Booking.com

Booking Holdings (BKNG) is an interesting business. They own booking.com, OpenTable, Kayak, & Rentalcars.com. They also have significant exposure to Asia via minority investments in Ctrip, DiDi and outright ownership of Agoda. The management has done a great job of building the business for the long term.

Booking currently trades at a forward PE of ~ 17. This valuation hides a couple of things:

  • Booking has approximately $7b in cash, $8.7b in debt but interestingly they have $8.6b in long term investments. The split of the long term investments is as follows:
    Government securities & corp debt: $5.85b
    Ctrip (China):                                   $2b
    Didi (China):                                    $707m
    In particular, we can easily take out $6b from the market cap for computing EV.
  • Booking had offered three tranches of convertible debt of $1b each
    Mar 2012 $1b@$944 due Mar 2018 ($1.4b cash outflow for settling)
    May 2013 $1b@1315 due June 2020
    Aug 2014  $1b@2055 due Sep 2021
    The cash situation for 2018, hence, suffered by nearly $1.5b because of this outflow. Obviously, the outflow will happen in 2020 and 2021 BUT booking has stopped offering convertible debt now. All their nearly $7b long term debt is senior notes.

It looks like booking is actually cheaper than what the superficial analysis tells us.

Competitive Landscape

The competitive landscape where booking.com operates make me very uncomfortable.

Booking’s strategy is to spend on brand advertising. This will result in a user coming to the booking.com portal directly. Right now, a lot of booking.com customers take one of the following routes (1) they are referred via a meta search engine (Trivago/Tripadvisor), or (2) they click on an ad by Google based on the standard keyword based targeting. Given that booking.com has a large enough inventory, a user coming directly to booking will find a fitting accommodation.

On the other hand, Google has been making significant inroads in the travel space. Their flights offering is great! And they are working very aggressively to get the hotel booking experience right. They do not want to do what booking.com is doing i.e., sign up a lot of inventory and act as a middle man between the guests and the hosts. Google is making progress in the meta search space. If you look for “hotels in <city>” they already have a good meta search where you can see which portal offers you the best price. Maybe, even the portal of the hotel sells it cheaper than booking?

Another source of competition is AirBnB. As a business, I like booking much more than AirBnB. AirBnB has two major disadvantages compared to booking.com

  • You do not get an immediate confirmation. You may need to go back and forth over a couple of hours. This kills the experience for me. I already spent a lot of time getting the accommodation right. I don’t want to start the search all over again if the host does not accept me.
  • AirBnB destroys the neighborhoods. It is hard to find places to rent for locals because tourists pay more. I also think that it makes it very difficult for city officials to enforce and maintain the constant influx of tourists if they can live *anywhere*. A lot of places are struggling to cope with over-tourism and we as a society need to come up with ways to handle it. Because this problem will become worse as more and more people move to middle and upper middle class across the developing nations.

Verdict

I think I can’t make a good call here. Even if I did invest in booking because I like the management and the business, I will not be willing to put more than 5% of my portfolio in it. This is because there are too many people out to get you and you are mostly competing on price.

 

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