Earnings preview: Key factors in favor of Booking Holdings (BKNG) in Q3

After a blockbuster performance in the second quarter, marked by strong booking growth, online travel company Booking Holdings (NASDAQ: BKNG) had said the uptrend would continue in the September-quarter.

Market watchers expect revenues to grow about 6% to $5.07 billion in the third quarter, in line with the management’s prediction. It is estimated that the positive top-line performance lifted earnings by 18% to $44.52 per share.

Initial estimates indicate that the company achieved solid bookings growth this time too, aided by brand power and innovations in inventory, though economic uncertainties weakened the momentum in certain markets. These factors, together with the rapidly expanding direct channel, might have spurred room nights growth.

High Demand

The steady demand for travel across the globe, despite the prevailing geopolitical uncertainties, is expected to drive growth in the Agency segment, which accounted for about 70% of the company’s revenues in the last reported quarter. The merchant segment is also emerging as a key contributor, on the strength of the Rental Cars and Agoda businesses – a trend that is expected to have helped the company in Q3.

Related: US travel industry needs some stimulus to drive growth

There is apprehension that the growing competition in overseas markets, especially in Asia, could be a drag on the overall performance. With AirBnB all set to go public next year, travel portals will be forced to invent strategies to tackle competition.

Rating Downgrade

Merrill Lynch last week downgraded Booking Holdings’ stock to neutral from buy but maintained the target price at $2,160, citing potential weakness in profitability due to competition. The rating downgrade has cast doubts over third-quarter earnings moving beyond the market’s projection.

The company had a strong start to the summer travel season and achieved a 9% revenue growth in the second quarter. Consequently, earnings climbed 14% annually to $23.59 per share.

Rivals

Rival travel booking platforms Expedia Group (EXPE) and Tripadvisor (TRIP) will be unveiling their third-quarter numbers Wednesday after the closing bell.

Also see: Booking Holdings Q2 2019 Earnings Call Transcript

Booking Holdings’ shares witnessed severe volatility since the beginning of 2019, but moved up 18% during that period. The stock, which recently crossed the $2,000-mark after a long gap, rose 5% since last year.

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