Booking Holdings Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Booking Holdings operates online travel and related services through Booking.com, Priceline, agoda, Rentalcars.com, KAYAK and OpenTable. Results remained severely affected by COVID-19 restrictions and reduced travel demand. Comparisons with Q1 2020 are distorted because the pandemic did not significantly affect the full quarter in 2020.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1.141 billion | $2.288 billion | Down 50.2% |
| Operating loss | $311 million | $309 million | Loss broadly unchanged |
| Net loss | $55 million | $699 million | Loss narrowed |
| Basic and diluted loss per share | $1.34 | $17.01 | Loss per share narrowed |
| Cash used in operations | $207 million | $380 million | Outflow narrowed |
| Gross bookings | $11.935 billion | $12.393 billion | Down 3.7% (about 6% constant currency) |
| Room nights | 99 million | 124 million | Down 20.1% |
- Agency, merchant, and advertising and other revenue were $717 million, $373 million and $51 million, respectively; declines versus Q1 2020 were 49.7%, 43.4% and 75.1%. Advertising and other revenue was also affected by OpenTable fee waivers that ended March 31, 2021.
- Operating expenses totaled $1.452 billion. Marketing expense fell 45.9% to $461 million, while personnel expense rose 14.0% to $552 million, including $109 million of stock-based compensation versus $6 million a year earlier. The prior-year personnel figure benefited from a $73 million reduction in stock-based compensation expense.
- Operating margin was approximately negative 27.3%, versus negative 13.5% in Q1 2020, calculated as operating loss divided by revenue. The higher loss margin reflects the sharp revenue decline against costs that did not fall proportionately.
- Other income, net, was $131 million versus an expense of $349 million. Q1 2021 included $88 million of foreign-currency transaction gains and $32 million of net gains on marketable equity securities, principally associated with Meituan. Q1 2020 included $307 million of marketable-equity losses and a $100 million Didi investment impairment.
- The $223 million income tax benefit produced an 80.2% effective tax rate on the pretax loss, versus a $23 million benefit and 3.1% rate in Q1 2020. The 2021 rate reflected, among other factors, international tax rates, nondeductible expenses and discrete U.S. tax expense, partly offset by the Dutch Innovation Box benefit.
- At March 31, cash and cash equivalents were $12.151 billion; short-term investments were $500 million and long-term investments were $3.788 billion. Management reported $16.4 billion in cash, cash equivalents and short- and long-term investments. Current liabilities were $6.468 billion.
- Debt had a $13.835 billion carrying value: $3.905 billion current and $9.930 billion long-term. Outstanding debt principal was approximately $14.0 billion. The company issued €1.7 billion of low-coupon notes in March and used the proceeds to fund April redemptions of the 2025 and 2027 notes. It paid about $2.0 billion to redeem those notes in April and expects to record a $242 million pretax extinguishment loss in Q2 2021.
- Cash used in investing activities was $65 million, mainly property and equipment additions. Financing activities provided $1.869 billion, principally from $2.015 billion of debt issuance proceeds. Cash and cash equivalents increased to $12.151 billion from $10.562 billion at year-end.
Changes, outlook and management commentary
- Against Q1 2020, gross bookings declined only 3.7% while revenue fell 50.2%; revenue as a percentage of gross bookings was 9.6%, down from 18.5%. Management attributed the gap partly to bookings for travel in later quarters, when related revenue is recognized, and to the timing effects of cancellations in the prior-year period.
- Management said room-night trends in Q1 2021 improved relative to Q4 2020 when both are compared with their respective 2019 quarters. Improvement was driven by domestic travel in Europe and the United States; the United States had positive room-night growth versus Q1 2019. International travel remained limited.
- April 2021 room nights declined less than in Q1 2021. If recent trends continued, management expected Q2 2021 room nights, gross bookings and revenue to decline less versus Q2 2019 than the respective Q1 declines versus Q1 2019, and expected a smaller operating loss than in Q1. These are conditional expectations, not quantified guidance.
- The company expects COVID-19 and its effects to materially harm the business during the pandemic and subsequent recovery. Vaccine distribution, new variants, restrictions, consumer confidence, cancellations and travel patterns remain uncertain; trends improved in the United States and Europe in April but worsened in Asia.
- Workforce reductions and attrition reduced headcount 29% year over year to approximately 19,400 at quarter-end. The company expects about $370 million of annualized personnel cost savings and approximately $20 million of additional restructuring expense in the remainder of 2021. It recorded $8 million of restructuring expense in Q1.
- Management stated that existing cash and liquid resources should fund operating activities, capital expenditures and other obligations for at least the next 12 months. The $2.0 billion revolving facility had no borrowings outstanding; the company reported compliance with its $4.5 billion minimum liquidity covenant. Credit-facility terms restrict cash distributions and most share repurchases subject to liquidity and covenant conditions.
- The company does not intend to resume repurchases under its existing authorization until it has better visibility into the recovery. Q1 share repurchases were for employee tax withholding obligations, not the public repurchase program.
Risks, contingencies and unusual items
- Travel recovery and business model: Results depend heavily on travel demand and accommodation partners. Further restrictions, cancellations, partner financial distress, changing consumer behavior or a prolonged recovery could reduce bookings and cash flow. Alternative accommodations, merchant payment processing and the Connected Trip strategy may increase costs or pressure margins.
- Debt and liquidity: The company has substantial debt, including a $1.0 billion convertible note due September 2021. Holders may convert that note beginning June 15, 2021 regardless of share price. Access to financing and compliance with future debt covenants depend on operating performance and market conditions.
- Legal and tax matters: In April 2021, the Netherlands Supreme Court held that Booking.com meets the definition of a travel intermediary for purposes of a pension scheme dispute; further proceedings remain, no liability was recorded at March 31, and the company estimated a maximum potential loss of about $300 million excluding interest and penalties. French tax assessments remain contested; the company estimated a reasonably possible VAT loss of approximately €20 million. Italian transfer-pricing assessments and audits are ongoing. Turkish assessments of about $94 million are contested, with no liability recorded.
- Competition and regulation: Parity-practice investigations, consumer-protection requirements, potential commission reductions and evolving rules for online platforms and alternative accommodations could require business changes, costs or fines. Accrued liabilities for potential fines associated with parity arrangements were $22 million.
- Investments and valuation: Long-term investments included approximately $3.1 billion of Meituan equity securities; market-price movements can materially affect reported earnings. The Didi investment remained carried at $400 million after its 2020 impairment. No new impairment indicators were identified for goodwill or Didi as of March 31, 2021, but future impairments remain possible.
- Other items: The company had paid approximately $403 million to French tax authorities while contesting earlier assessments; the payment is recorded in other assets and is refundable with interest to the extent the company prevails. It also disclosed unrecognized tax benefits of $100 million. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether travel recovery, room nights and gross bookings continue to improve, particularly outside the United States and Europe, and whether booking growth converts into recognized revenue and operating cash flow.
- The timing and cash impact of the April 2021 $2.0 billion note redemption, the expected $242 million pretax extinguishment loss, and the September 2021 convertible-note maturity and conversion rights.
- Whether the company maintains covenant compliance and its stated liquidity position as operating cash flow, refunds and working-capital needs evolve.
- Developments in the Dutch pension litigation and French, Italian and Turkish tax matters, including potential additional liabilities, deposits or cash payments.
- Changes in the value of the Meituan investment and whether COVID-19 conditions or other developments trigger further impairment charges.