Booking Holdings (NASDAQ:BKNG) may not be a household name, but you're likely familiar with many of its brands, including Priceline, Kayak, Open Table, and Booking.com.
The company, formerly known as Priceline Group, has come to dominate the online travel industry, essentially in a duopoly with Expedia (NASDAQ:EXPE), and has delivered monster returns since the dot-com bubble burst. Since the beginning of 2003, when the stock was trading for just a fraction of its tech bubble era heights after it got by the bubble bursting and 9/11, it's returned a whopping 18,000%.
The company's 2005 acquisition of Booking.com, a leader in European hotel rentals, proved to be a master stroke, leading to years of bumper growth and the #1 position in global online travel bookings.
Today, Booking Holdings is a more mature company, valued at $71 billion, and given the challenges the company is facing today, including the coronavirus pandemic, investors may be wondering if the stock still has what it takes to be a millionaire maker. Let's take a closer look.
A maturing market
For years, Booking's revenue grew steadily by 20% or more, but in recent quarters, even before the start of the COVID-19 pandemic, its growth had started to fade. Last year, Booking's revenue increased just 4%, or 7% in constant currency, a sign that the company has matured from its earlier growth period.
There are a number of factors weighing on the company's growth. In its early days, the company was seeing fast growth as it grabbed market share from traditional travel agencies and recruited more hotels to join its platform. These days, online travel agencies aren't a new option for hotels, and any hotel that is interested in partnering with a platform like Booking probably already has.
Additionally, the company is facing increasing competition from Google and Airbnb. The Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary, which rakes in billions of dollars in advertising from travel giants like Booking and Expedia, has recognized the business opportunities in online travel, and has invested accordingly, building out sites like Google Flights and Google Hotels. As the leading search engine and the first place many travelers go to start collecting information for a trip, Google has an advantage over OTAs like Booking and Expedia.
Airbnb has also made waves in the travel market. Prior to the pandemic, the home-sharing platform was valued at $35 billion, growing quickly, and was planning on an IPO this year. While the company has suffered a setback from COVID-19, it remains a threat to traditional hotels, and has forced companies like Booking to diversify into alternative accommodations like vacation rentals and apartments. Meanwhile, big hotel chains like Hilton have also made a play for direct bookings, offering loyalty rewards to guests who book directly with them, undercutting another leg on Booking's business.
A new challenge
The COVID-19 pandemic has affected the travel industry like nothing before. Air travel in the U.S. virtually ground to a halt in April during the lockdown period as passenger throughput fell more than 95% at its nadir. As of mid-July, air travel was still down roughly 75%.
Hotel bookings have similarly plunged as business travelers stay home and vacationers forego long-distance trips. In the first quarter, when the pandemic was just starting, Booking's revenue fell 19%, or 17% in constant currency, while adjusted net income tumbled 69%. The company has taken steps to shore up its financial position, raising $750 million in convertible debt and cutting expenses, but it's clear that the crisis will have a deep impact on the company's performance.
For the second quarter, analysts expect revenue to plunge 86.3%, and the company to report a loss of $11.77 per share. They see the company returning to a profit in the quarter, though revenue is still forecast to be down more than 50% for the rest of the year. With the resurgence of coronavirus cases in the U.S. happening now, it may be difficult for the company to turn a profit in the third quarter, its seasonally busiest time of year.
Booking is in a better position than its peers with high fixed costs like hotels, airlines, and cruise lines, as most of its spending goes to marketing, which can be easily pulled back. However, it's clear that the business won't return to full health until the pandemic is over, which means 2021 will be a disappointing year as well. Even then, the future of travel is uncertain as corporations may scale back on business travel, and travelers may be reluctant to take expensive vacations, given the economic impact of the crisis.
Is it a millionaire maker?
Considering Booking's track return of outstanding returns and high growth, it's hard to bet against the travel booking specialist, but there are too many factors urging caution at this point to count on this stock to lead you to riches. The pandemic could hobble the stock for another year, and beyond that, the problems with a maturing market, slowing growth, and new competitors like Google and Airbnb aren't going away. In fact, the market could become more cutthroat as the pandemic lifts, as a large chunk of market share will be up for grabs.
There's also the risk that Booking shares could fall further if the crisis gets worse, as the stock is only down 10% from its pre-pandemic level, meaning investors are mostly looking past the global catastrophe. That could be a mistake, however, as the crisis could still get worse.
For now, Booking looks like a stock best avoided for investors looking for high growth.