Booking stock (NASDAQ:BKNG) has sustained strong bullish momentum over the past year, with shares rallying by 43% during this period. As a leader in online reservations via its platforms like Booking.com, Kayak, Rentalcars.com, and OpenTable, the company is now reaping the rewards of a thriving travel industry. This trend appears poised to last, and combined with its high-margin business model, it is likely to transform Booking into a free cash flow powerhouse. Thus, I remain quite bullish on BKNG stock.
Booking’s Q1 Results Reflect a Thriving Travel Industry
Booking’s first-quarter performance vividly illustrates the thriving state of the travel industry. Globally, tourism rebounded remarkably, with levels surging to 97% of their pre-pandemic heights during Q1.
The picture is even more promising in Europe, Booking’s primary market. According to data from the European Travel Commission, foreign arrivals grew by 7.2%, accompanied by a 6.5% surge in overnight stays during the first three months of the year, surpassing 2019’s figures. This ongoing post-pandemic recovery in Europe is being predominantly propelled by strong intra-regional travel, notably fueled by Germany, France, Italy, and the Netherlands.
Booking’s Q1 results reflect these industry gains, with its consolidated revenues rising by 17% to $4.4 billion, marking the best first quarter in the company’s history. To underscore the ongoing strength of Booking’s trajectory, this surge follows a huge 40% revenue increase in the first quarter of the previous year. This time, the growth was propelled by a 9% year-over-year increase in room nights booked and a substantial uptick in connected transactions.
Expanding on the latter, more travelers entrusted Booking’s platforms to organise their journeys. Among these transactions, flights stood out as the most popular vertical, alongside accommodation bookings. Air ticket bookings through Booking’s platforms witnessed a notable 33% year-over-year surge, primarily driven by the expansion of Booking.com’s flight offerings, also fueling the top line.
Momentum to be Sustained in Q2
Moving into the second quarter, it seems that Booking’s strong momentum is set to persist. Management expects that room night growth compared to last year will benefit from the shift in Easter timing. Note that the ongoing, unstable geopolitical landscape in the Middle East is expected to be a headwind, resulting in some deceleration in room night growth versus Q1. However, management expects room nights to still grow by between 4% and 6%.
In any case, I think that management’s estimate is likely to be quite prudent for two reasons. First, based on their own remarks, April’s room night growth rate was above the high end of that range. Second, the Paris Olympics are likely to prove a strong tailwind for the travel industry — one that management seems to not have priced in.
When asked about the event in the post-earnings call, management mentioned that they don’t concentrate too much on one individual event. Yet, given the importance of the Olympics, the event could prove a decent booster to booking volumes.
Booking Is Transforming Into a Free Cash Flow Powerhouse
Booking’s Q1 results and momentum moving in Q2 support my thesis that the company is transforming into a free cash flow powerhouse. The company’s high-margin and capital-light business model has huge free cash flow potential. Accordingly, Booking’s top-line growth can easily fuel a powerful free cash flow conversion.
Wall Street expects Booking’s free cash flow to reach $7.2 billion for the full year and grow further to $8.2 billion in FY2025. This translates to a current and forward free cash flow yield of 5.6% and 6.5%, respectively. Further, based on expected sales of $23.2 billion and $25.2 billion for these two periods, we get free cash flow margins of about 31% and 33%, respectively.
Besides suggesting a free cash flow margin expansion, these margins themselves are truly remarkable, set to fuel shareholder valuation creation and the ongoing bullish momentum, in my view.
Is BKNG Stock a Buy, According to Analysts?
Looking at Wall Street’s view on the stock, Booking Holdings has a Moderate Buy consensus rating based on 19 Buys and seven holds assigned in the past three months. At $4,032.70, the average BKNG stock forecast suggests 6.1% upside potential over the next 12 months.
If you’re wondering which analyst you should follow if you want to buy and sell BKNG stock, the most accurate analyst covering the stock (on a one-year timeframe) is Doug Anmuth of JPMorgan (NYSE:JPM), with an average return of 25.38% per rating and a 94% success rate. Click on the image below to learn more.
Conclusion
Overall, Booking is currently riding the momentum of a thriving travel industry, as evidenced by its robust Q1 performance. This trend is likely to be sustained in the second quarter and throughout the rest of the year. Combined with the strengths of its high-margin business model, Booking’s free cash flow prospects remain exceptionally strong. Therefore, the company should continue driving shareholder value, leading the stock to sustain its bullish momentum.
