My top three events to pick up on travel recovery are Booking Holdings Inc. (NASDAQ: BKNG), Expedia Group, Inc. (EXPE) and Airbnb, Inc. (ABNB). The preferred choice between the three currencies is BKNG because its shares were over-penalized for relatively higher exposure in Europe and the direction of profitability below expectations.
Travel supplies in 2021
Travel-related events did not do so well in 2021 if the performance of the ETFMG Travel Tech ETF (AWAY) was used as a substitute for the tourism sector. AWAY fell -4% from $ 25.36 on January 4, 2021 to $ 24.37 on December 31, 2021, while the S&P 500 rose by + 29% last year.
At the ETF websiteAWAY is described as a “portfolio of companies” that “engage in” travel technology trading “by providing technology through the Internet and Internet-connected devices to facilitate travel and travel reservations, travel sharing and calling, travel price comparisons and travel advice.”
Year-on-year, the ETFMG Travel Tech ETF continued to decline compared to last year, declining by -5.3%, but AWAY performed slightly better than the S&P 500 index, which has fallen by -6.1% in 2022 so far.
ETFMG Travel Tech ETF Performance for 2022
Although travel stocks did not perform well in 2021, they appear to be ready for a strong recovery in the medium term. This is supported by statistics from the recent Criteo (CRTO) report of 18 March 2022 article, who emphasized that “US air bookings were 1% above pre-pandemic levels during the week ending 13 March (2022)” and noted that “suitcase sales in February (2022) had increased by 56% compared to the previous year; . ”I acknowledge the potential risks associated with the new variants of COVID-19 and the spread of the Russo-Ukrainian war to other parts of Europe. However, I believe that travel stocks in general offer good investment opportunities in the medium to long term, as these adverse winds (eg pandemics, geopolitical conflicts, etc.) are expected to ease over time.
In the rest of this article, I write about three travel events, namely Booking, Expedia and Airbnb, which are also among the top 10 events for the ETFMG Travel Tech ETF. Booking and Expedia are top two OTA or online travel agencies around the world. Research service provider Pupil distinguishes between BKNG and EXPE by reference to former as “the world’s largest online travel agency by revenue”, describing the second as a leader in the global OTA market according to “reservations.” In comparison, it is Airbnb leading company in the area of alternative accommodation.
The top 10 AWAY holdings at the end of February 2022
Booking is a delay that should catch up
The largest global OTAs, Booking and Expedia, are the best betting agents for a possible recovery in global travel. BKNG seems to be clearly lagging behind. Using the share prices of the two companies on January 2, 2020 as a measure of pre-pandemic price levels, Expedia shares rose by + 71% from $ 110.98 on January 2, 2020 to $ 190.18 on March 21, 2022., Booking Share Price increased by only +4% from $ 2,074.58 to $ 2,161.39 over the same period.
In 2022, Booking did not yet reach either EXPE or ABNB (comparison before COVID is not relevant for Airbnb, as it was only reported in December 2020) according to the table below.
Share price development since the beginning of the year for BKNG, EXPE and ABNB
There are three key reasons why I think that Booking shares are very likely to grow in the future and reduce the share price difference between it and its colleagues.
First, BKNG has been damaged by its relatively higher exposure to the European travel market, which faces higher risks due to the ongoing Russian-Ukrainian war. In a 10-K record for fiscal 2021, Booking announced that it generated 87% of its revenue from markets outside the United States, with Europe accounting for 48% of its total staff. On the other hand, Expedia is more US-oriented and has more than three-quarters of its top line in 2021 derived from the US according to S&P Capital IQ data. Airbnb has a more even geographical distribution with US and non-US markets, each of which accounts for about half of last year’s revenue.
However, Booking has in fact only a very limited exposure to the current Russian-Ukrainian war. BKNG unveiled at its recent Bank of America (BAC) Conference on Consumer and Retail Technologies On March 8, 2022, Ukraine and Russia combined represented a “low single-digit percentage of our total bookings,” and also mentioned that Eastern Europe represented a “high single-digit percentage of our total bookings.” Assuming that the current war between Russia and Ukraine does not spread to other parts of Europe on a large scale or does not even show signs of its end in the future, Booking’s share price could increase significantly in the future.
Second, Booking’s guidelines that “EBITDA margins in 2022 will be several points higher than we were in 2021” provided in the Q4 2021 results call were lower than expected by the market. At the Bank of America conference in early March 2022, BKNG explained that lower-than-expected EBITDA margins for fiscal 2022 could be attributed to a “time gap” and higher marketing spending “to rely on a recovering tourism market.”
