It has been about a month since the last earnings report for Booking Holdings (BKNG - Free Report) . Shares have lost about 4.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Booking Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Booking Holdings Q3 Earnings Lag, Revenues Top Estimates
Booking Holdings reported third-quarter 2018 non-GAAP earnings of $37.78 per share, which increased 7.3% from the year-ago quarter and 82.8% on a sequential basis. However, the figure missed the Zacks Consensus Estimate of $38.37 per share slightly.
Revenues of $4.849 billion surpassed the Zacks Consensus Estimate of $4.822 billion. The figure also surged 9.4% sequentially and 37.1% from the prior-year quarter.
The strong performance of agency, merchant, advertising and other businesses of the company drove the top line. Further, the company witnessed robust growth in room nights which aided its gross booking during the reported quarter. This also contributed well to the revenue generation.
Although the company witnessed sluggish performance of rental car days, its airline tickets unit reflected year over year improvement, which drove the results further.
We believe secular growth trend in the online travel booking market along with the growing usage of mobile by the travelers for their travel planning are major positives.
Given this, 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 its business growth in the near term as well as in the long haul.
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 21.6/73% in the third quarter (last reported quarter’s split was 20/73%).
Merchant revenues came in $1.049 billion, up 47.9% sequentially and 53.4% year over year. This was driven by the company’s continued efforts toward ramping up of merchant business.
Further, Agency revenues were $3.541 billion, increased 37.9% sequentially and 0.5% from the year-ago quarter.
Advertising & Other revenues were $258.5 million, down 0.9% sequentially but up 14.4% from on a year-over-year basis. These are basically non-inter company revenues from Kayak and OpenTable. Further, contributions from the buyout of Momondo aided year-over-year growth.
Further, Booking Holdings witnessed a solid momentum in room nights bookings. During the third quarter, the total room nights booked was 201.3 million which exhibited year-over-year growth of 13.4%. This was driven by strong performance of the company’s direct channel.
Booking Holdings’ overall bookings came in $24.3 billion were up 11.5% (14% in constant currency) from the year-ago quarter. This year-over-year growth also comfortably surpassed management’s guided range.
Merchant bookings were up 65.7% from the prior-year quarter and agency bookings increased 2.3% from the year-ago level.
Adjusted EBITDA in the third quarter was $2.4 billion, up 8% from the year-ago quarter.
Per the company, operating income was $2.2 billion, up 6.9% year over year. However, operating margin of 46.3% contracted 110 basis points (bps) from the year-ago quarter.
As of Sep 30, 2018, cash and short-term investments balance was $7.1 billion compared with $7.3 billion as of Jun 30, 2018.
At the end of the third quarter, Booking Holdings had $8.7 billion of long-term debt.
During the third quarter, Booking Holdings generated $2 billion of cash from operations compared to $1.6 billion in the second quarter.
Further, the company generated free cash flow of $1.8 billion during the reported quarter.
For the fourth quarter of 2018, Booking Holdings expects room nights booked to grow 9-12% and total gross bookings to increase 6-9% year over year (10-13% on a constant-currency basis).
The company anticipates adjusted EBITDA in the range of $1.19 million to $1.22 million.
Pro-forma EPS is expected in the range of $18.90-$19.40.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Booking Holdings has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Booking Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.