Booking Holdings Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. The company operates online travel and related services through Booking.com, Priceline, agoda, Rentalcars.com, KAYAK and OpenTable.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4,676 | $2,640 | $7,977 | $5,558 |
| Operating income (loss) | $2,015 | $315 | $1,648 | ($478) |
| Net income | $769 | $801 | $547 | $224 |
| Diluted EPS | $18.60 | $19.49 | $13.22 | $5.44 |
| Operating margin | 43.1% | 11.9% | 20.7% | (8.6%) |
Revenue rose 77.1% in Q3 and 43.5% over nine months year over year, reflecting travel recovery and comparisons with pandemic-affected 2020. Q3 net income nevertheless fell 4.0%: other expense was $967 million, including $1,016 million of net losses on equity securities, principally Meituan and DiDi. For the nine months, net income improved despite $740 million of other expense, including equity-security losses and a $242 million loss on early debt extinguishment. The 2020 comparison included $1,062 million of goodwill impairment.
Room nights increased 43.9% in Q3 and 57.3% over nine months year over year; gross bookings increased 77.0% and 105.0%, respectively. Against 2019, however, Q3 room nights were down 18%. Q3 revenue was 19.7% of gross bookings; the nine-month ratio was 13.9%, affected by bookings for travel in later periods.
Operating cash flow was $2.541 billion for the nine months, versus $662 million in 2020. Capital expenditures were $203 million. Cash and cash equivalents were $11.643 billion at quarter-end; cash, cash equivalents and short- and long-term investments totaled $15.4 billion. Debt carrying value was approximately $11.0 billion, with $1.158 billion current and $9.876 billion long-term. The $2.0 billion revolving facility was undrawn, and the company reported compliance with its minimum-liquidity covenant.
Material changes and notable items
- Q3 marketing expense increased 88.4% year over year to $1.378 billion as demand recovered and the company increased brand marketing. Nine-month marketing expense rose 57.6% to $2.827 billion.
- Merchant gross bookings grew faster than agency bookings, reflecting expansion of Booking.com’s merchant model. This model adds payment-processing, fraud and customer-service costs and may pressure margins.
- The company issued €1.7 billion of low-coupon notes in March and used proceeds to redeem higher-coupon notes in April; it also paid $1.086 billion to settle the September 2021 convertible notes. Early redemption generated a $242 million loss.
- Management elected to return government assistance: $137 million of expense was recorded in 2021, and $107 million had been repaid by September 30. The 2021 nine-month comparison also reflects higher stock compensation and the absence of 2020 goodwill impairment.
- Annual goodwill impairment testing found no impairment in 2021. The company reported $2.6 billion of Meituan shares; Q3 unrealized losses materially affected earnings. It expected an approximately $250 million pretax unrealized gain on its Yanolja investment in Q4 following October transactions.
Outlook, risks and contingencies
Management said October room nights were down about 10% versus October 2019, improving from a 14% decline in September. It expected Q4 gross bookings to decline less than room nights versus 2019, revenue as a percentage of gross bookings to be below the 2019 level, and an operating profit in Q4. It could not reliably forecast Q4 room-night declines because of COVID-19 case trends and travel restrictions. No full-year numerical guidance was provided.
COVID-19 variants, renewed travel restrictions, cancellations and uneven international recovery remained significant risks. Other exposures include intense competition and reliance on search marketing, foreign-exchange and equity-price volatility, partner credit losses, regulation of online travel and alternative accommodations, cybersecurity and data privacy, and substantial debt. The company said it expected existing cash and liquid resources to fund operations, capital expenditures and obligations for at least 12 months, but future liquidity depends partly on operating performance, credit ratings and covenant compliance. Share repurchases under the existing authorization were not planned for 2021; management expected to consider resuming in early 2022 subject to recovery and liquidity requirements.
Material unresolved matters include a Dutch travel-industry pension dispute: the company said a loss was probable but not reasonably estimable; its estimated maximum exposure was €278 million ($322 million), excluding interest and penalties, and no liability was recorded. Tax disputes include French assessments previously paid under protest and contested, an Italian VAT audit report recommending a €154 million assessment, and a Swiss VAT assessment of approximately CHF50 million; the company recorded no liability for the latter two matters. Outcomes could adversely affect results and cash flows.
Key facts for investors to verify
- Whether travel recovery, October trends and the Q4 operating-profit expectation were borne out, particularly against 2019 comparisons.
- How much reported earnings continue to depend on volatile investment marks, and the realized or unrealized performance of Meituan, DiDi, Grab and Yanolja investments.
- Debt maturities, covenant headroom and the conditions governing any planned share repurchases.
- Developments and potential financial effects of the pension litigation, tax assessments and competition or consumer-protection proceedings.
- Whether merchant-model expansion, marketing investment and alternative-accommodation mix support growth without sustained margin deterioration.