Priceline Group, which recently changed its name to Booking Holdings (BKNG +5.43%), has been one of the best performers in the stock market over the last 10 years. Following a couple of brilliant acquisitions around 2005, including Booking.com, the brand for which it's now named, the company saw dramatic growth in hotel bookings and elsewhere in the travel sector. As a result, its shares have returned 1,560% over the past decade.
Earnings per share increased even more than that during that time while revenue was up 709%. Following a strong fourth-quarter earnings report, the stock achieved an all-time high. After the past decade's blowout performance, though, investors may be wondering if Booking's outperformance will continue over the next 10 years. Let's take a closer look at its prospects.
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New acquisitions
Perhaps the only guarantee for Booking for the next 10 years is that it will continue to grow through acquisitions. In addition to Booking.com, Booking has swallowed up several other travel companies, and its six primary brands today are Priceline.com, Booking.com, Kayak, OpenTable, agoda.com, and rentalcars.com. However, Booking continues to make smaller acquisitions, including its $550 million purchase of Momondo, a European travel fare aggregator and metasearch engine.
As the online travel market matures, the company is likely to pursue further acquisitions to fuel growth and complement its other services. The formula has worked especially well thus far so there's little reason to depart from it. In its recent 10-K filing, management said it "may pursue strategic transactions," indicating it will probably make future acquisitions.
Still, the online travel market has evolved into essentially a duopoly between Booking and Expedia (EXPE +6.39%), which has acquired brands like Orbitz, Travelocity, and Hotwire. The upshot of the two companies' acquisition history is that there are much fewer travel brands left to take over -- there are now only three other publicly traded online travel companies: Expedia spinoffs TripAdvisor and Trivago and Ctrip.com, a Chinese company in which Booking already has a stake. Booking could still buy one or more of those brands.
New competition
The biggest change in the travel industry in the last few years has been the rise of Airbnb and the sharing economy. Transportation services like Uber and Lyft have reduced the need to rely on rental cars, and Airbnb has given travelers another option outside hotels. While the hotel industry has continued to grow, occupancy rates have been challenged at times, and the industry has likely benefited from a strong economy. Competition from Airbnb, which tends to be cheaper than hotel rooms, could make a recession especially brutal for hotels, and therefore Booking, which depends on hotel bookings for the bulk of its income.
On the recent earnings call, however, CEO Glenn Fogel dismissed competition from Airbnb, noting that his company has always faced steep competition and that Booking.com has 1.2 million alternative properties like homes, apartments, and other such unique places, up 53% from a year ago. Fogel almost seemed to see Airbnb's growth as an opportunity for Booking to draw business to its own alternative listings, which he thinks have been overlooked.
Indeed, the company has defended itself well against the competition, not just from within the industry but from tech giant interlopers like Alphabet and Amazon.com, the latter of which aborted its own effort to build an online travel agency. Airbnb is still growing fast and will continue to disrupt the travel industry, but there appears to be room for both traditional hotels and home-sharing to coexist as they offer different benefits to travelers.
Booking in 2028
Ten years from now, I expect a relatively similar Booking to what it is today. The need to travel and book hotel rooms and flights isn't going away, and will only get larger as global standards of living increase and travel becomes more affordable. Look for the company to continue making acquisitions where it's economically beneficial and to put up steady growth in the coming years. Considering Booking's effective agency business model, the fact that the travel industry's growth is outpacing the broader global economy, and the company's strong position, the stock should continue to beat the market. With its reasonable P/E ratio today, I wouldn't be surprised to see Booking's shares at least triple over the next 10 years.
