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Booking Holdings Had a Very Pleasant Trip in Q1 -- but Wall Street Has a Few Reservations

By Motley Fool Staff – Updated May 14, 2018 at 6:55PM

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Shares of the company formerly known as Priceline sank after an excellent quarterly report.

In this segment from the MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker check in with Booking Holdings (BKNG -1.84%), which delivered solid beats on revenue and earnings for the first quarter.

But it took a 5% or so hit to its shares and, not surprisingly, its guidance was the likely impetus for that decline. Was the forecast actually that bad? Worth noting is where the share price fell from. The Fools consider the outlook for the online travel agency and whether its stock is a buy.

A full transcript follows the video.

This video was recorded on May 10, 2018.

Chris Hill: First quarter profits for Booking Holdings were higher than expected, revenue was higher than expected. The stock down about 5% this morning on guidance for the current quarter. How weak was this guidance? This was about as rock-solid a quarter as Booking Holdings, which is a behemoth, by the way, could put up.

Bill Barker: Yeah, it was a good quarter. Focusing on the one-day stock movement leads to the question, how bad was it, and it was good. The guidance is good, not as good as people were expecting going into this report. So, share price easing off a little bit. Remember that this stock was basically trading at an all-time high going into this report, I think about 1% off. So, this is now about 4-5% off of its all-time high.

Guidance itself is for 7-11% top line room night bookings growth, which is pretty good, slight currency adjustment on that, 5-9%. Total gross bookings up 10-14% is the guidance for the quarter, so it has a good level of growth, but not an exceptional level of growth, that they're guiding to. They have a history of under-promising and over-delivering, so maybe factor that up a little bit.

But, if you're comparing this to some other companies that are of a similar valuation in terms of the price to earnings multiples, things like Alphabet and Facebook, they're really guiding toward faster growth in similar valuations. So, that's one reason for Bookings to maybe sell off a tiny bit today.

Hill: Is Booking Holdings, because of the success that the company has had year after year, are they in that category where not just results but guidance as well needs to be amazing?

Barker: All companies are graded more on their guidance. Well, maybe not all companies, but certainly rapid-growth companies are graded more on the guidance than what they've just delivered. So even though Booking has delivered a quarter better than expectations on both the top and bottom lines, if guidance is any softer than the market was expecting, then, yes, it's going to get hit a little bit. Again, off of an all-time high. Now it's 5-6% within its all-time high.

There's always plenty of competition here, and the competition is continuing to come from places that are staffing up more of the experienced side of the equation than just the hotel room side, where traditionally Priceline and Booking have the greatest strength. The other names under Booking Holdings being KAYAK and Agoda, and they have OpenTable. OpenTable is a little bit more of the experience thing than just the hotel rooms, but they're in the right place. They're continuing to do a very good job. They didn't have the big pop that TripAdvisor had yesterday or the day before because they have been delivering, unlike TripAdvisor, which was bouncing off lows rather than trying to maintain a stock price high.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Booking Holdings, Facebook, and TripAdvisor. The Motley Fool has a disclosure policy.

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