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Booking Holdings (BKNG) Up 1.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Booking Holdings (BKNG - Free Report) . Shares have added about 1.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Booking Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Booking Holdings Earnings & Revenues Top Estimates in Q4

Booking Holdings delivered fourth-quarter 2018 non-GAAP earnings of $22.49 per share beating the Zacks Consensus Estimate by $3.1. Further, the figure surged 33.4% from the year-ago quarter but declined 40.5% on a sequential basis.

Revenues of $3.213 billion surpassed the Zacks Consensus Estimate of $3.211 billion. The figure also surged 16% from the prior-year quarter but decreased 33.7% sequentially.

The strong performance of agency, merchant, advertising and other businesses of the company drove year-over-year top-line growth. Additionally, accelerating room nights number, which drove the company’s gross booking, aided the results.

Although the company witnessed sluggish performance of rental car days, its airline tickets unit reflected year-over-year improvement. This benefited the reported quarter.

Nevertheless, secular growth trend in the online travel booking market and growing usage of mobile by the travelers for their travel planning are tailwinds.

Moreover, the company’s strong position in the international markets, growth opportunities in the domestic market, solid momentum across the global accommodation space and proper execution of its marketing strategies will continue to drive business growth in the near term as well as in the long haul.

Increasing investments in an attempt to strengthen its alternative accommodation business, payment platform, and branding and customer acquisition program are likely to benefit the company further.

Top-Line in Detail

Booking Holdings generates bulk of its revenues from the international markets, wherein the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 21.8/70.3% in the fourth quarter (last reported quarter’s split was 21.6/73%).

Merchant revenues came in $701 million, up 37.7% year over year but down 33.2% sequentially. The company’s continued efforts toward ramping up of merchant business and its payment platform which continues to enhance its merchant offerings drove year-over-year growth.

Further, Agency revenues were $2.259 billion, increased 9% on a year-over-year basis but decreased 36.2% from the previous quarter.

Advertising & Other revenues were $253 million, down 2.1% sequentially but up 14.5% from the year-ago quarter. These are basically non-inter company revenues from Kayak and OpenTable.

Further, Booking Holdings witnessed solid momentum in room nights bookings. During the fourth quarter, the total room nights booked was 171 million, exhibiting year-over-year growth of 13%. This can be attributed to strong performance of the company’s direct channel, mobile platform and alternative accommodation business.

Bookings

Booking Holdings’ overall bookings came in $19.6 billion were up 8.7% (13% in constant currency) from the year-ago quarter. This year-over-year growth came within management’s guided range.

Merchant bookings were up 45.8% from the prior-year quarter and agency bookings increased 1.4% from the year-ago level.

Operating Results

Adjusted EBITDA in the fourth quarter was $1.26 billion, up 17.4% from the year-ago quarter.

Per the company, operating income was $1.14 billion, up 15.9% year over year. Moreover, operating margin of 35.6% expanded 40 basis points (bps) from the year-ago quarter.

Balance Sheet

As of Dec 31, 2018, cash and short-term investments balance was $6.3 billion compared with $7.1 billion as of Sep 30, 2018.

At the end of the fourth quarter, Booking Holdings had $8.6 billion of long-term debt.

During the fourth quarter, the company generated $1.08 billion of cash from operations compared with $2 billion in the third quarter.

Further, the company generated free cash flow of $997 million during the reported quarter.

Guidance

For the first quarter of 2019, Booking Holdings expects room nights booked to grow 6-8%. Further, total gross bookings are anticipated to reflect year-over-year growth within a range of 5-7% on a constant-currency basis.

The company anticipates adjusted EBITDA in the range of $680 million to $700 million.

Pro-forma EPS is expected in the range of $10.90-$11.20.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.39% due to these changes.

VGM Scores

At this time, Booking Holdings has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Booking Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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