Monday, April 6, 2020

As an asset light online travel agency (OTA), is a good way to play the coming rebound in travel stocks.  It has the strongest business model of all the OTAs.  Main question is when to buy.

Business and Strategy

This is a well covered stock, other people can explain it better than me.

glowing presentation from Sean Stannard-Stockton (youtube link) (starts at 5:30). Key points below:

  • 89% of revenue is from 87% of revenue from hotels and alternative accommodation. 20% revenue comes from alternative accommodation (but more corporate managed, not individual homes like airbnb).  
  • Most revenue is from outside the US.
  • Booking's business is "selling travellers to hotels".
  • Global hotel chains (eg: IHG, Marriott) already have a direct relationship with customers (eg rewards points).  Boutique hotels don't have this, so they pay a higher proportion of revenue to OTAs.
  • Europe/Asia have a lower percentage of hotel chains than the US:

  • Even though branded hotels are growing faster, it will be a long time before they significantly rebalance the market, especially in Europe.  Most of's business is in Europe.
  • Google recently added google hotel search.  This greatly impacts OTAs that reply on organic (ie: free) search results.  Estimate that less of Booking's earnings come from organic search:
  • Over 50% of the's transactions come from people who went directly to the site.  The company have been saying this for 18 months.
  • Booking is about 1 year behind airbnb in the alternative accommodation segment.

Balance Sheet

As of Dec 2019:

  • 6.3bn cash
  • 5.4bn short term liabilities.  This includes ~1bn of debt.
  • 7.6bn LT debt, plus 0.5bn operating lease liabilities.  1bn of the LT debt is due in Sept 2021.  After that, March 2022.  These are convertible notes, assume no one will convert.
  • A long term US tax liability of 1bn which we assume they don't have to pay now.
  • Interest expenses were only 266m.
  • Also have a 2bn revolving credit facility, only 5m used
How long can they last without revenue?  Last year, largest expenses were advertising 5bn, personnel 2.2bn, sales 1bn, G&A and IT 1bn.  Plus interest 266m.  So they should easily get to 3bn cash operating costs.  Thats 9 months until their credit runs out.  I am 80% sure they can outlast the crisis.  Need to see their 1Q20 results to see how fast they can reduce costs.

This guy thinks it can last a year.

Competitors and Industry Dynamics

Direct competitors are CTrip and Expedia.  A good comparison of Expedia and Booking is here.  Booking leads in Europe.

Hotel chains (eg: Hyatt, IHG, Marriott) are both customers and potential competitors.

The Google Monster is a supplier and the most threatening potential competitor.  Ben Thomson covered it well, he believes that google operates as an aggregator (advertising and recommendation platform), providing a frictionless service with zero marginal costs.  They would not want to do an OTA's messy job in the real world, such as signing up new hotels, bookings and cancellations.  This guy makes the same point looking at Google's and Booking's staff numbers.  I agree, though Google may want a larger share of the pie.

Airbnb is the largest threat, moving into boutique hotels and B&Bs.  Airbnb has listed 24000 hotels (as of Mar 2018 - less than 1% of their total listings) - they said they will only handle boutique hotels, not chains.  Booking and Airbnb have continually argued over who has the larger alternative accommodation listing, though by the numbers they seem equal.

Interesting March 2018 podcast on competition in the industry between hotels, OTAs and Airbnb:

  • (at 5:45) Airbnb so far does not compete with hotels.  Their original plan was hotels would come under pressure on high occupancy nights (eg: convention in town).  But this did not seem to happen for corporate travellers.  A hotel's convenience and consistency do not compete with the unique experience of an airbnb.  Airbnb plus is trying to move into this space.
  • (at 10:00) Airbnb's soft branding is the offer of a distribution system and loyalty program to boutique hotels, but the properties don't have to change their unique identities or rebrand.  Smaller independent hotels may prefer it.  Airbnb charges 3-5%, OTAs can charge 15%.  This is a threat to Booking, Expedia, and possibly hotel chains.
  • (at 13:08) Airbnb vs OTAs: Airbnb wants to be a 'superbrand' offering everything for holidays.  Expedia already does this, Booking is transitioning to one.  All of Booking's accommodation is instantly bookable, and it does not charge guests a fee.  Airbnb has better user interface and brand.
  • (at 17:15) Booking has the best business model and the most to spend on search engine and advertising, compared to Expedia and Airbnb.  Possible acquisitions by Amazon or Google may change the landscape.

Other articles:

Its a fluid industry with murky boundaries.  Customers are competitors.  We do not know who the survivors will be.  Based on sales, profitability and market share, Booking is the winner so far.

Misc is well followed, every hedge fund manager and his dog owns it.

Interesting article on Booking's past growth in Europe.

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