High-growth companies inevitably face a difficult challenge: how to keep expanding at a pace that satisfies their investors. Percentage growth has to slow over the long run due solely to math, but online travel giant Booking Holdings (BKNG 0.89%) has worked as hard as it can to keep up its growth rates even as it continues to seek a bigger piece of the travel industry's sales and earnings.
Coming into Monday's third-quarter financial report, Booking Holdings investors were prepared for a continuing slowdown in the extent to which the travel website operator could get bigger. Yet a rosier outlook for the remainder of the year gave them some optimism that the company could see brighter days ahead.
A summer slump for Booking?
Booking's third-quarter results weren't entirely satisfactory, and they definitely reflected the long-term trends that have worked against the company. Revenue came in at $4.85 billion, and although that was better than the $4.81 billion that most of those following the stock were expecting to see, it was still up just 8% from year-ago levels. Growth in adjusted net income was even more anemic at just 2%, weighing in at $1.77 billion. The resulting adjusted earnings of $37.78 per share were higher by 7%, falling short of the consensus forecast among investors for $38.13 per share but topping the company's own forecast range from three months ago.
Booking's fundamental growth rates were uniformly solid but less impressive than they've been in past quarters. Gross travel bookings were up 12% to $24.3 billion, slowing from their 15% growth rate in the second quarter of 2018. A rise of 66% in merchant bookings helped send merchant revenue higher by more than half, and advertising revenue also rose 14% to give a more modest boost to the company. Yet agency revenue rose just 0.5% on a 2% rise in agency bookings, slowing further from previous quarters.
The online travel giant also saw mixed performance in its various product categories. The key hotel segment saw room-night counts climb 13% to 201.3 million, marking the third straight quarter of low-teens percentage growth for the metric. Rental-car days were actually down a fraction of a percent from year-ago levels to 19 million. The airline ticket business kept showing signs of having hit bottom and rebounding from sluggish performance over the past couple of years, however, with a solid 9% rise to 1.8 million tickets.
CEO Glenn Fogel was pleased with the performance. "We had solid execution in our busiest quarter of the year," Fogel said during the conference call following the report, "and passed a new milestone of 200 million room nights booked in a single quarter." The CEO also pointed to Booking's overall strategic plan with respect to marketing and channel partners in contributing to overall success.
Can Booking Holdings do better?
Booking is also enthusiastic about the future. The company sees itself bulking up brand advertising, which should be useful after its corporate name change to cement the importance of the central Booking.com travel website. In addition, investments in building up a healthy inventory of alternative accommodations, such as private homes and apartments, have paid off both in expanding breadth of offerings and in holding back potential competitors. Booking is making it easier for property owners to make their accommodations available to customers, with streamlined services to facilitate listing and management.
Yet what really made investors happy was the guidance that Booking gave. The online travel giant now expects a 9% to 12% increase in hotel room-nights booked in the fourth quarter, with a 6% to 9% rise in gross travel bookings and a 13% to 16% growth rate for revenue. Adjusted earnings of $18.90 to $19.40 per share would be well above the current investor expectation for $18.69 per share, and what's especially impressive is that Booking expects to achieve these growth rates despite seeing substantial pressure from adverse currency moves that will hold back both sales and net income.
Booking Holdings shareholders reacted favorably to the news, and the stock was higher by 6% in pre-market trading Tuesday following the Monday evening announcement. Hopes for accelerated growth rates are driving bullish sentiment, and with a good strategy in place to try to keep up with changing trends and take full advantage of new opportunities, Booking is doing everything it can to fly higher for the rest of this year and in 2019.