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Booking Holdings (BKNG) Beats on Q4 Earnings & Revenues

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Booking Holdings Inc. BKNG, which changed its name from The Priceline Group last week, reported better-than-expected results in the fourth quarter of 2017.

Non-GAAP net earnings of $16.86 per share beat the Zacks Consensus Estimate by $2.74 and were better than the guided range of $13.4-$14.0 per share. Earnings increased 53% sequentially and 19% year over year.

Revenues of $2.8 billion beat the Zacks Consensus Estimate by $103 million. However, revenues were down 36.8% sequentially but up 19.4% from the prior-year quarter.

On a year-over-year basis, both agency and merchant business showed strong momentum. Room nights, Rental cars and airline tickets, all performed impressively. On the call, management stated that the company will continue to focus on investments in people, systems and marketing with a long-term outlook.

Overall, we remain positive about the secular growth trend in the online travel booking market, Booking Holdings’ strong position in international markets, growth opportunities in the domestic market, good execution, prudent marketing strategy and strong financial position.

However, weaker average daily rates for accommodations (ADR), macro headwinds, increasing advertising spend and occupancy tax-related litigation remain overhangs. In a year’s time, the stock has surged 10.5%, significantly underperforming the industry’s gain of 66%.

Let’s check out the numbers.

Revenues in Details

Booking Holdings generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 19/74% in the fourth quarter (previous quarter split was (16/77%).

Merchant revenues were down 25.7% sequentially but up 15.6% year over year. Agency revenues decreased 41.2% sequentially but increased 19.4% from the year-ago quarter.

Advertising & Other revenues were down 1.9% sequentially but up 29% from last year. These are basically non inter-company revenues from Kayak and OpenTable.

On a year-over-year basis, room nights volumes increased 16.8%. Also, rental car days increased 5.4% and airline tickets were up 3.1%.

Booking Holdings’ room night growth is attributable to geographically diverse inventory and brand recognition that tend to balance out macro uncertainties related to any one market, as well as growing competition from local and international players.

Bookings

Booking Holdings’ overall bookings were up 19% (14% in constant currency) year over year and above management’s guided range.

Merchant bookings were up 39% from the prior-year quarter and agency bookings increased 15.7% from the year-ago levels.

Margins and Net Income

Booking Holdings reported pro forma gross margin of 98.8%, up 16 basis points (bps) sequentially and 189 bps year over year.

Owing to the nature of its business and mix of agency versus merchant revenues, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Booking Holdings’ gross profit dollars were down 36.7% sequentially but up 21.7% (17% in constant currency) from last year. International gross profit grew 23% (17% on a constant currency basis).

Adjusted EBITDA for the fourth quarter was $1.1 billion, up 23% from the year-ago quarter.

Booking Holdings’ operating income was up 24.8% year over year. Operating margin of 35.2% was up 150 bps from the year-ago quarter.

Booking Holdings’ GAAP net loss was $5.6 billion or $11.41 a share against net income of $1.7 billion or $34.43 a share in the prior quarter and net income of $6.7 billion or $13.47 a share in the year-ago quarter.

Balance Sheet

Booking Holdings ended the quarter with cash and short-term investments balance of $7.4 billion compared with $7.3 billion at the end of the third quarter. As of Dec 31, 2017, Booking Holdings generated $1.2 billion of cash from operations. It spent around $64.1 million on capex. Free cash flow in the quarter was $1.1 billion.

At quarter-end, Booking Holdings had $8.8 billion of long-term debt.

Guidance

For the first quarter of 2018, Booking Holdings expects room nights booked to grow 8-12% and total gross bookings to increase 14.5-18.5% year over year (6-10% on a constant currency basis).

The company expects adjusted EBITDA in the range of $680-$705 million.

Pro-forma EPS is expected to come in the range of $10-$10.40. The Zacks Consensus Estimate is pegged at $10.26. GAAP EPS is expected within $9.05-$9.45.

Price, Consensus and EPS Surprise

 

Price, Consensus and EPS Surprise | Quote

Zacks Rank and Stocks to Consider

Booking Holdings has a Zacks Rank #3 (Hold).A few better-ranked stocks in the technology sector are PetMed Express (PETS - Free Report) , Teradyne (TER - Free Report) and Mercadolibre (MELI - Free Report) . While PetMed and Teradyne sport a Zacks Rank #1 (Strong Buy), Mercadolibre carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for PetMed, Teradyne and Mercadolibre is projected to be 10%, 12% and 25%, respectively.

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