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Bear of the Day: Booking Holdings (BKNG)

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The US economy – and much of the world - has been largely shut down for the past month. Some businesses are fortunate enough to retain demand for their goods and services as well as continuing to have the ability to connect with customers and fulfill their needs. Others are in a much tougher situation.

While Consumer Staples, Utilities, Technology and Health Care have all suffered as investors reassess valuations in a completely new environment, their losses have been fairly modest - and most observers expect those industries to rebound quickly once we get back to business as usual. Trillions of dollars’ worth of fiscal and monetary stimulus promise to provide a big boost to businesses when people go back to work and consumers start buying again.

Other industries might not fare so well. Restaurants, Airlines and Cruise Ship Operators have seen their business fall to near zero or disappear entirely. So have the companies that manage the reservations for the travel and restaurant industry. With airlines operating at 10% or less of capacity and most hotels across the country and most of the world completely closed to new check-ins, it’s not clear when – or if – the travel industry will be back on its feet. 

Booking Holding (BKNG - Free Report) is a juggernaut in the travel planning and restaurant reservations business. What began as more than 20 years ago has grown organically and through strategic acquisitions has grown into a company with $58 billion in market capitalization, responsible for more than 700 million hotel nights, 75 million rental car days and 7 million airline tickets a year.

Booking’s OpenTable restaurant app matches diners with 60,000 restaurants, providing one-stop shopping for dining at your favorite restaurants.

After a spectacularly successful IPO, the share price dipped into the single digits and stayed there for most of the early 2000’s, before beginning an enormous rally as the company became the preeminent provider of travel and dining services and established a steady stream of revenues and profits from millions of small commissions and advertising revenues.

Booking hit a high of $2,094/share in December of 2019, and it wasn’t an out-of-control speculative run-up. The company earned $102/share in 2019 on just over $15 billion in revenues. Even with a $2,000 share price, it was valued at a trailing P/E Ratio of just 20X – barely higher than the S&P 500 as a whole.

That was before the outbreak and subsequent shutdown.

The Zacks Consensus Estimate for 2020 has earnings reduced from $113.80/share – which would have been a 10% increase over the previous year – to just $68.20, a drop of 33% instead. Gross revenues are expected to be lower by a similar percentage.

Also, keep in mind that while in normal times, Booking’s business tends to be fairly predictable and actual results tend to be fairly close to the estimates, the new numbers represent significantly more uncertainty. The high estimate for the current quarter is $9.62/share and the low estimate is just $3.28/share.

All the recent downward revisions earn Booking a Zacks rank #5 (Strong Sell).

As a company, Booking largely redefined what a reservations service and fare aggregator looked like – and made huge profits doing so. There’s a very good chance they’ll be back to full strength someday, but the timing is very uncertain.

In the meantime, the lack of solid information about financial results in the near future means that this is a stock the average investor should probably stay away from.

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