Booking Holdings (BKNG:US) Inc. is a global leader in online travel and related services. Operating as an online travel company, it renders a platform that connects customers with travel services providers. The services offered include travel and accommodation reservations, rental cars, flight tickets, and all-inclusive vacation packages. The company provides those services through its six trusted travel brands: Booking.com, KAYAK, Priceline, Agoda, Rentalcars.com, and OpenTable. Credit Suisse has a BUY rating and a price target of $2,250.
In 2018, BKNG acquired Didi, the world’s leading one-stop mobile transportation platform and Grab, the leading on-demand transportation and mobile services platform in Southeast Asia. It is therefore evident that the management is pursuing an acquisition strategy and expansion into emerging markets aggressively to boost the company’s long-term prospects for growth. Also, the company’s new payment platform will facilitate more transactions and increase demand.
For 2018, the company posted revenue of $14.527 billion, an almost 15% increase over that of 2017. Moreover, the revenue for 2019 is projected to hit $15.465 billion. EBITDA for 2017 was $4.867 billion; in 2018, it grew to $5.728 billion, and for 2019, it is further expected to rise to $6.069 billion. BKNG recorded gross bookings of $19.6 billion and a gross profit of $3.2 billion for the fourth quarter of 2018. However, for the first quarter of 2019, Agency Bookings are projected to drop to $19.1 billion by 6% year over year growth compared to 1% in the fourth quarter of 2018 while Merchant Bookings are expected to experience a 25% year over year growth compared to 46% in the fourth quarter of 2018. Adjusted EBITDA range of $600 million to $700 is estimated for the same period. Thus, the Gross Travel Booking forecast for the first quarter of 2019 is $24.9 billion, implying a 6% year over year growth barring foreign exchange risk.
For the 2019 fiscal year, Wall Street experts have put the 12-month target price for BKNG at $2,250 based on a weighted average cost of capital of 10.5% and a projected terminal growth rate of 3%. Also, adjusted EPS is expected to mount up to $100.24 for the year compared to $83.35 for 2018. Historically, BKNG’s shares have traded at P/E multiples of approximately 14.8× to 26.8× over the past ten years. This fact can be used to ascertain its upside and downside potentials. Using a low-end P/E multiple of 14.7× and the 2019 EPS projection yields a downside potential of $1,450. However, an upward potential of $2,850 is obtained when a high-end P/E multiple of 26.8× is applied to the 2020 EPS projection.
At the moment, BKNG is trading at $1,715 indicating that it will have rallied by at least 31% by the end of the year. However, 2019 may not end up being so good a year for BKNG. Increasing competition from other Online Travel Agencies (OTAs) such as Expedia and TripAdvisor may cause an eventual decline in revenue. Also, current efforts primarily driven by Google to deleverage the market and the increasing efforts by hotels to achieve direct booking mix may negatively impact its sales. Besides, foreign exchange volatility is another significant concern that can make the target price unrealized.