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The 1 Thing That Always Panics Booking Holdings Investors

By Dan Caplinger – Aug 9, 2018 at 10:53AM

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Are concerns justified this time around?

One area in the financial markets that's gotten a lot of attention lately is whether the quarterly outlooks that many companies give are useful. In the case of Booking Holdings (BKNG -3.68%), the online travel company often makes forward projections that prove to be unnecessarily pessimistic. That typically creates a cycle in which the parent company of is able to surpass expectations in its financial results, only to send some investors into a panic about guidance for the coming quarter.

Booking Holdings took the unusual step of delaying the release of its second-quarter financial report from Wednesday afternoon to Thursday morning, and some investors had already taken that as a negative sign. The online travel specialist's numbers were solid, but projections for the third quarter that were weaker than investors had wanted to see created another round of share-price declines. Those who argue that markets are efficient have to see this repeated phenomenon as evidence against their views, but the pattern doesn't appear likely to change anytime soon.

Booking Holdings logo.

Image source: Booking Holdings.

How Booking Holdings fared to start the key summer season

As those who've watched the company before can guess, Booking's second-quarter results were able to outpace what the company had originally forecast. Revenue was higher by 17% to $3.54 billion, which was stronger than the 14% growth that those following the stock had projected. Adjusted net income came in just over the $1 billion mark, rising 32% from year-ago levels and producing adjusted earnings of $20.67 per share. That was far above the company's own projections for between $16.35 and $17 per share on the bottom line.

Fundamentally, Booking Holdings continued to deal with the long-term slowdown in growth rates that we've seen lately. Gross bookings were up 15% to $23.9 billion, with favorable currency impacts adding 4 percentage points to the figure. That number surpassed the downbeat guidance of 10% to 14% growth that Booking had initially given. A nearly 70% jump in merchant bookings was able to pull up the company's overall growth rate, with agency bookings rising at a troublingly slow 6% pace.

Most of Booking's travel categories kept seeing weaker performance as well. On the hotel side, room-nights sold came in 12% higher at 190.5 million, down from a 21% growth rate a year ago but topping the guidance range of 7% to 11% growth. Rental-car day counts were up just 1% to 20.9 million. Only the airline segment did better, with 1.9 million tickets representing 5% growth from year-ago levels, bouncing back from losses throughout much of 2016 and 2017.

CEO Glenn Fogel said little to add color to the report, noting only that "Booking Holdings achieved strong results for the second quarter." The CEO did call out gains in adjusted earnings as being particularly impressive.

What's ahead for Booking Holdings?

Booking Holdings' path to the future appears to be intact in the company's assessment. In Fogel's words, "We will continue to execute on our long-term strategy to drive profitable growth and invest in capabilities to increase customer loyalty and build a larger direct business."

The company's guidance predictably painted a less favorable picture for the future for those investors who haven't gotten used to the way Booking Holdings typically handles its future projections. The online travel company says it expects hotel room-night bookings to rise 6% to 9% in the third quarter, with gross bookings picking up just 3% to 6% from year-ago figures. Revenue growth of 6% to 9% should produce adjusted net income between $1.76 billion and $1.81 billion, translating to adjusted earnings of $36.70 to $37.70 per share. Those numbers were well below the nearly $40 per share consensus forecast among those following the stock.

As a result, Booking Holdings investors generally looked panicked by the outlook, and the stock dropped 6% in pre-market trading following the announcement. It's always possible that the online travel giant's results will actually be as bad as its forecast suggests this time, but for the vast majority of times in the past, that hasn't proven to be the case. There's little to indicate right now that the third quarter will be an exception.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Booking Holdings. The Motley Fool has a disclosure policy.

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