Booking Q3 - Ups their guidance

Everybody loves to travel, and it's becoming more and more popular all around the world as middle-class income levels rise. Which is why we recommend that you hold shares of the globe's leading online travel agency, Booking Holdings.

This company owns and operates several travel fare aggregators and travel fare metasearch engines including namesake and flagship Booking.com, Priceline.com, Agoda.com, Kayak.com, Cheapflights, Rentalcars.com, Momondo, and OpenTable. It does business in about 40 languages and 200 countries. In 2017, 89% of its gross profit was made outside the United States.



In 2017, consumers booked 673.1 million room nights of accommodation, 73.0 million rental car days, and 6.9 million airplane tickets using websites owned by Booking Holdings. They make money from commissions when customers make a booking, and their major costs are staff, IT systems and advertising (especially on Google). Their main competitor is Expedia.

The company reported quarterly numbers last night which were in line with revenue expectations, but a little shy in terms of profits. So why was the share price up 6.9% after hours, trading close to $2,000 last night?

Firstly, profits for the coming quarter were guided a little higher. More importantly, the company noted that an important shift in its business is under way. Merchant hotel revenue jumped 53.4 percent to nearly $1.05 billion, while its agency revenue grew less than one percent to $3.54 billion.

What does that mean? Booking.com is pivoting to emphasize the prepaid hotel model (consumers pay when they book) away from the agency business model (they pay at the hotel). This means better cash flow and higher commissions. So profit margins are poised to improve in the years ahead.

For more on this change, and other interesting business developments, read this great review of the results by Dennis Schaal in online travel portal Skift: Booking Holdings Makes Major Pivot Toward Merchant Hotel Bookings