Booking Holdings Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter results are included below where disclosed. Unless stated otherwise, financial amounts are in U.S. dollars.
Business context
Booking Holdings operates Booking.com, KAYAK, priceline, agoda, Rentalcars.com and OpenTable, connecting consumers with travel providers and restaurants. Accommodation reservations are the principal business. International operations generated approximately 90% of 2019 revenue; approximately 87% of revenue related to online accommodation reservations.
Financial and operating results
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Revenue | $15.066 billion | $14.527 billion | Up 3.7% reported; approximately 7% at constant currency |
| Operating income | $5.345 billion | $5.341 billion | Nearly flat; operating margin approximately 35.5%, versus 36.8% |
| Net income | $4.865 billion | $3.998 billion | Up 21.7%; included a $745 million unrealized gain on marketable equity securities, versus a $367 million loss in 2018 |
| Diluted earnings per share | $111.82 | $83.26 | Up approximately 34%; affected by investment gains and share repurchases |
| Operating cash flow | $4.865 billion | $5.338 billion | Down $473 million, principally reflecting the French tax-assessment payment |
| Cash and cash equivalents | $6.312 billion | $2.624 billion | At year-end |
| Cash, cash equivalents and short- and long-term investments | $11.8 billion | Not stated here on a comparable basis | Includes marketable securities and strategic investments |
| Debt | $8.7 billion principal outstanding | $8.8 billion | $988 million carrying value of convertible notes due June 2020 classified as current |
Net margin was approximately 32.3% in 2019, compared with 27.5% in 2018; the improvement reflects, in significant part, the year-over-year swing in unrealized investment gains and losses. The company reported an 18.3% effective tax rate, compared with 17.3% in 2018. The Dutch Innovation Box Tax benefit reduced 2019 income tax expense by $443 million.
Room nights increased 11.2% to 845 million, rental-car days rose 4.6% to 77 million, and airline tickets increased 3.7% to 7 million. Gross bookings grew 4.0% reported, approximately 8% at constant currency, to $96.4 billion. Merchant gross bookings rose 37.1%, while agency gross bookings declined 4.4%, principally as Booking.com shifted transactions to the merchant model. Constant-currency accommodation ADRs declined 2%.
Fourth-quarter revenue was $3.339 billion, versus $3.213 billion in 2018; net income was $1.171 billion, versus $646 million. The filing does not provide clear fourth-quarter operating income or margin values in the quarterly data presented.
Material changes and capital allocation
- Merchant revenue rose 28.2% to $3.830 billion, while agency revenue declined 3.5% to $10.117 billion. Advertising and other revenue increased 5.6% to $1.119 billion.
- Performance marketing expense was $4.419 billion, down 0.6%; as a share of revenue it declined to 29.3% from 30.6%. Brand marketing expense increased 7.5% to $548 million.
- Sales and other expense rose 15.1% to $955 million, partly reflecting higher merchant-payment volumes. Personnel expense increased 10.0% to $2.248 billion; general and administrative expense rose 14.2% to $797 million.
- The company repurchased 4.445 million shares for $8.153 billion during 2019 and had $11.5 billion of remaining repurchase authorization at year-end. It does not expect to pay cash dividends for the foreseeable future.
- A new $2.0 billion, five-year revolving credit facility was entered in August 2019; there were no borrowings outstanding at year-end. The company stated that existing cash and liquid resources should fund operations and obligations for at least the next 12 months.
- Operating cash flow funded $368 million of property and equipment purchases; net cash used in financing was $8.220 billion, principally due to repurchases. The company reported no off-balance-sheet arrangements expected to materially affect its financial condition or liquidity.
Outlook, risks and unusual items
- Coronavirus: The filing reported that the outbreak had already caused a significant decline in travel demand and increased cancellations, especially in China and other Asian markets, beginning in January 2020. Management stated that the outbreak was likely to have a negative and material impact on business, growth and results, but its full extent was unknown. No numerical 2020 guidance was provided.
- Growth and margins: Management expected growth rates generally to decelerate as the business and online travel markets mature. Connected Trip development and expansion into alternative accommodations and lower-margin services may pressure near-term margins; merchant processing growth also increases payment, fraud and service costs.
- Competition and customer acquisition: Competition from Google and other technology platforms, online travel companies, hotel brands and alternative-accommodation marketplaces may increase marketing costs, pricing pressure and risk to market share. Management cited declining ADR trends and ongoing competitive pricing.
- Taxes and litigation: Booking.com paid $403 million in January 2019 to contest French assessments for 2003–2012; the payment is recorded as an asset and is not an admission of liability. Further French assessments included $79 million for 2013 and $44 million against its French subsidiary. Italian and Turkish assessments were also disclosed. The company recorded no liability for these contested assessments. The auditor identified tax assessments of $526 million, $118 million and $91 million for France, Italy and Turkey, respectively.
- Other contingencies: A Dutch pension-fund case could result in an estimated maximum loss of approximately $200 million, excluding interest and penalties, if all claims were upheld; no liability was recorded. The company accrued $67 million for certain travel transaction taxes and estimated up to $25 million of reasonably possible additional loss. A $61 million Dutch wage-related tax payment was expensed in 2019 to correct an immaterial prior-period error.
- Other notable items: 2019 personnel expense included the $61 million wage-tax correction; general and administrative expense included $36 million related to French digital services taxes. A $1.0 billion convertible note matures in June 2020, and holders could convert beginning March 15, 2020. The Dutch Innovation Box benefit is material and could change with tax law or eligibility.
- Reporting comparability: The company adopted the current revenue-recognition standard in 2018 and no longer presents cost of revenue or gross profit; 2019 and 2018 revenue is comparable to gross profit under the prior presentation. It adopted the lease standard in 2019, recognizing $620 million of operating lease assets and $623 million of lease liabilities at year-end.
Important facts for investors to verify
- Track travel demand, cancellations, ADRs and bookings following the coronavirus outbreak, including the duration and geographic spread of the impact.
- Separate underlying operating performance from volatile investment marks: 2019 net income included a $745 million unrealized gain, and 2018 included a $367 million unrealized loss.
- Monitor merchant-model growth alongside payment-processing costs, chargebacks, fraud expense and revenue as a percentage of gross bookings.
- Review outcomes and potential cash requirements from French, Italian and Turkish tax proceedings, the Dutch pension litigation and other tax contingencies.
- Assess the June 2020 convertible-note maturity or conversion, debt service, and the scale and timing of share repurchases relative to liquidity and other investment needs.
- Confirm the continuing availability and terms of the Dutch Innovation Box Tax benefit and the effect of digital services taxes and other tax-law changes.