It's a tough time to be in the travel business.

Tourism is hard to sell when there's a deadly virus spreading around the world, and countries themselves have clamped down on international travel to control the pandemic, making it difficult for would-be globetrotters.

A woman standing in an airport as an airplane takes off

Image source: Getty Images.

Not surprisingly, Booking Holdings (NASDAQ:BKNG), the world's most valuable online travel agency, has seen sales fall sharply during the pandemic -- but something surprising has happened to the stock. Despite revenue plunging in 2020, shares are up slightly over the last year, and investors seem to be pricing in a recovery.

BKNG Chart

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But with the pandemic still raging in much of the world, the worst may not yet be over. Let's take a look at what to expect.

Stuck in transit

Online travel agencies like Booking, which also owns Priceline, Kayak, and, have fared better than other travel stocks like airlines, cruise lines and even hotels. Booking benefits from having low fixed costs, unlike those peers. Most of its spending goes to marketing, and it can easily scale back on marketing expenses during a crisis like the current one.

Revenue in the third quarter of 2020, the last one it's reported, declined 48%, but the company still managed to post a small profit as it cut its marketing expenses by half. Adjusted earnings per share fell from $45.36 to $12.27 in the quarter, but the company's ability to adapt to the pandemic and still turn a profit means it should be able to escape the crisis unfazed without the added debt or shareholder dilution that some of its peers are experiencing.

However, investors are playing a waiting game until the pandemic ends, and analysts actually expect results to get worse through the first quarter of 2021 due to a spike in cases across North America and Europe.

Timing matters

Vaccines are currently rolling out across much of the world, but experts believe it will still take several months to bring the pandemic under control. Meanwhile, new variants are throwing more uncertainty into the mix. It's unclear when it will be safe for most tourists to travel again, or when international barriers to foreign travelers will be lifted.

Normally, Booking makes close to half of its annual profit in the third quarter, the summer months when travel peaks in the northern hemisphere. Additionally, much of its business comes from Europe, where is based, so investors will want to keep an eye on pandemic-related trends in Europe as the summer months approach. 

Analysts see earnings starting to normalize by the third quarter, but if the pandemic is still active then Booking stock could take another dive. 

The winning scenario

There is one favorable for Booking investors: If the pandemic is mostly over by this summer, the company is likely to benefit from pent-up demand for travel, as countries that have successfully controlled the outbreak like Australia and China have already experienced. That could lead to the company reporting record results this summer as travelers weary from months stuck at home set off to explore again and hotels, desperate to fill rooms again, turn to platforms like Booking. 

No matter what, the company is still at the whim of the pandemic. While the vaccine rollout means that there is a foreseeable end to the crisis, Booking and its hotel partners would benefit greatly from a reopening prior to the summer. And even if it makes a full recovery, the company still faces significant risks over the long term, including from slowing growth and competition from Airbnb, Google, and major hotel chains getting into direct booking.

Is the worst over for Booking for now? Most likely -- but the prospect of a delayed end to the pandemic or a spike in cases due to one of the new variants would cause the stock to sink again. If travel bounces back by this summer, though, the stock should move even higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.