In the mad rush to respond to earnings reports, many commentators almost ignore companies' actual business results, searching for whichever metric justifies the often short-term-minded philosophies of the traders who dominate after-hours trading. For Booking Holdings (NASDAQ:BKNG) -- the newly renamed version of the online travel giant previously known as Priceline Group -- an immediate downward push for the share price overshadowed, in some people's minds, the strong performance that the company had during the first quarter of 2018.
Coming into Wednesday's first-quarter financial report, Booking investors were looking for strong sales growth, but their views on the likelihood of bottom-line gains were more modest. Booking exceeded expectations on both fronts, but it's likely that traders once again ignored the fact that the travel giant often lowballs its forward-looking guidance, in a way that temporarily spooks those who don't have a longer history of seeing its results over time.
The book on Booking Holdings
Booking's first-quarter results continued in the footsteps of Priceline's past performance. Revenue jumped 21% to $2.93 billion, outpacing the 19% growth rate that most of those following the stock were hoping for. Adjusted net income of $590.4 million was higher than year-ago levels by almost 20%, and the resulting adjusted earnings of $12.00 per share compared favorably to the consensus forecast of $10.67 per share on the bottom line.
Priceline's internal measures of performance were generally favorable as well. Gross bookings rose 21% to $25 billion, accelerating from the growth rate in the fourth quarter of 2017. Agency bookings growth was once again slower than the corresponding gains in merchant bookings, but the figures of 13% on the agency side and 74% for merchant business were solid. Yet naysayers will point out that currency gains played a key role in driving the numbers higher, and constant-currency bookings growth was just 12%, continuing its slowing trend over the past year.
Unit-based volume metrics went more clearly beyond the positive impact of the weak U.S. dollar. Room-nights sold rose just 13% to 196.8 million, further eroding what has been Booking's strongest segment. Rental-car days grew less than 1% to 18.7 million, and airline ticket sales amounted to just 1.8 million, up 2% from year-ago levels.
CEO Glenn Fogel remained pleased with Booking's performance. "We are off to a strong start in 2018," Fogel said, "with solid top and bottom line results for the first quarter." The CEO noted that optimization efforts for Booking's performance marketing helped to boost operating margin figures, and further gains could be possible.
Can Booking Holdings grow faster?
Booking Holdings is optimistic about its future. As Fogel pointed out: "Our brands are making good progress, deploying investments to position us for continued future growth."
Yet as we've seen countless times in the past, many investors focused on Booking's guidance for the second quarter and drew dire conclusions. Booking said it expects to see room-nights booked pick up 7% to 11% during the second quarter, with gross travel bookings rising 10% to 14%, due largely to a 5-percentage-point tailwind from favorable currency movements. Adjusted net income of $795 million to $825 million should translate to between $16.35 and $17.00 per share, according to the company. That figure is consistent with current projections from investors of $16.71 per share in earnings, but many who saw the numbers seemed disappointed that Booking didn't have even more favorable projections -- despite the fact that it typically ends up outperforming them substantially.
Nevertheless, Booking investors reacted negatively to the news, and the stock fell 7% in after-hours trading immediately following the announcement. Slowing growth is a long-term problem that the travel giant will have to address. But those who are interested in the stock can take advantage of what appears to be a short-term overreaction -- from shareholders who lack enough experience with the company to understand how Booking Holdings handles its guidance.