After several years of hiatus, travel is back! Despite inflation driving the cost of vacations sky-high (quite literally, the cost of airfare in the U.S. was far outpacing the rate of inflation throughout 2022), households are planning on traveling more in 2023. According to data from the U.S. Travel Association, travel spending surpassed what was spent in 2019 and is showing few signs of cooling down.
This is more than "revenge travel," or consumers making up for lost time during lockdowns. Speaking generally, younger generations highly value seeing new places. And there is a growing middle class in developing countries, and travel spending is rising among this demographic, too. There's lots to like about making an investment in travel for the long haul, which means it pays to be well acquainted with Airbnb (ABNB -3.18%) and Booking Holdings (BKNG -0.45%) -- two top online travel marketplaces. Which is the better buy now?
Airbnb dethroned in the growth department?
Airbnb's meteoric rise has been impressive. Despite its founding in just 2008, it commands a massive market cap valuing the business at $68 billion as of this writing. Booking, founded back in 1997 during the dot-com era (at the time it was still called Priceline), has a market cap value of $102 billion.
Booking is undeniably the older and bigger business -- not just by market cap, but also in sales, registering more than double the revenue of Airbnb over the last year.
Data by YCharts.
But something surprising just happened. Airbnb, by far the smaller business, just reported first-quarter 2023 year-over-year revenue growth of 20%. Not bad, given consumers are feeling the pinch from inflation. For the second quarter, though, management predicted revenue will increase just 14% year over year (at the midpoint of guidance).
By contrast, the behemoth Booking (which includes Booking.com, Priceline, Agoda, Rentalcars.com, and Kayak) reported Q1 2023 year-over-year revenue growth of 40%. Management anticipates Q2 nights booked to be up by about a mid-single-digit percentage year over year, which should equate to high-single-digit to low-teens revenue growth. The takeaway? Airbnb's pace of expansion is moderating and quickly approaching Booking's rate of growth.
Oversize luggage filled with cash
Over the long term, Airbnb could have an edge if it solves some of its imperfections (traveler complaints about inconsistent quality in places to stay, for example). Additionally, Airbnb has been making it clear for some time it will expand into new areas of travel (perhaps rental cars next?). Booking has already done this over the years, rounding out its offerings with airfare tickets and restaurant management software -- to mixed results, I might add, like the lackluster acquisition of OpenTable in 2014, which it admitted it grossly overpaid for two years later.
In other words, Airbnb's diminutive size compared to its larger peer could still be a key driver for the stock in the years ahead, versus the giant that Booking Holdings is already today.
If Airbnb can restart its growth engine, and remain highly profitable along the way like Booking has been able to do, this could still be the best long-term growth opportunity. For reference, Booking generated a free-cash-flow profit margin of nearly 42% over the last 12 months. Impressive, considering the business was still recovering from the deep pandemic slump. Airbnb generated a free-cash-flow margin of nearly 44% over the last 12 reported months.
Both companies use this enviable and steady stream of cash for shareholder returns -- specifically, stock repurchases. Airbnb returned $493 million to shareholders via stock repurchases in Q1 2023 (a policy it just started late last year), and Booking returned $2.15 billion, returning to its shareholder-friendly ways of times past.
Data by YCharts.
Which is the better buy now?
When I started buying Airbnb stock late in 2022, I thought it was the better value. Today, it looks to me like Booking Holdings is now the better value. If I were going to choose one travel stock to buy right now, my nod goes to Booking Holdings with a ratio of price to trailing-12-month free cash flow of less than 15. Airbnb trades for over 19 times trailing-12-month free cash flow.
It's important to note, though, that Booking is also losing some steam in its growth as the pandemic travel rebound is now complete. It's a big world out there, and international travel can still keep this business in growth mode for a long time. But I fully expect Airbnb will be the faster-growing business when measured over the course of years, not quarters. Given near-term headwinds, Airbnb may not be the most timely buy. However, 2023 alone might not have much bearing on these two stocks' performance when looking back on them a decade from now.
My final verdict: Booking Holdings looks like more bang for your investment buck right now. But if Airbnb can get its expansion going again and maintain its high level of profitability, it could have a lot more growth potential over the long term. This is a trade-off between stability versus growth. Choose according to your preference.
