Remember local travel agencies? The internet has clearly changed the industry, putting powerful travel tools directly in the hands of consumers. Here, three leading advisors, and MoneyShow.com contributors, look at upside opportunities in the online travel market along with a bearish assessment for one leading China-based travel site.
John Staszak, Argus Research
We are raising our rating on
Booking Holdings Group, well known in the U.S. for its Name Your Own Price system, offers a variety of online booking services, including airline tickets, car rentals, cruises, hotel rooms and vacations.
However, more than 80% of bookings are international (primarily in Europe). In August 2014, Booking Holdings increased its investment in Ctrip, China’s largest online travel agency. In July 2014, Booking Holdings paid $2.6 billion in cash to acquire
In May 2013, it paid $2.1 billion in stock and cash to acquire Kayak Software Corp. Kayak searches travel sites to obtain the lowest hotel room and airline ticket prices.
In 2012, the company paid $109 million for TravelJigsaw, a provider of rental car services in Europe. In 2007, it acquired Agoda, an online travel company offering hotel bookings in Asia, for $158 million.
We think that management’s efforts to expand its services and diversify geographically have enabled the company to gain market share over the past five years. Although some of its competitors entered Europe before Booking Holdings, savvy acquisitions have, in our opinion, enabled the company to become a leader in the European market.
On February 27, Booking Holdings reported fourth-quarter revenue of $2.8 billion, above the consensus estimate of $2.7 billion, and adjusted EPS of $16.86, up from $14.21 a year earlier and above the consensus of $14.13.
Their bookings rose 19% to $18.0 billion (up 14% in constant currency) and topped the consensus forecast of $17.4 billion. In 2017, revenue increased 18% to $12.7 billion and adjusted earnings totaled $77.03 per share, up from $65.63 in the prior year.
We expect revenue to increase nearly 12% in 2018, to $14.2 billion. Despite currency headwinds, we expect Booking Holdings to benefit from higher volume and moderate price increases and look for improving economic conditions and effective marketing to boost usage in Europe.
Reflecting a strong 4Q17, offset in part by higher advertising spending, we are raising our 2018 EPS estimate from $85.00 to $87.00 and setting an estimate of $100.00 for 2019. Both estimates are above consensus.
We believe that the stock’s current valuation inadequately reflects growth in the company’s core online travel agent (OTA) business and strong market share. Its Booking.com brand has the opportunity to expand in Asia, Latin America and North America while continuing to grow in Europe, where it is a market leader.
The company also has the ability to grow its alternative accommodations business, which includes bed-and-breakfasts and home rentals. Over the long term, we believe that continued investments in marketing and advertising will enable Booking Holdings to maintain its position as the leading online travel agency.
We believe that Booking shares are undervalued at current prices near $2,100. The shares are trading at 24.1-times our revised 2018 EPS estimate, near the high end of the five-year historical range of 8 to 28.
We believe that the current valuation inadequately reflects the company’s strong market share and prospects for global growth. At current prices, our target price of $2,520 offers investors the prospect of a 20% return. As such, our long-term rating remains Buy.
Todd Shaver, BullMarket.com
The company has relationships with over 200,000 hotel suppliers in 200 countries, 300 airlines and offers packages, rental cars, cruise, and other travel options to its users, which averaged 50 million unique visitors globally per month.
The company books around 200 million room nights per year. Expedia has continuously gained share of the $1 trillion global travel market and the company is investing to gain a greater share of the international travel market.
The firm’s portfolio of brands also includes Trivago, a leading online hotel metasearch platform; HomeAway, a global online marketplace for the vacation rental industry, which also includes VRBO; Orbitz and CheapTickets, as well as ebookers, Travelocity, Hotwire and Egencia.
Domestic bookings exceed $20 billion annually, as Expedia has a 12% share of the domestic market. Across its domestic business, air travel represents the majority of overall bookings, but given relatively low revenue margins associated with air, most of Expedia’s domestic revenue is from hotel bookings.
Expedia is aggressively investing in its international offerings, with hotels leading the way. Expedia currently has a presence in 200 countries and is primarily focused on gaining share in Europe and building share in Asia-Pacific and Latin America, both relatively nascent markets. Expedia is investing in Europe and Latin America through its core Expedia and Hotels.com brands, and also with the Trivago brand.
In Asia-Pacific, the company is approaching this market through its core brands, its 50/50 JV with Air Asia, and in the Chinese travel market, through its 67% stake in the eLong travel agency. Importantly, the company’s platform E-3 has significantly enhanced Expedia’s ability to launch (and re-launch) new products and services, as the company has relationships with over 200,000+ hotel partners globally.
While Expedia has many different contributing segments, hotel revenue currently makes up the majority of the company’s revenue. The hotel business is a larger overall market than air travel as there are more hotels and rooms available than there are flights and Expedia is aggressively investing in building its share of this market globally.
While air travel is a significant portion of domestic bookings, it represents about 10% of total revenue. The air business operates on relatively fixed fee commissions and increasingly, airlines are investing more in supplier direct bookings.
