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Booking Holdings (BKNG) Up 25.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Booking Holdings (BKNG). Shares have added about 25.5% 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 its most recent earnings report in order to get a better handle on the important drivers.

Booking Holdings Q1 Earnings Miss, Revenues Down Y/Y

Booking Holdings reported first-quarter 2020 non-GAAP earnings of $3.77 per share, which missed the Zacks Consensus Estimate by 25.9%. Further, it declined 66.2% and 83.8% year over year and sequentially, respectively.

Revenues of $2.29 billion surpassed the Zacks Consensus Estimate by 3.9%. However, it decreased 19% on reported basis and 17% on constant currency basis from the year-ago quarter. Further, the top line was down 31.5% from the prior quarter.

Coronavirus (COVID-19) pandemic remained the biggest headwind for the company during the first quarter. COVID-19 induced economic shutdowns impacted the company’s business operations significantly.

Cancellation rate of bookings surged significantly since mid-March owing to COVID-19 led social distancing worldwide.

Both agency and, advertising and other businesses exhibited weak performance during the reported quarter.

Further, the booked room nights number, which came in at 124 million during the reported quarter, declined 42.8% from the prior-year quarter.

Furthermore, Booking Holdings witnessed year-over-year decline of 8% and 36.4% in the airline tickets unit and rental car days, respectively, in the first quarter.

Nevertheless, growth in merchant business remained a tailwind during the reported quarter.

Booking Holdings anticipates this pandemic situation to persist as a major headwind to the global travel industry in the near term.

Nevertheless, the company remains optimistic about its highly variable cost structure and strong liquidity position, which are expected to help it in navigating through the crisis scenario.

Moreover, the company has started witnessing improvement in its domestic bookings since April in a few countries where stay-at-home restriction has been relaxed.

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 28.8/62.2% in the first quarter (previous quarter’s split was 28.6/63.7%).

Merchant revenues came in $659 million, up 9.3% year over year. The company’s continued efforts toward improving of merchant business remained a positive.

Further, Agency revenues were $1.4 billion, down 26.9% on a year-over-year basis.

Advertising & Other revenues were $205 million (9% of total revenues), decreasing 28.1% from the year-ago quarter. These are basically non-inter company revenues from Kayak and OpenTable.

Bookings

Booking Holdings’ overall gross bookings came in $12.4 billion, down 51.2% year over year on reported basis. Further, the figure was down 50% at constant currency from the year-ago quarter.

Additionally, gross bookings lagged the Zacks Consensus Estimate of $19.5 billion.

Merchant bookings were $4.1 billion, down 28.9% from the prior-year quarter. Further, agency bookings declined 57.7% year over year to $8.3 billion.

Operating Results

Adjusted EBITDA in the first quarter was $290 million, plunging 59.6% from the year-ago quarter. As a percentage of revenues, the figure contracted to 12.7% from 24.9% in the year-ago quarter.

Per management, operating expenses were $2.6 billion, up 13.8% on a year-over-year basis.

Consequently, the company generated operating loss of $309 million compared with $556 million of operating income in the prior-year quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, cash and short-term investments balance was $7.2 billion, down from $7.3 billion as of Dec 31, 2019.

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

During the reported quarter, the company utilised $380 million of cash in operations against $1.1 billion of cash generated from operations in the prior quarter.

Further, free cash flow was ($460) million in the first quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -216.19% due to these changes.

VGM Scores

At this time, Booking Holdings has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise Booking Holdings has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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