Connected Trip Vision And AI Investments Will Drive Future Operational Efficiency

Key Takeaways

• Expansion in merchant capabilities and AI investments may drive revenue and operational efficiency, improving net margins and supporting the connected trip vision.
  
• Strong growth in Asia and a capital return program are expected to enhance revenue growth and boost adjusted earnings per share.
  
• Dependence on AI and U.S. market growth, geopolitical risks, and market expansion challenges could impact Booking Holdings' revenue and earnings.

Catalysts

Provides online and traditional travel and restaurant reservations and related services in the United States, the Netherlands, and internationally.

• Booking Holdings is expanding its merchant capabilities and alternative accommodations, driving future revenue growth by increasing the variety of properties available and offering seamless booking experiences as part of its connected trip vision.
  
• The company is making substantial investments in AI, expected to improve customer service, increase operational efficiency, and potentially enhance net margins by driving a deceleration in fixed expense growth.
  
• Booking Holdings is seeing double-digit growth in Asia and expects further expansion, positioning it for higher revenue growth due to the strategic importance and growth potential of the region.
  
• The firm's capital return program, including share repurchases, has reduced the average share count, supporting significant growth in adjusted earnings per share.
  
• Booking Holdings anticipates marketing leverage due to an increasing direct mix, which, along with stable marketing spend relative to gross bookings, could positively impact net margins and adjusted EBITDA.

Booking Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Booking Holdings's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.8% today to 28.4% in 3 years time.
• Analysts expect earnings to reach $8.4 billion (and earnings per share of $270.02) by about December 2027, up from $5.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $6.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2027 earnings, down from 34.8x today. This future PE is lower than the current PE for the US Hospitality industry at 24.3x.
• Analysts expect the number of shares outstanding to decline by 2.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Booking Holdings Future Earnings Per Share Growth

Risks

• The reliance on forward-looking statements and the inherent uncertainties could lead to actual results differing materially from projections, impacting future revenue and earnings.
  
• The success of the company's AI initiatives is still uncertain, and failure to develop effective AI solutions could limit expected operational efficiencies and revenue growth.
  
• Political and geopolitical risks, especially in the Middle East and other global regions, could affect travel demand, potentially impacting revenue and earnings.
  
• The competition and complexity involved in expanding into alternative accommodations and connected trip offerings might not deliver the anticipated market share or revenue growth.
  
• The company's performance heavily depends on U.S. market growth, and recent results indicating low single-digit growth may suggest challenges in maintaining or growing market share, affecting revenue.

Valuation

• The analysts have a consensus price target of $5102.01 for Booking Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6000.0, and the most bearish reporting a price target of just $3996.33.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $29.4 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of $5293.0, the analyst's price target of $5102.01 is 3.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.