Booking’s Demand Lifting in 2023

We don’t plan to materially change Booking’s BKNG $3,050 fair value estimate, as stronger near-term sales growth is offset by higher spending over our 10-year forecast. We reiterate that Booking’s network (source of its narrow moat) is strengthening and that shares offer investors a compelling entry point.

The company continues to see strong demand, with fourth-quarter bookings of $27.3 billion ahead of our $25.5 billion preprint forecast. The bookings represented 44% year-over-year growth (58% on a constant-currency basis) or 132% of 2019′s level, up from 127% last quarter. We think Booking continues to benefit from prudent platform enhancements, such as integrating flights across more countries onto its network (flight ticket volume growth was 62% in the quarter), and adding payment capabilities, which were 45% of processed bookings versus 30% a year ago. Also, we believe its core accommodation business continues to perform well, evident by 40% growth in room nights, which were at 110% of 2019′s level versus 108% last quarter. Overall, the network is resonating with users, based on direct traffic mix increasing from last year and compared with 2019 (unquantified). As a result, Booking expects further demand growth in 2023, and we expect to increase our sales forecast to around a 15% lift from 12% prior for the year.

Operating margins (excluding a restructuring benefit) were 28.7%, surpassing our 28% estimate and last year’s 22.9%, in part due to lower marketing expense than we were expecting. We still expect margins to lift to around 30% in 2023, but plan to reduce our end of the decade figure to about 36% versus 37% prior, or roughly back to 2019′s level. We still think the company will be able to leverage its network advantage over the next few years but are choosing to be more aligned with management’s comments that margins will remain below 2019′s level, in part due to a mix shift to flights and payments and merchandising investments.