Booking Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Booking Holdings operates online travel and travel-related services through Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK and OpenTable. Financial amounts below are in U.S. dollars; millions unless noted.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Total revenue | $3,778 | $2,695 | +40%; approximately +47% constant currency |
| Agency revenue | $1,782 | $1,450 | +22.9% |
| Merchant revenue | $1,752 | $1,050 | +66.9%; merchant gross bookings grew 81% |
| Advertising and other revenue | $244 | $195 | +24.6% |
| Operating income | $450 | $174 | Operating margin 11.9%, versus 6.5% |
| Net income (loss) | $266 | $(700) | Diluted EPS $7.00, versus $(17.10) |
| Operating cash flow | $2,889 | $1,695 | Included a $2,038 increase in deferred merchant bookings and other current liabilities |
| Cash, cash equivalents and investments | $15.3 billion | — | At March 31, 2023; approximately $10.6 billion held by international subsidiaries |
| Debt carrying value | $12,126 | $12,485 | $854 current and $11,272 long-term |
- Travel activity rebounded: room nights increased 38.3% to 274 million; rental car days rose 22.7% to 19 million; airline tickets increased 73.3% to 8 million. Room nights were 26% above Q1 2019.
- Total gross bookings increased 44.5% to $39.4 billion. Accommodation ADRs rose approximately 9% year over year on a constant-currency basis.
- Revenue as a percentage of gross bookings declined to 9.6% from 9.9%, reflecting merchandising investments, a higher airline-ticket mix and slower growth in advertising and other revenue.
- Marketing expense increased 32% to $1,517 million, but fell to 3.8% of gross bookings from 4.2%, supported by more direct traffic and higher performance marketing returns. Sales and other expense rose 60% to $542 million, partly due to merchant transaction and call-center costs.
Cash, debt and capital allocation
- Cash and cash equivalents were $14,140 million at quarter-end; short- and long-term investments were $359 million and $806 million, respectively. Operating cash flow was strong but benefited materially from booking-related working-capital inflows.
- The company repaid $500 million of notes at maturity and repurchased shares for $2,195 million during the quarter. The Board authorized an additional $20 billion repurchase program; remaining authorization was $21.9 billion. The company expects repurchases within four years, subject to credit-facility covenant compliance.
- The $863 million principal amount of 0.75% convertible notes due May 2025 was classified as current debt because holders could elect to convert beginning April 1, 2023. The $2 billion revolving facility had no borrowings outstanding; the company reported covenant compliance at March 31.
- Deferred merchant bookings were $4.5 billion, up from $2.2 billion at year-end. These are advance traveler payments, principally amounts payable to travel providers and the company’s estimated commissions and fees, and are mostly subject to refunds for cancellations.
Outlook, commentary and notable items
- Management reported strong April demand: room-night growth versus April 2019 was slightly above Q1’s 26%; year-over-year April growth was in the mid-teens.
- For Q2 2023, management assumed room nights would grow at a mid-single-digit rate year over year, and expected gross-booking growth about four percentage points above room-night growth, revenue as a percentage of gross bookings above Q2 2022, and operating profit above Q2 2022. These are expectations, not guarantees.
- Merchant bookings represented 51% of gross bookings, versus 40% a year earlier. Management sees payment flexibility and a more integrated “Connected Trip” as strategic benefits, while noting merchant processing, fraud, chargeback and service costs can pressure margins. Alternative accommodations also carry potentially higher service costs.
- Other income (expense), net improved to income of $47 million from an expense of $955 million. The prior-year period included $987 million of net equity-security losses. Q1 2023 included $133 million of net equity-security losses, including a $149 million loss on the sale of the Meituan investment; the sale generated $1.7 billion in proceeds. Interest and dividend income rose to $228 million, while interest expense increased to $194 million from $68 million.
- Material exposure includes foreign exchange, interest rates and equity prices. Competition, consumer-protection and tax proceedings may result in fines, damages or required business-practice changes. Booking.com received an EU Very Large Online Platform designation notice; the company also cited evolving EU digital-platform regulation and digital-services taxes.
- Italian tax matters include a potential VAT settlement liability of €71 million ($77 million) at March 31, 2023. A separate Italian transfer-pricing assessment totals approximately €251 million ($273 million); the company expects resolution through a mutual agreement process. In Turkey, the company recorded $11 million of liabilities following a tax amnesty law and continues to contest certain matters.
- A Dutch pension-fund dispute remains unresolved. The company considers a loss probable but could not reasonably estimate a loss range and recorded no liability; its estimated maximum exposure was approximately €364 million ($395 million), excluding possible interest and penalties.
- The proposed acquisition of Etraveli Group for approximately €1.6 billion ($1.8 billion) remained subject to closing conditions, including regulatory approvals. Management believes existing cash and liquid resources will cover operating activities, capital expenditures and other obligations for at least 12 months.
Most important facts for investors to verify
- Whether room-night and gross-booking momentum, April demand and the stated Q2 assumptions were sustained, and how actual results compared with the outlook.
- Whether revenue yield and operating margins stabilize as merchant mix and merchandising activity rise, given associated processing, service and marketing costs.
- How much operating cash flow reflects sustainable earnings versus timing-related increases in deferred merchant bookings and other working-capital liabilities.
- Debt maturities and potential conversion or cash-settlement implications of the May 2025 convertible notes, alongside buybacks and revolving-credit covenant requirements.
- Developments and potential financial impact of Italian and Turkish tax matters, the Dutch pension litigation, competition investigations, EU platform regulation and the pending Etraveli acquisition.