Online travel company Booking Holdings (BKNG, Financial) is experiencing a decline today despite reporting strong Q2 results. EPS and revenue increased by 11% and 7%, respectively. However, a muted Q3 outlook, as stated by CEO Glenn Fogel, is overshadowing these positive results. This outlook is also impacting competitors like Expedia Group (EXPE, Financial), Airbnb (ABNB, Financial), and Tripadvisor (TRIP, Financial), causing their shares to drop.
- Travel demand normalization has been a recurring theme this earnings season, following disappointing reports from airlines such as Delta Air Lines (DAL, Financial), American Airlines (AAL, Financial), and Southwest Airlines (LUV, Financial). Slowing domestic leisure travel demand and falling ticket prices due to an oversupply of seats have negatively impacted airlines' results, creating a headwind for BKNG.
- During the earnings call, Mr. Fogel mentioned that decreasing flight prices are affecting the company's bookings estimates. BKNG guided for Q3 bookings growth of 2-4%, down from Q2's 4% growth and below analysts' expectations.
- Consumers are becoming more cost-conscious and rethinking their travel plans, as reflected in a shrinking booking window. This metric measures the number of days between booking and arrival. A longer booking window indicates consumer confidence and provides better visibility and occupancy rates for travel companies.
- The shrinking booking window, which BKNG expects to expand less in Q3 than in Q2, led to soft Q3 room night growth guidance of 3-5%, missing analysts' estimates. This metric has steadily declined from +14.9% in Q3 2023 to +7.1% in Q2 2023.
- On a positive note, BKNG continues to manage expenses effectively, driving margins and earnings higher despite the challenging environment. Operating expenses increased by just 5.6% to $4.0 billion for the quarter.
The main takeaway is that BKNG's soft Q3 outlook signals a slowdown in the global travel market. As a leader in the online travel space, BKNG should still perform better than most, but achieving solid growth is becoming increasingly challenging.
