Despite a higher valuation, we think that Booking Holdings stock (NASDAQ: BKNG) is currently is a better pick compared to Expedia’s stock (NASDAQ: EXPE), given its better revenue and margin growth. Both travel companies have benefited from mass vaccinations and have noticed encouraging trends in booking rates in the countries where vaccine distribution is being organized successfully. But still, the travel sector has been only recovering in fits and starts due to waves of the pandemic drifting around for the majority of 2021.
But how is Expedia’s stock priced compared to Booking Holdings’ stock? BKNG trades at about 10x trailing revenues, compared to only 3x for EXPE. While BKNG stock appears overvalued compared to EXPE stock, given the notable mismatch in their current P/S multiples, we still believe it is a better pick between both of the companies. This is based on comparing the revenue growth and operating margins for the two companies over recent years. But there is more to this comparison. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard Expedia vs Booking Holdings: Industry Peers: Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.
1. Booking Holdings’ Revenue Growth Has Been Slightly Better
While we acknowledge that Booking Holdings generates more revenues than Expedia – with BKNG making $9.2 billion in the last twelve months as compared to Expedia’s $7.2 billion – BKNG’s revenue growth of 3.6% was slightly better than 3% of Expedia during this period. Looking ahead, we estimate BKNG’s revenues to grow at 25% over the next two years, compared to a 23% growth for Expedia. Booking Holdings is likely to weather the imminent economic slowdown better than Expedia because of its strong market presence and performance marketing advantage. In addition, it also generates more direct traffic and is less dependent on Google as compared to Expedia. It should be noted that Booking is traditionally focused on hotels, while Expedia offers hotels, flights, and business-to-business operations.
In the recent Q3, Booking Holdings’ revenue grew 77% year-over-year (y-o-y) to $4.7 billion and also more than doubled from Q2 2021, driven in part by seasonality. On the other hand, Expedia’s revenues almost grew two times y-o-y to $3 billion and grew 40% sequentially from Q2 2021. Our Expedia Revenues and Booking Holdings Revenue dashboards provide more insight into the companies’ revenues.
The emergence of the omicron variant has mounted fears again of another wave of the pandemic. This could likely lead to new international travel restrictions, negatively impacting the broader economic recovery. However, early signs that the Covid-19 variant may be causing milder symptoms than previous strains could provide a sigh of relief to the travel companies. Although it’s still too soon to tell for sure.
2. Booking Holdings Is More Profitable
Booking Holdings’ operating margin of 16% over the last twelve-month period is much better than -11% for Expedia. However, if we were to look at the last three fiscal year change in operating margin, BKNG’s -5% figure is worse than EXPE’s 1% change. Expedia saw this margin improvement because of the cost cuts it has been making since late 2019. Expedia has reorganized its performance marketing efforts by combining brand teams, such as those at Expedia, Hotels.com, and Vrbo, which previously worked separately. In the recent Q3, EXPE’s operating margin of 20% compared with 17% in 2019, before the pandemic. The current operating margin of 43% for BKNG is higher compared to EXPE, and it compares with the 47% figure in 2019. Overall, Booking Holdings demonstrates much better profitability than Expedia.
The Net of It All
Now that nearly 60% of the U.S. population is fully vaccinated against Covid-19, with overall economic activity picking up, both the companies are expected to see steady revenue growth going forward. However, any large spike in the total number of Covid-19 cases due to the spread of newer variants can disrupt the economic growth and impact the earnings growth for both companies.
Expedia’s current valuation is surely more attractive than that of Booking Holdings, but the latter is more profitable. Even if we were to look at financial risk, BKNG has a better debt and cash position, with its debt as a percentage of equity of 11% vs. 34% for Expedia, and cash as a percentage of assets of 52%, compared to 23% for Expedia. All this implies that BKNG stock has a lower financial risk, compared to EXPE stock. That said, we believe that Booking Holdings is a better pick among the two stocks, with higher valuation, but much better revenue growth and margin expansion in the past and the current scenario.
Also, Expedia Peer Comparisons summarizes how the company fares against peers on metrics that matter.
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