Sell-Side Debates Whether Investors Should Travel With Booking Holdings After Q4 Print

Online travel agency Booking Holdings Inc BKNG reported Wednesday with a fourth-quarter earnings beat and roughly in-line revenue.

The stock moved lower following the report, as the first-quarter earnings guidance fell short of expectations. The following is a roundup of how analysts on the Street reacted to the print.

The Analysts

• Wells Fargo's Robert Coolbrith maintains an Outperform rating on Booking Holdings with a price target lowered from $2,150 to $2,000.
• Bank of America Merrill Lynch's Justin Post maintains at Buy with a price target lowered from $2,400 to $2,130.
• D.A. Davidson's Tom White maintains at Neutral, price target lowered from $2,000 to $1,900.
• Guggenheim Partners' Jake Fuller maintains at Neutral.

Wells Fargo: 3 Positives, 2 Concerns

Booking's fourth-quarter report includes three positive takeaways and two areas of concern, Coolbrith said in a research report. On the positive front, the analyst named the following:

• Alternative accommodations accounted for around 20 percent of revenue at $2.8 billion and outgrew the business as a whole.
• Merchant bookings growth outgrew total bookings growth at 46 percent year-over-year.
• Despite some pressures, the company expects to show low double-digit EPS growth in 2019.

The following are two areas of concern, Coolbrith said:

• Management's commentary touched on multiple headwinds across Europe.
• A shift away from performance marketing is partly a "matter of necessity," as upstream performance marketing channels showed slower customer growth.

Related Link: Booking Holdings Shares Boosted By Q4 Guidance: The Sell-Side Reacts

Bank Of America: The Key Debate

Booking's outlook for deceleration in growth in the first quarter across all booking metrics and an acceleration in investments was a surprise to investors, Post said in a research report.

The key issue for investors is whether macro-economic weakness in Europe is contributing to the slowdown or if the company is seeing pressure from industry saturation and/or competition.

Despite a "disappointing" outlook for the first quarter, the negative sentiment is likely to bottom soon, the analyst said. Several positive signs exist that continue to support a bullish stance, like a favorable direct traffic mix, adoption of the merchant platform and strong alternative accommodation trends, he said.

The stock looks attractive at 14.3 times 2020 estimated EPS (backing out $130 per share in cash) versus the revised $2,130 price target, which is based on 18 times 2020 EPS, Post said. 

DA Davidson: Suboptimal Start

Booking's 2019 is off to a "suboptimal start," as challenges in Europe will pressure unit growth in the first quarter, Forte said in a research report. The company's strategy of continuing to invest in branding, customer acquisition, technology and property supply could help offset some of the revenue pressure in 2019, while growth and margin metrics will remain under pressure over the coming few quarters, the analyst said. 

Guggenheim: 2019 Outlook Below Low Expectations

Expectations for Booking's first-quarter guidance were low, but management's outlook "fell well shy" of expectations, with single-digit room night growth, flat revenue and a drop in EBITDA, Fuller said in a research report.

The revenue guidance also implies underlying growth of around 10 percent, which is notably below the approximate 16 percent seen in the fourth quarter, the analyst said. 

Booking's investment case is also negatively impacted by ramping investments and a larger foreign exchange headwind, Fuller said. Altogether, the analyst said a prior sentiment of "warming" to the stock is now overshadowed by a concerning outlook that will "weigh heavily" on sentiment.

Price Action

Booking Holding shares were down 10.96 percent at $1,697.04 at the close Thursday. 

Related Link: Guggenheim Revisits Booking Holdings After Closing Hotelscombined Acquisition