Although air is a lower margin business overall, it is a strategic priority for Expedia as air bookings often create hotel and car rental reservations, and as Expedia revamps its packages business this year, it could become an increasing part of the overall mix.
Expedia has many different contributing segments. We need to think about them in terms of revenue and in terms of bookings. Some segments drive a lot of bookings, in other words, traffic to the site, but not much revenue. Other segments don’t get as much traffic, but when they do, the revenue comes pouring in.
So you see that air travel is the most significant driver of bookings for the company. Everybody comes to the site to make travel plans booking airfare. This is a great funnel of customers to the website. But interestingly this is not where Expedia makes the most money.
It is when people do the add-on purchase of booking the hotel, the hotel purchase has much higher margins and actually accounts for the bulk of the company’s revenue. It’s a well-designed machine optimizing traffic to the site and generating significant revenue.
Egencia is the company’s business travel segment, serving small-sized and mid-sized businesses to Fortune 100 companies throughout Europe, Asia-Pacific and North America. It is the fifth largest corporate travel management company in the world, and with the acquisition of Via in 2012, Expedia has been investing in this segment.
4Q17 bookings of $20 billion came in-line with projections, revenue of $2.3 billion just missed the consensus, and EBITDA of $400 million was nearly 10% below consensus. Expedia began ramping investment around hotel supply growth in 4Q, performance marketing and the transition to the cloud.
This weighed on profitability. Room nights booked grew in the mid-teens, which was a point of optimism. This report caused the stock to fall from the $130 level to the $100 level and we feel this is the perfect time to accumulate this powerhouse in the travel industry.
The market cap is only $16 billion, so is really quite small in the whole scheme of things. The stock actually hit $161 last summer and we expect this high to be reached in the future. We are placing a Price Target of $125 on the stock to start, with a Sell Price of $90.
Here are the facts. This company is the largest online travel agency. It books over $20 billion worth of travel per year. It fills 200+ million room nights per year. Hundreds of thousands of hotels rely on the site for occupancy. EPS is set to grow 10%-20% per year for the next few years on low-teens revenue growth. Revenue just cleared $10 billion this past year. EPS is closing in on $6.
Management decided to make some investments for the future and lower near-term profit expectations, which sent the stock down to 52-week lows. When these investments pay off, the return to a reasonable low-20s P/E multiple on $6 worth of EPS is going to generate us pleasant gains. Travel with us to the land of big gains in this stock!
Elizabeth Harrow, Schaeffer’s Investment Research
Even closer at hand, the stock’s 20-day moving average has tightly underlined the equity’s year-to-date rally, which currently rings in at a healthy 27%.
Despite the bullish price action in TripAdvisor, there’s still plenty of pessimism that could unwind to push the stock higher. Short interest accounts for a steep 18.4% of the stock’s float, and the stock’s dogged rise up the charts could shake loose some of the weaker bearish hands.
If so, a possible short-covering rally would take over a week to fully play out, at the stock’s average daily volume.
And there’s ample room for analyst upgrades, too. Among the 25 analysts tracking TripAdvisor, only one calls it a Buy, with the remaining brokerage firms split between Hold and Sell suggestions. Plus, the average 12-month price target of $40.85 represents a discount to the equity’s current perch north of $43.
As the post-earnings momentum continues to play out to the upside for TripAdvisor, the stock looks poised to capitalize on a capitulation by the both the shorts and the brokerage crowd.
On the bearish side, Shanghai-based
The big headline from the fourth-quarter earnings report was actually a dismal revenue forecast for the first quarter. As the company moves to unbundle value-added services from its bookings, Ctrip.com is targeting year-over-year revenue growth of 9%-11%, well short of the consensus estimate of 15%.
Analysts seem to be taking the soft forecast in stride. Broadly speaking, optimism from analysts is nothing new for Ctrip. The stock has racked up 22 Buy or better ratings, compared to 10 Holds and zero Sells. Meanwhile, the average 12-month price target of $53.26 represents expected upside of 9.3% from the Wednesday (March 14) close at $48.73.
The stock remains pinned below resistance at its 160-day moving average, which has come back into play following the stock's recovery from its February lows around the $43 level. Notably, this longer-term daily moving average marked the intraday high for Ctrip.com stock back on Oct. 19, when the shares staged a bear gap.
The 160-day trendline recently dropped through the round $50 level, which could emerge as a roadblock in its own right. This area marked multiple highs for the Ctrip shares back in the first quarter of 2017, before switching roles to provide a floor in mid-August and early September.
Now that the shares are back below $50, this level is not likely to fold without a fight — particularly since a 50% retracement of the decline from the July 31 closing high at $59.73 to the December closing low at $42.98 is located very close by, at $51.35.
So while analysts remain generally unbothered by Ctrip’s technical struggles and revenue challenges, shorts may view the lackluster earnings reaction as an opportunity to rebuild their stakes against the stock.
Short interest fell by nearly 10% over the most recent reporting period, but still totals a substantial 30.17 million shares — equivalent to 7.6% of the share float, or 8.9 times the equity’s average daily trading volume.
With the stock’s bounce from the February lows stalling out near potentially formidable resistance, a resumed pile-on by the bears could generate more downside pressure in the near term.
