Booking Holdings Inc. quarterly report, Q2 FY2022

Booking Holdings Inc. — Q2 2022 Form 10-Q

Unaudited results for the quarter and six months ended June 30, 2022. Dollar amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted.

Business context and reporting period

Booking Holdings operates Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK and OpenTable. Its business depends primarily on travel reservations. Results improved as travel demand recovered from pandemic lows; the company also expanded merchant-based bookings, where it processes traveler payments.

Financial and operating highlights

• Q2 revenue increased 98.7% year over year; H1 revenue increased 111.7%. Q2 operating margin was approximately 23.3%, compared with a loss margin of approximately 2.6% a year earlier.
• Q2 revenue comprised agency revenue of $2,301, merchant revenue of $1,749 and advertising and other revenue of $244. Merchant revenue grew fastest, reflecting both demand recovery and expansion of merchant accommodation bookings.
• Q2 room nights rose 56.3% year over year to 246 million; gross bookings rose 57.3% to $34.5 billion. H1 room nights increased 73.0% and gross bookings increased 82.5% to $61.8 billion.
• H1 operating cash flow was $4.4 billion, substantially supported by working-capital movements, including a $4.9 billion increase in deferred merchant bookings and other current liabilities. Accounts receivable increased $1.1 billion.
• At June 30, cash and cash equivalents were $11.8 billion; cash, cash equivalents and short- and long-term investments totaled $14.2 billion. Debt principal was approximately $9.5 billion, including $1.3 billion classified as short-term. The $2.0 billion revolving facility had no borrowings outstanding; the company reported covenant compliance.
• Current liabilities were $10.3 billion, including $4.4 billion of deferred merchant bookings, versus $6.2 billion at year-end 2021. These booking-related balances are generally payable to travel providers and may be subject to cancellation refunds.
• The company repurchased $2.4 billion of shares in H1 and reported $8.2 billion of remaining authorization at June 30. It repurchased approximately $840 million more in July.

Material changes versus prior comparable periods

• Demand recovery drove materially higher reservations, gross bookings and revenues compared with 2021, when travel remained more affected by COVID-19.
• Q2 2022 other income was $220 million, including $181 million of net gains on equity securities. H1 other expense was $735 million, including $806 million of net losses on equity securities. These investment fluctuations materially affected reported pretax and net income.
• Marketing expense rose 75.8% in Q2 and 99.0% in H1 year over year. Sales and other expense increased 124.7% in Q2 and 152.5% in H1, driven principally by merchant transaction and call-center costs.
• H1 2021 results included a $242 million loss on early debt extinguishment and $137 million of expenses to return previously received government assistance. The company repaid approximately $1.1 billion of euro-denominated notes in March 2022.
• Yanolja investment impairment of $184 million reduced its carrying value to $122 million. The investment portfolio’s market sensitivity contributed to volatile other income and expense.

Outlook, commentary, risks and contingencies

• In July 2022, room nights were approximately 4% above July 2019, a moderation from June’s approximately 14% growth versus June 2019. Management said it could not accurately predict Q3 room nights. Assuming July’s growth level continued, it expected Q3 gross-bookings growth versus 2019 to be slightly less than 20 percentage points better than room-night growth, revenue as a percentage of gross bookings below Q3 2019, and operating profit slightly above Q3 2019, including negative foreign-exchange effects.
• Management cited continuing uncertainty from COVID-19 and travel restrictions, the war in Ukraine, inflation and foreign-exchange movements, competition and marketing returns, and the effects of merchant transactions and alternative accommodations on margins. It expects investment in marketing, technology and personnel to support longer-term growth, while acknowledging potential near-term margin pressure.
• Regulatory risks include competition and consumer-protection investigations, parity-clause restrictions, digital-services taxes, and potential obligations under the EU Digital Markets Act and Digital Services Act. The company also faces tax assessments and litigation in several jurisdictions.
• Booking.com’s Dutch pension-fund dispute is unresolved. The company considers a loss probable but has not accrued a liability because it cannot reasonably estimate the amount; the stated maximum potential loss was approximately €313 million ($328 million), excluding interest and penalties.
• French and Italian tax matters remain contested, alongside other tax exposures. The company disclosed a reasonably possible French VAT loss of approximately €20 million ($21 million); other assessments or proceedings could adversely affect results, cash flows or financial condition.
• The company said existing cash and liquid resources should fund operations and obligations for at least 12 months. Share repurchases remain subject to compliance with credit-facility leverage restrictions. The planned €1.6 billion Etraveli acquisition remained subject to closing conditions, including regulatory approvals.

Important facts for investors to verify

1. Whether travel demand and room-night growth after June continued to moderate, and how that affected Q3 bookings and results.
2. How much operating cash flow reflects sustainable earnings versus timing-related working-capital inflows, especially deferred merchant bookings.
3. The sensitivity of earnings and equity to publicly traded and private-company investments, including any further impairment or market-price changes.
4. Progress and potential financial outcomes of the pension dispute, French and Italian tax matters, competition reviews and new EU digital regulations.
5. Debt covenant headroom and the pace of share repurchases, including the effect of post-quarter repurchases and the pending Etraveli acquisition on liquidity.