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RiverPark Expects Booking (BKNG) to Continue to Produce Very Impressive Free Cash Flow Despite Poor Q2 Results

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RiverPark Funds, an investment management firm, published its “RiverPark Large Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. The RiverPark Large Growth Fund (the “Fund”) returned 13.1% for the second quarter of 2021, while its benchmarks, the S&P 500 Total Return Index (“S&P”) advanced 8.5%, the Russell 1000 Growth Total Return Index (“RLG”) returned 11.9%, while the Russell 1000 Value Total Return Index returned 5.2%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of RiverPark Funds, the fund mentioned Booking Holdings Inc. (NASDAQ: BKNG), and discussed its stance on the firm. Booking Holdings Inc. is a Norwalk, Connecticut-based travel company, that currently has an $89.6 billion market capitalization. BKNG delivered a -1.99% return since the beginning of the year, while its 12-month returns are up by 23.43%. The stock closed at $2,182.98 per share on August 06, 2021.

Here is what RiverPark Funds has to say about Booking Holdings Inc. in its Q2 2021 investor letter:

"Although the leisure travel recovery is well underway, Booking’s shares were also a top detractor this quarter, as near-term results continue to be volatile. For the quarter, gross bookings handily beat estimates, but against pre-COVID levels, decreased 4% year over year, revenue decreased 50%, and EBITDA was a $195 million loss. Management guided to sequential improvements in Q2 and continues to invest in its long-term initiatives in its mobile app, US expansion, flights, payments, and alternative accommodations.

BKNG has been a dominant on-line travel agency for over a decade while posting high-teens revenue growth and becoming one of the world’s largest accommodation platforms. Today, BKNG has 28 million reported listings, consisting of hotels, motels, and resorts, as well as in homes, apartments, and other unique places to stay. The company’s business model continues to require limited capital expenditures ($368 million as compared to its $15 billion of revenue for 2019) and is expected to continue to produce very impressive free cash flow (BKNG generated $4.5 billion in 2019 and currently has $12 billion in cash on its balance sheet, up from $6 billion a year ago). This cash flow has been used for episodic acquisitions as well as to return cash to shareholders."

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Photo by Jacek Dylag on Unsplash

Based on our calculations, Booking Holdings Inc. (NASDAQ: BKNG) ranks 18th in our list of the 30 Most Popular Stocks Among Hedge Funds. BKNG was in 103 hedge fund portfolios at the end of the first quarter of 2021, compared to 108 funds in the fourth quarter of 2020. Booking Holdings Inc. (NASDAQ: BKNG) delivered a -3.54% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.