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Booking Holdings breached quarterly travel bookings of $25 billion for the first time in its history, an increase of 21% from this time a year ago. This amounted to revenues of $2.9 billion for the 1st quarter of 2018 and gross profits of $2.3 billion, an increase of 25% from the prior year. Equating to $12.34 a share, smashing expectations of $10.
Unfortunately, guidance for next quarter was less than expected and the share fell 7% after hours. Don't feel too bad, even after the drop the company is still up 17% this year.
The business is going through a bit of a transition. They are focusing their marketing (their biggest expense) on smaller niche hotels. The big hotel groups have their own mass booking systems, and although they still list on Booking's platforms, they incentivise clients to go directly through their own systems. This is why Booking prefers to operate in Europe where the market is dominated by niche hotels.
The only problem here is that the smaller hotels require higher advertising spend per room. Booking is also spending big on advertising their own platform brands, mostly booking.com. The good thing about being an online business like this is that you can track peoples spending habits and build a huge amount of key data. Booking is steering their business towards these trends.
Our view on the general trend is that travel demand will increase fast and Booking is perfectly positioned to benefit from this. Most of the push in demand will come from online savvy, younger people who are curious about the world. I am sure most of that curiosity is fuelled by the internet itself, people seeing weird and wonderful places on Instagram and Facebook. Then once they are there, you can show off your amazing life on these exact platforms, making more people want to travel. You get my point.
The company is expected to make $88 a share for 2018. Trading at $2 030 a share, that puts the company on a multiple of 23 times. With net cash of $5bn and growth of 20% we think this is a compelling investment in a very exciting theme.