Booking Holdings Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited results compared with the corresponding 2022 periods. Booking Holdings operates online travel and related services through Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK, and OpenTable. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $5.462B | $4.294B | $9.240B | $6.989B |
| Operating income | $1.673B | $1.000B | $2.123B | $1.174B |
| Net income | $1.290B | $857M | $1.556B | $157M |
| Diluted EPS | $34.89 | $21.07 | $41.51 | $3.84 |
| Operating margin | 30.6% | 23.3% | 23.0% | 16.8% |
- Q2 revenue rose 27% as reported (approximately 28% on a constant-currency basis); first-half revenue rose 32%.
- Q2 operating income increased 67%; net income increased 51%. First-half net income rose sharply from 2022, when large equity investment losses weighed on results.
- Q2 merchant revenue increased 58% to $2.770B, reflecting stronger travel activity and continued migration from agency to merchant bookings. Agency revenue rose 6% to $2.429B; advertising and other revenue rose 8% to $263M.
- Q2 room nights increased 8.8% to 268M; first-half room nights increased 21.9% to 542M. Q2 total gross bookings rose 14.9% to $39.692B, while first-half gross bookings rose 27.9% to $79.119B.
- Q2 marketing expense was $1.801B, up 4%, but declined as a share of gross bookings to 4.5% from 5.0%, which management attributed to improved marketing returns and more direct traffic. Sales and other expenses rose 43% in Q2, largely from merchant transaction and call-center costs.
Cash flow, liquidity, and debt
- For the first half, operating cash flow was $4.626B, versus $4.379B in 2022. The increase in deferred merchant bookings and other current liabilities contributed $3.129B; accounts receivable increased $672M, primarily with higher business volumes.
- Investing activities provided $1.547B, including $1.737B of proceeds from investment sales and maturities. Financing activities used $3.787B, including $5.249B of cash share repurchases and $500M of debt repayment, partly offset by $1.893B of new debt proceeds.
- At June 30, cash and cash equivalents were $14.602B, short- and long-term investments totaled $1.080B, and management reported $15.7B in cash, cash equivalents, and investments. Total debt carrying value was $14.053B: $855M current and $13.198B long term. Current assets were $19.349B and current liabilities were $12.481B.
- Deferred merchant bookings were $6.040B, up from $2.223B at year-end; these advance customer payments are principally amounts estimated payable to travel providers and are mostly subject to refunds for cancellations.
- In May, the company issued €500M of 3.625% notes due 2028 and €1.25B of 4.125% notes due 2033, and entered a new five-year, $2.0B revolving credit facility. No revolver borrowings were outstanding at quarter-end. The $863M principal amount of 0.75% convertible notes due 2025 was classified as short-term debt because holders could convert during Q3.
- Management said existing cash and liquid resources should fund operations, capital expenditures, and other obligations for at least the next 12 months.
Changes, outlook, and notable items
- Merchant gross bookings grew 40% in Q2, while agency gross bookings fell 5%, primarily reflecting Booking.com's shift toward merchant processing. Merchant transactions were 53% of Q2 gross bookings, up from 44% a year earlier; management noted this model adds payment, chargeback, and related costs that can pressure margins.
- Management cited continued travel recovery, especially in Asia. Global room nights in Q2 were 9% above 2022 and 26% above 2019; constant-currency global accommodation average daily rates rose about 5% year over year.
- For Q3 2023, management assumed low-double-digit room-night growth year over year and expected gross-bookings growth to exceed room-night growth by about seven percentage points, revenue as a percentage of gross bookings to be slightly higher, and operating profit to increase.
- For full-year 2023, assuming room nights rise by a mid-teens percentage, management expected gross bookings to grow slightly more than 20%, revenue as a percentage of gross bookings to exceed 2022, and operating profit to exceed both 2019 and 2022. July room-night growth was about 20% year over year.
- Unusual investment items included the sale of the Meituan holding for $1.7B in February, with a $149M loss, and a $24M Q2 impairment of the Yanolja investment. First-half other income included $494M of interest and dividend income, partly offset by net equity-security losses of $167M and foreign-currency transaction losses of $101M. Q2 interest expense rose to $241M from $76M a year earlier.
- The company recorded a $47M estimated excise-tax liability related to 2023 share repurchases and bought back $5.336B of shares in the first half. Remaining repurchase authorization was $18.8B; management expected to use it within four years, assuming no major travel-market downturn.
- After quarter-end, the company paid approximately €93M to settle Italian VAT matters covering 2013–2022; the related liability was recorded at June 30. The European Commission issued objections to the proposed Etraveli acquisition; Booking submitted a proposed remedy in July, and regulatory approval remains uncertain.
Risks and contingencies
- Competition and consumer-protection investigations may lead to fines, damages, business-practice changes, or reputational harm. Disclosed matters include ongoing Swiss commission scrutiny, a Spanish investigation, and a Polish investigation opened in July 2023.
- Booking.com’s Dutch pension dispute remains unresolved. The company considers a loss probable but cannot reasonably estimate a loss range and has not accrued a liability. Its estimate of the maximum potential loss was €382M, excluding possible interest or penalties.
- Tax audits and disputes remain a risk. Italian transfer-pricing assessments totaled approximately €251M; the company expects resolution through a mutual agreement process and included €18M in unrecognized tax benefits. Other tax matters could exceed provisions.
- Other business risks include travel-demand changes, cancellations and marketing efficiency, competition and discounting, foreign-exchange and interest-rate movements, digital-services taxes and regulation, and increased costs associated with merchant transactions and alternative accommodations.
Investor verification priorities
- Track whether room-night and gross-bookings growth meet management’s Q3 and full-year assumptions, and whether revenue conversion and operating profit follow the stated outlook.
- Assess the margin and cash-flow effects of the continuing shift to merchant bookings, including payment costs, chargebacks, customer-service costs, and the seasonal growth and refund exposure of deferred merchant bookings.
- Review debt maturities, the convertible notes’ short-term classification, interest expense, and the use of proceeds from new notes and ongoing share repurchases.
- Monitor outcomes and potential financial exposure from the pension litigation, tax matters, competition investigations, and the Etraveli regulatory review.
- Consider the effect of investment valuation changes and one-time items when evaluating reported earnings; first-half 2022 earnings were particularly affected by equity-security losses.