Booking Holdings (BKNG) Down 15.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Booking Holdings (NASDAQ:BKNG). Shares have lost about 15.3% 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 drivers.

Booking Holdings Earnings & Revenues Beat Estimates in Q4

Booking Holdings reported fourth-quarter 2019 non-GAAP earnings of $23.30 per share, which beat the Zacks Consensus Estimate by 5.4% and improved 4% from the year-ago quarter. However, the bottom line declined 48.6% on a sequential basis.

Revenues of $3.34 billion surpassed the Zacks Consensus Estimate by 1.6% and improved 4% year over year. However, the top line was down 33.8% from the previous quarter.

Solid momentum across merchant, and advertising and other businesses drove the top line year over year. Additionally, robust accommodation business drove the booked room nights number, which came in at 191 million during the reported quarter, up 11.8% from the prior-year quarter.

Further, Booking Holdings witnessed robust improvement in airline tickets unit and rental car days that rose 11.3% and 11.9%, respectively, from the year-ago quarter.

However, continued softness in agency business remained a headwind during the reported quarter.

Further, the coronavirus outbreak is acting as a headwind. Notably, APAC region accounts for significant portion of the company’s total room booked nights but the outbreak is not only disrupting travel plans of people living in China but also Asia at large.

Moreover, the company has already started witnessing increasing cancellations and decreasing bookings in the APAC region, which is a major negative. Consequently, management expects decline in bookings and room nights number in the first quarter.

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

Moreover, the company’s strong position in the international markets, growth opportunities in the domestic market, solid momentum across the alternative accommodation business and expanding payment platform are likely to instill investor confidence in the stock.

Further, integration with Rentalcars.com has started benefiting the company. Additionally, strengthening flight capabilities remains a major positive.

Top-Line in Detail

Booking Holdings generates bulk of revenues from the international markets, wherein the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 28.6/63.7% in the fourth quarter (previous quarter’s split was 26.1/68.1%).

Merchant revenues came in $955 million, up 36.2% year over year. The company’s continued efforts toward improving of merchant business remained a positive.

Further, Agency revenues were $2.1 billion, down 5.9% on a year-over-year basis.

Advertising & Other revenues were $258 million (7.7% of total revenues), improving 2% from the year-ago quarter. These are basically non-inter company revenues from Kayak and OpenTable.

Bookings

Booking Holdings’ overall gross bookings came in $20.7 billion, up 5.9% year over year. Further, the figure was up 7% at constant currency from the year-ago quarter. We note that gross bookings growth rate exceeded management’s guided range.

Additionally, gross bookings surpassed the Zacks Consensus Estimate of $20.1 billion.

Merchant bookings were $6.5 billion, up 50.3% from the prior-year quarter. However, agency bookings declined 6.6% year over year to $14.2 billion.

Operating Results

Adjusted EBITDA in the fourth quarter was $1.3 billion, up 2% from the year-ago quarter. As a percentage of revenues, the figure contracted 70 basis points (bps) to 38.4%.

Per management, operating expenses were $2.2 billion, up 4.7% year over year. Further, as a percentage of revenues, the figure expanded 50 bps from the year-ago quarter to 64.9%.

Operating income was $1.2 billion, increasing 2.5% year over year. However, operating margin of 35.1% contracted 50 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and short-term investments balance was $7.3 billion, down from $7.4 billion as of Sep 30, 2019.

At the end of the fourth quarter, Booking Holdings had $7.6 billion of long-term debt, up from $7.5 billion in the previous quarter.

During the reported quarter, the company generated $1.1 billion of cash from operations, decreasing from $1.9 billion in the prior quarter.

Further, free cash flow was $990 million in the fourth quarter. The company repurchased shares worth $1.3 billion during the reported quarter.

Guidance

For first-quarter 2020, Booking Holdings expects room nights booked to be down by 5-10%.

Further, total gross bookings are anticipated to reflect year-over-year decline in the range of 10-15%. On a constant-currency basis, gross bookings are expected in the range of 8-13%.

The company anticipates adjusted EBITDA in the range of $560-$590 million.

Non-GAAP earnings are expected in the range of $9.05-$9.65 per share.

Further, the company anticipates year-over-year decline in revenues in the range of 3-7% and 5-9% on GAAP and non-GAAP basis, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -40.35% due to these changes.

VGM Scores

At this time, Booking Holdings has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 D. 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.