Booking Q4, Good Growth Poor Guidence

On Wednesday night last week Booking Holdings released their 4th quarter and full year numbers for 2018 . For 2018 the company had gross travel bookings of $92.7bn. That is R1.3 trillion! This was a 14% increase from 2017. Revenues from all these bookings for the company were $14.5bn. That means that 15.6% of booking revenues goes to the company. From that revenue, they made a net income of $4.4bn which showed a 16% increase from 2017 and a 20% increase in earnings per share to $92.59.

Those numbers reflect a pretty decent year. Unfortunately, guidance disappointed and the share price dropped 10%. This has been a common trend with Booking of late. The stock currently trades on 18 times earnings. For a company that has 0 net debt and just grew earnings by 20%, this seems pretty cheap.

So what are the risks here? Occupancy rates around the globe are high. This means the room for more growth is limited. People are travelling a lot already, can they travel more? They have also changed their advertising model. The big spend is currently going towards promoting booking.com as a brand instead of specific properties. Remember that 80% of this company's business comes from outside the US. They are trying to infiltrate the US market with brand recognition. The company is confident that this campaign is already showing results.



Because most of their business is in Europe, they are sensitive to the European economy. Having said that, travel is apparently very resilient during downturns. People still travel (and book). They just go to cheaper places and stay fewer nights.

I think the room for growth in this sector is huge. The other day I saw an article that suggested by 2030 up to 1 billion people could be working remotely, this is because so many jobs can now be done with just an internet connection. Young workers like to mix it up and work in different places around the world. Allowing you to travel and keep your day job. Booking and Airbnb will thrive from this trend.

The other growth area is the Chinese. According to Wikipedia, in October 2016, 120 million Chinese people had passports. That is only 8.7% of population! Chinese tourists are gaining more visa-free travel options as countries tray and attract the revenue that comes with them. Again, Booking.com is primed to benefit from this.

The last growth opportunity that comes to mind is the potential to crack the US market. Americans have money and love to travel. This presents a big target for the group.

We thing the lag in the share price presents a good long term buying opportunity. Eventually the share price will break this range.