As the world recovers from the pandemic and travel restrictions are gradually lifted, the demand for travel services is expected to surge. This increased demand could lead to higher revenues and profits for travel companies, translating into higher stock prices.
Given this backdrop, it could be a wise choice to invest in fundamentally sound travel services stocks Booking Holdings Inc. (BKNG), Expedia Group, Inc. (EXPE), and Tripadvisor, Inc. (TRIP), as they have the potential to capitalize on the current growing demand for travel.
Despite the impact of inflation and rising living costs, traveling seems to be a notable area where consumers are reluctant to make any cutbacks. Based on a report from the World Travel and Tourism Council and Trip.com, nearly 31% of travelers expressed their intention to increase their travel expenditure this year compared to 2022.
In addition, according to EXPE’s Summer Travel Forecast, flight searches are up 25% year-over-year overall for June through August, and interest is up triple digits for international destinations across Europe and Asia.
Moreover, as per TRIP’s latest Seasonal Travel Index, 55% of the surveyed participants intend to spend more on travel in the next few months compared to the same period last year, with over three-quarters of those surveyed (78%) planning leisure trips between June and August.
Furthermore, revenue in the travel & tourism market is projected to reach $854.80 billion in 2023. It is expected to reach $1.02 trillion by 2027, growing at a 4.4% CAGR. Also, the global travel agency services industry’s revenue is expected to be $474.70 billion in 2023, growing at a CAGR of 9.9%.
These figures reveal a sweet spot for travel services companies to capitalize on the industry’s tailwinds. Thus, investing in quality stocks like BKNG, EXPE, and TRIP could be profitable.
Let’s look at the fundamentals of the above-mentioned stocks in detail:
Booking Holdings Inc. (BKNG)
BKNG is engaged in the provision of travel and restaurant online reservation and related services worldwide. The company operates Booking.com, which offers online accommodation reservations; Rentalcars.com, which provides online rental car reservation services; and Priceline, which offers online travel reservation services.
BKNG’s total revenues increased 40.2% year-over-year to $3.78 billion in the first quarter (ended March 31, 2023), while its operating income rose 158.6% from the year-ago value to $450 million.
The company’s non-GAAP net income grew 173.3% and 197.4% from the prior-year quarter to $440 million and $11.60 per share, respectively. Also, its adjusted EBITDA increased 89% from the year-ago value to $586 million.
Street expects BKNG’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 20.4% and 51% year-over-year to $5.17 billion and $28.82, respectively. Moreover, it surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
BKNG’s revenue and net income have increased at CAGRs of 7.8% and 5.8%, respectively, over the past three years, while its levered free cash flow has improved at a 32% CAGR.
The stock’s trailing-12-month levered FCF margin and ROCE of 37.57% and 147.75% are significantly higher than the industry averages of 2.92% and 10.71%, respectively. Also, its trailing-12-month net income margin of 22.14% is 405.9% higher than the 4.38% industry average.
BKNG’s shares have gained 30.5% over the past six months to close the last trading session at $2,630.82.
BKNG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum and Sentiment. In the 56-stock Internet industry, it is ranked #8. To see additional POWR Ratings of BKNG for Growth, Value, and Stability, click here.
Expedia Group, Inc. (EXPE)
EXPE is an online travel operating through Retail; B2B; and trivago segments. The company offers travel products and services, a loyalty program, hotel accommodation, advertising, and media services under various brands: Brand Expedia, Hotels.com, Vrbo, Orbitz, Travelocity, ebookers, Wotif Group, and Expedia Partner Solutions.
On April 4, EXPE introduced a new feature that employs Artificial Intelligence (AI) technology ChatGPT to aid in trip planning, which is presently undergoing beta testing. This conversational trip planning powered by ChatGPT demonstrates the company’s rapid evolution and is expected to create a seamless experience for its members from planning to post-booking.
Peter Kern, Vice Chairman and CEO of EXPE, said, "By integrating ChatGPT into the Expedia app and combining it with our other AI-based shopping capabilities, like hotel comparison, price tracking for flights and trip collaboration tools, we can now offer travelers an even more intuitive way to build their perfect trip."
On March 30, Wheel the World, a travel booking platform designed for wheelchair users, partnered with EXPE to integrate their API, providing a comprehensive and smooth travel experience for travelers with disabilities. By offering an all-inclusive travel booking platform, this solution could be beneficial for the companies.
For the first quarter that ended March 31, 2023, EXPE’s revenue increased 18.5% year-over-year to $2.67 billion. Its adjusted EBITDA grew 6.9% from the year-ago value to $185 million, while its free cash flow increased 3.1% year-over-year to $2.92 billion. The company’s total current assets and cash and cash equivalent amounted to $12.13 billion and $5.90 billion, representing an increase of 8.8% and 6.3% compared to $11.15 billion and $5.55 billion for the period ended March 31, 2022, respectively.
The consensus EPS estimate of $2.31 for the second quarter (ending June 2023) represents a 17.7% improvement year-over-year. The consensus revenue estimate of $3.37 billion for the current quarter represents a 6% increase from the same period last year. Also, it surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past three years, EXPE’s EBITDA and EBIT have grown at 8.7% and 18.2% CAGRs, respectively. Moreover, its total assets have grown at a 7% CAGR over the same period.
EXPE’s trailing-12-month levered FCF margin of 21.35% is 631.2% higher than the 2.92% industry average. Likewise, its trailing-12-month gross profit margin of 85.93% is 144.5% higher than the industry average of 35.15%.
The stock has gained 2.1% year to date to close the last trading session at $89.45.
EXPE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Growth and Momentum. Within the same industry, it is ranked #5. Click here to see the other ratings of EXPE for Stability and Sentiment.
Tripadvisor, Inc. (TRIP)
TRIP functions as an online travel company through its three segments: Tripadvisor Core; Viator; and TheFork. By leveraging its technology platforms and capabilities, it offers content, travel guidance products and services, and two-sided marketplaces for experiences, accommodations, restaurants, and other travel categories.
TRIP’s revenue increased 41.6% year-over-year to $371 million in the first quarter (ended March 31, 2023), while its adjusted EBITDA rose 22.2% from the year-ago value to $33 million.
The company’s non-GAAP net income amounted to $7 million and $0.05 per share versus a non-GAAP net loss of $13 million and $0.09 per share, respectively, in the same period last year. Also, its non-GAAP free cash flow increased 65.3% from the prior-year quarter to $119 million.
Analysts expect TRIP’s revenue to increase 10.1% year-over-year to $505.26 million for the third quarter (ending September 2023). Its EPS is expected to improve by 95.8% year-over-year in the same period. Moreover, it topped the revenue estimates in each of the trailing four quarters, which is promising.
Its revenue and total assets have grown at a 3% and 3.4% CAGR over the past three years, respectively. Over the same period, its levered FCF improved at a CAGR of 71.3%.
The stock’s trailing-12-month gross profit margin of 92.32% is 85.5% higher than the 49.8% industry average. In addition, its trailing-12-month levered FCF margin of 26.30% compares to the industry average of 7.36%.
The stock lost marginally intraday to close the last trading session at $15.58.
It’s no surprise that TRIP has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Growth, Value, and Momentum. Out of 56 stocks in the same industry, it is ranked #10.
In addition to the POWR Ratings we stated above, we also have TRIP’s ratings for Stability and Sentiment. Get all TRIP ratings here.
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BKNG shares were trading at $2,648.01 per share on Monday afternoon, up $17.19 (+0.65%). Year-to-date, BKNG has gained 31.40%, versus a 8.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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