook was too optimistic, particularly in terms of the business travel recovery and we rated the stocks as selling. This time, we think the consensus is very bullish once again for the following reasons.

For the 2012/2022 fiscal year, we believe the “bumpy” summer of demand is unlikely to be sustainable. In the call results for the first quarter of fiscal 2012/2022, management commented that total bookings at for the summer period were 15% higher than the same period in 2019 – but a high percentage of these bookings were subject to cancellation and the booking period had recovered. (People who booked in advance were similar to pre-pandemic levels, and therefore have plenty of time to cancel.) The main issue is the sustainability of this demand profile versus the one-time recovery from pent-up demand. With the current macro environment, we cannot envision a steady recovery extending into the second half of fiscal 2012/2022.

What also looks very bullish is the consensus that estimates the company’s annual revenue will continue to post double-digit growth in FY 2012/2023 (+16.4% YoY) and FY 2012/2024 (+12.7% YoY). In the growth-packed days between fiscal 2015-2019, the company’s sales grew 13.0% on a compound annual basis – we find it very hard to believe that it can match those growth rates given inflationary cost pressures, lower standards of living, and higher hurdles to annual basis.

The company’s two current areas of weakness are the Asia market and international long-distance travel. With the lifting of travel restrictions, there will be an increase in demand but the problem will be the recovery rate in ADR (Average Daily Rates) in accommodation which will take some time. Also, in the world of remote work, the need for business travel has declined which will have a lasting impact on the volume of international travel.

Booking Holdings can aim to increase market share to accelerate core growth, but we believe the overall market pie needs to expand for the company to operate on consensus estimates. This does not seem likely to us at this point.


According to consensus estimates (in the table above in the main financial statements section), the stock is trading at a free cash flow return of 5.7% for the 2012/2023 fiscal year. This is an attractive return and will put the stock in an undervalued category. However, with consensus estimates looking very bullish, we think a more realistic return would be around 4%. Thus, the value of the shares appears more equitable.


The upside risks come from the continued recovery of demand for leisure travel as restrictions are lifted and consumers begin to personalize spending on holidays. The company saw strong numbers in April 2022, and if these trends continue, the outlook is positive.

A relatively quick end to the Russian invasion of Ukraine will help lift consumer sentiment as well as put some downward pressure on inflation (particularly for agricultural food prices).

The downside risks come from the increase in the cost of living which leads to the “trading” of travelers. Accommodation selection focuses on lower priced inventory which results in lower ADR and revenue.

A prolonged conflict in Europe risks involving other sovereign nations, which would put pressure on the European travel market. The cancellation rate may increase as a result.


Despite encouraging comments from management about the recent trading, the company’s stock reaction has been negligible. We put this on the market to assess the risks of a global recession and the negative impact this will have on holiday behaviour. While we anticipate a business recovery, we believe the pace and range will be slower and smaller than current consensus estimates. With relatively high market expectations, we are now classifying the stocks as neutral.

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