Two pitches for Booking Holdings
1) I'm continuing with my coverage of presentations from the Value Investing Seminar in Italy on July 9 and 10...
To briefly recap, I've already written about three:
- My presentation on pharmaceutical giant Eli Lilly (LLY) (here)
- Gustavo Pifano's on gaming company Flutter Entertainment (FLUT) (here)
Today, let's take a look at another good idea: travel company Booking Holdings (BKNG).
In my April 15 e-mail, I wrote favorably about the company and concluded:
Booking's financials are spectacular in every way and show no signs of weakening...
[The] stock is trading at 16.9 times this year's estimates and 14.5 times next year's.
That's a very attractive price, both in relation to the stock's history and the market. The S&P 500 Index trades at an average of just above 20 times. Booking is a far above-average company trading at a below-average multiple.
Since then, Booking is down 3% while the S&P 500 is up 6%. So I think the stock is even more interesting today.
Steffen Ruhl, who pitched Booking at the conference, agrees...
He gave me permission to share his entire presentation with my readers here. (And for his more in-depth analysis, see his May 7 Substack post: AI won't kill Booking – it might make it stronger.)
In his presentation, Ruhl showed that Booking has a compound annual growth rate ("CAGR") of 11% over the past decade:
The company has also grown free cash flow ("FCF") at 10% annually:
In this next slide, Ruhl showed that Booking has used its FCF to buy back 5% of its shares each year:
As for valuation, Ruhl thinks it's attractive – trading at 13.4 times his estimate for 2028 earnings:
And that's not all for recent pitches on Booking...
2) Someone posting under the handle "Gandalf" on Value Investors Club ("VIC") pitched Booking on March 4. Here's the summary:
Booking is an impressive compounder with a 10 year track record of growing revenue and EPS [earnings per share] by 11.3% and 16.6% respectively (it is better over longer periods). They are the biggest Online Travel Agent ["OTA"] and the stock has been written up on VIC three times, in 2018, 2019 and 2020.
The company is a free cash flow machine with a near debt free balance sheet (levered only 0.3x on a net debt/EBITDA [earnings before interest, taxes, depreciation, and amortization] basis). They have repurchased 38% of the float in the past decade and have a buy back plan in place to take out another 16% of the shares outstanding (at current prices). [They] convert 25% of revenue into FCF as well.
As for why the stock is down, Gandalf attributes it to AI – specifically, ChatGPT:
The opportunity comes as [Booking's] stock is down over 25% from its peak last summer on AI disruption fears. While competition from ChatGPT is coming, we note that 65% of travel is booked directly on the Booking.com website by loyal users (who get rewards like free breakfasts, human phone support, etc.)...
Finally, with 90% of Booking's earnings from small chains and boutique hotels (and not big chains, which have been cutting out online travel agents for over a decade now), our view is that Booking is largely insulated from ChatGPT becoming much more than a metasearch engine.
Indeed, they have partnered with ChatGPT to provide booking within their app and have their own Agentic AI bots on their apps too. We think it unlikely that AI apps build the necessary payment processing and levels of customer support needed to become full fledged travel agents. So far they have been partnering with the OTAs for this.
In an update two days later, Gandalf linked to this Skift article: ChatGPT Bails on Transactions – Good News for Expedia and Booking. Excerpt:
Buying or booking directly inside ChatGPT has officially become vaporware – and investors in Expedia and Booking Holdings are breathing a sigh of relief.
OpenAI is shifting its shopping strategy to focus on discovery and research, leaving checkout to third-party app developers...
An OpenAI spokesperson confirmed the shift to Skift: "We're prioritizing making ChatGPT search and product discovery great, with the Agentic Commerce Protocol serving as the infrastructure that connects users to merchants across the full shopping journey," the spokesperson said, with Instant Checkout moving to apps.
Gandalf concluded:
Stock still looks cheap at 17.6x 2026 and 15x next year's earnings. [The ChatGPT news] should be a catalyst for further re-rating.
At 15x forward earnings (vs its usually 20-30x range) and EPS currently growing in the 15% ballpark (it was 22% last year actually), we view this as baking in a lot of bad news. Should Agentic AI merely enhance their ability to capture online travel reservations, then in 2-3 years at just 20x earnings, Booking offers over 75% upside (using 2028 Street estimates of $365 per share).
The downside is that BKNG sees margins compress from AI bots and EPS only grows from direct bookings on their app. At 12x flat earnings in 2027, but with buybacks adding 5-6% growth, we estimate downside of 20%.
My Stansberry's Investment Advisory team and I will be taking a closer look at Booking. If we decide to recommend it, as always, subscribers will be the first to know.
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Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Susan and I ended our Backroads trip at the Glasgow Airport on Sunday. From there, we rented a car and drove two hours south into England. We're spending two days at the Armathwaite Hall Hotel, which used to be a privately owned mansion dating back to the 11th century.
Yesterday, we hiked 4 miles along Hadrian's Wall, which was built over six years beginning in AD 122 during the reign of Roman Emperor Hadrian. He (correctly) realized it didn't make sense to try to conquer the Scottish "barbarians," so he instead built the 73-mile-long wall across the entire country to keep the Scots at bay, forming the northern edge of the Roman Empire.
(Fun fact for Game of Thrones fans: Author George R. R. Martin confirmed that Hadrian's Wall directly inspired the Wall in the series.)
We then visited the ruins of the Housesteads Fort along the wall. Here are some pictures:
