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Booking Q2 - strong growth but misses estimates

The world leader in online travel and related services, Booking Holdings, or previously known as Priceline released their numbers for the second quarter. The shares of the company closed down 5% because management forecasted a disappointing outlook for the third quarter. The third quarter includes Northern Hemisphere summer travel season which is usually the busiest time for the travel giant.

Gross travel bookings for the company were $23.9 billion for the quarter, a 15% increase year-on-year. This lead to total revenues of $3.5 billion for the quarter, a 20% increase year-on-year and a net Income print of $997.4 million, a 36% increase versus the prior year. These are some strong numbers. People certainly are increasing holiday travel and embracing experiences compared to accumulating things. This has been good business for the company as it enjoys margins that are roughly five times above the average for non-travel publicly listed U.S. companies.

Bookings Chief Financial Offer, David Goulden, said that approximately 50% of the bookings in the second quarter came from direct bookings which lowered the company's advertising spend a lot.'Direct bookings' are defined as bookings that customers book without having clicked on a paid advert on platforms like Google Search and Facebook, and through online travel companies like Trivago, TripAdvisor, and Ctrip. He added that the customers comes directly to the Booking Holdings group of apps or websites thanks to good branding and search engine optimisation. Booking websites and apps include Booking.com, Agoda, Priceline, Kayak and more.

Growth for the company going forward is not going to be easy because hotels in many destinations saw record occupancy levels in the second-quarter and many listed hotel companies reported strong growth. However, the company has tapped into a new growth sector, listings of private homes, where the likes of Airbnb used to dominate. The company now has 5.5 million homes, apartments, and other unique places to stay, smashing its goal to beat Airbnb.

Booking recently set aside $500 million to spend on Chinese ride-hailing business Didi Chuxing in hopes to push Booking's own services to Didi users. If the company successfully cracks the Chinese market, it would be a bonus for shareholders because that is the fastest growing market for demanding travel. According to a UBS report last year, China makes a new dollar millionaire every three minutes and a new billionaire every five days. All of these people want to leave China and see the world, experience different cultures and taste foreign delicacies.

Booking's biggest risk is terrorist attacks, which leads to a reluctance to travel. The upside is bigger than the downside as travel activity increases with the increasing middle class. We like the company and we think they are barely scratching the surface here.


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