The first factor is a timing difference, which is temporary in nature, and the BKNG emphasized at the BAC that this is “something you will return to when growth rates return to normal (ie normalized margin recovery). The second factor sends a strong signal that the company is investing more aggressively in order to take advantage of the opportunities that arise in the event of a possible recovery of the tourism market, which should be seen as positive.
Third, the market did not provide Booking with sufficient recognition for its ability and willingness to return more excess capital to its shareholders.
I estimate that BKNG still has approximately $ 9.9 billion remaining from its current share repurchase authorization, after having spent approximately half a billion dollars on share repurchases in the first two months of 2022, as announced in the call for earnings for fourth quarter. Booking said in a call that it hoped to continue to buy back $ 9.9 billion over the next three years. The remaining $ 9.9 billion share repurchase authorization is significant, accounting for approximately 11% of Booking’s current market capitalization.
In conclusion, I think that BKNG has several revaluation catalysts, such as a faster share repurchase rate, the results of increased marketing spending that pays off in the form of better-than-expected revenue growth or market share, and a possible solution to the geopolitical conflict between Russia and Ukraine.
In the following sections, I discuss two other travel events, Expedia and Airbnb.
Expedia is more US-focused and relatively cheaper than its counterparts
Expedia Group is also one of the leading OTAs besides Booking, as I mentioned in this article.
There are two key factors that make EXPE a good alternative to BKNG as a substitute for a recovery in travel. One of the key factors is that Expedia has more than 75% of its revenue for fiscal 2021 from the United States. For investors who believe that geopolitical conflicts in Europe will worsen, but the situation of COVID-19 is improving, they could prefer Expedia over Booking. Another key factor is relative valuation. Expedia is valued by the market on a consensus basis over the next twelve months as Enterprise Value-to-Revenue and EV / EBITDA multiples of 2.9-fold and 13.5-fold, respectively. S&P Capital IQ data. For comparison, Booking trades 5.3 times the consensus forward of corporate value to revenue in the next twelve months and 17.3 times the consensus forward EV / EBITDA for the next twelve months.
On the other hand, the price of EXPE shares increased significantly by + 71% compared to pre-pandemic price levels, which I pointed out earlier. Expedia has made a significant effort cost restructuring in recent years and the market consensus (according to S&P Capital IQ) expects Expedia’s EBITDA margins to improve from 17.7% in fiscal year 2019 (before the COVID pandemic) to 21.7%, 23.3% and 24.4% in fiscal year 2022, fiscal year 2023 and fiscal year 2024. However, the good development of Expedia’s share prices over the last two years indicates that its expected improvement in profitability in the coming years has been largely appreciated. In addition, EXPE deserves to be valued at lower multiples compared to BKNG, which boasts higher match EBITDA margins above 30%.
In short, leading OTAs are a good way to play recovery from travel, but I prefer booking to Expedia.
Airbnb is a game with a change in travel behavior
Returning to the article Criteo of March 18, 2022, to which we have already referred, the Shopper Story 2022 research report found that “travelers are planning more trips that provide room for flexibility”, with about 50% of them intending to ” to take more day trips, weekend trips and domestic holidays “as opposed to” overseas holidays “. This is a favorable trend for Airbnb, which is focusing on alternative accommodation.
The key driver of increased travel flexibility is likely to be the shift towards teleworking, which has been significantly accelerated by the coronavirus pandemic. March 7, 2022 Harvard Business Review a piece noted that “recent surveys show that 91% of teleworkers would like to continue their hybrid or remote work.” emphasized that “half of our business now lasts more than a week” and emphasized that it is likely that homes offered on the Airbnb platform will be preferred. over hotels when people decide to go on longer trips.
But the ABNB price is pretty much perfect. According to financial estimates drawn from S&P Capital IQ, is currently trading on a consensus basis in the next twelve months of EV / EBITDA and corporate value to revenues multiplying 45.6-fold and 12.2-fold. If current trends in travel behavior do not persist or if traditional OTAs are increasingly shifted to alternative accommodation, Airbnb’s share price may come under some pressure in the short term due to multiple downgrades. This means that ABNB is still the best representative for the alternative accommodation segment in the tourism market.
Nevertheless, BKNG remains my favorite selection of travel shares, taking into account various factors such as the relative attractiveness of the various shares in terms of valuation and the presence of revaluation catalysts.
The bottom line is that travel stocks should work better in 2022, taking into account the positive indicators in terms of airline reservations and baggage sales. My favorite travel event is Booking, because I think the company’s shares are valued incorrectly and there are catalysts that will eventually correct this incorrect valuation.