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Booking Holdings Celebrates the Summer

By Dan Caplinger – Aug 7, 2019 at 6:39PM

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Solid second-quarter earnings results have investors excited even as long-term growth trends continue to slow.

In an investing world in which most market participants concentrate on quarterly results, staying ahead of expectations becomes vital. Online travel giant Booking Holdings (BKNG 3.35%) has seen its growth rates slow steadily over the past several years, but it's also done a good job of managing short-term expectations and then consistently exceeding them.

Coming into Wednesday's second-quarter financial report, Booking Holdings investors were comfortable with the idea that sales and earnings growth would slow from past levels, but they still wanted to see healthy performance from the online travel company. Booking did give investors more than they were expecting, and that was enough to satisfy them heading into the key summer travel season.

Booking springs ahead

Booking Holdings had solid gains in the second quarter. Revenue of $3.85 billion was up 9% from year-ago levels, and that exceeded the 6% growth rate that most of those following the stock were expecting to see. Adjusted net income inched higher by 2.4% to $1.03 billion, but a big reduction in share count lifted adjusted earnings to $23.59 per share, easily outpacing the consensus forecast among investors for $22.71 per share.

Booking Holdings logo in black and blue with capital B made of pixels.

Image source: Booking Holdings.

The fundamental performance that Booking Holdings got from its component businesses showed some signs of new life. Hotel room-nights booked rose nearly 12% year over year to 213 million, which was a faster pace than the company has seen recently. Rental car days were up for the first time in four quarters, rising 1.2% to 21 million, and Booking sold 2.4% more airline tickets.

Overall, gross travel bookings were up 5% to $25.0 billion. Most of Booking Holdings' revenue growth came from the merchant side of the business, where the top line grew 35% year over year. Some of that merchant revenue gain came about as a result of a correction in the timing of about $53 million that was previously deferred in the first quarter of 2019. The much more modest rise of less than 2% in agency revenues stood in stark contrast to the merchant numbers, and advertising revenue split the difference with a 9% rise.

CEO Glenn Fogel didn't have a lot to say about the results. "Booking Holdings executed another strong quarter," Fogel said, "as we witnessed a solid start to the summer travel season." The CEO lauded the performance of the key hotel segment during the period.

What's ahead for Booking Holdings?

Booking knows that the critical part of its 2019 performance lies dead ahead. As Fogel put it, "As we move into our peak travel season, our teams are focused on delivering exceptional service to all of our customers and partners around the world."

As we've seen countless times before, however, Booking Holdings' guidance didn't set a particularly high bar. The company sees gross travel bookings in the third quarter rising just 1.5% to 3.5%, with sales set to rise 2% to 4%. Room nights booked should climb at a 6% to 8% pace, and Booking is looking for adjusted net income of between $1.87 billion and $1.91 billion for the period. That would work out to adjusted earnings of $43.60 to $44.60 per share, and that's in line with investor projections for $43.97 per share.

Booking Holdings shareholders looked happy about the results, and the stock climbed almost 6% in after-hours trading following the announcement. So far, the online travel giant has done an exceptional job of managing the inevitable slowdown in growth rates that comes from assuming a leadership role in a large industry. If it can continue to do so, then shareholders will continue to celebrate quarters like this one -- even if the growth Booking enjoys is just a shadow of what it saw earlier in its existence.

Dan Caplinger owns shares of Booking Holdings. The Motley Fool owns shares of and recommends Booking Holdings. The Motley Fool has a disclosure policy.

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