Booking Investors Should Have More Reservations

 Booking Investors Should Have More Reservations

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Leisure travel should return once the pandemic subsides, but many analysts expect business travel to take a sustained hit.

Leisure travel should return once the pandemic subsides, but many analysts expect business travel to take a sustained hit.

Photo: Kamil Krzaczynski/Reuters

Stock-market froth has spilled over even into decades-old technology mainstays. Online travel agent
Booking Holdings
has erased all of its losses this year in the stock market and has kept rising, even as its actual business remains deeply challenged.

Booking is currently trading at a 20-year valuation peak in terms of enterprise value to forward sales, even though Wall Street analysts expect its revenue to fall 55% this year and not recover to 2019 levels until 2023. Initiating coverage of Booking with an “underperform” rating, AB Bernstein analyst

Richard Clarke
observed that the stock appears to be trading on “past glories not future realities.”

One of Booking’s historical advantages now appears to be fraying: Until recently, Booking enjoyed higher margins and faster growth than its major OTA peers, according to Mr. Clarke, because most of its business was in hotel bookings, growing rapidly as online penetration of the business increased.

But thanks to the pandemic, Booking’s hotel business might no longer be the lucrative growth driver it once was. The hotel industry itself faces long-term challenges: For U.S. hotels, occupancy was nearly 23 percentage points lower for the week ended Dec. 12 versus the comparable week last year, while revenue per available room fell 57% year over year for the same period, according to STR, a hospitality data firm.

And while leisure travel should return once the pandemic subsides, many analysts expect business travel to take a sustained hit. Downgrading Booking’s stock last week, Citigroup analyst

Jason Bazinet
estimated that business travel accounted for about 20% of Booking’s pre-pandemic activity and could be permanently impaired by the rise of videoconferencing.

To complement its hotel business, Booking has been building up a meaningful alternative-accommodations presence, which it has said was the fastest-growing segment of its business even before the pandemic set in. Still, that expansion might well have been eclipsed by such competitors as
Expedia’s
Vrbo and
Airbnb
this year.

Airbnb leads the alternative-accommodations market in terms of listings, and the pandemic hasn’t helped Booking to gain ground. Booking lost some 87,000 alternative-accommodations listings in the first nine months of this year, according to regulatory filings, while Airbnb said in its S-1 that its own listings remained stable over the same period. Broad consumer awareness of the Airbnb brand seems only to have grown as a result of its initial public offering earlier this month. Booking’s chief executive,

Glenn Fogel,
awkwardly admitted in a CNBC interview that his own daughter thinks of Airbnb first when choosing a homestay rental.

But alternative-accommodations bookings in particular will likely be essential to Booking’s overall recovery as long as the hotel industry continues to struggle. Booking said overall room nights booked across its business were down 43% year over year in the third quarter, which is its seasonally strongest period. While this isn’t an entirely apples-to-apples comparison, the competitive shift in alternative accommodations is evidenced in that Airbnb’s room nights and experiences booked fell just 20% in the same period versus the year prior, before cancellations and alterations.

Buying Booking right now seems like a flight of fancy.

Write to Laura Forman at laura.forman@wsj.com

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