Booking Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods unless otherwise noted. Amounts are in U.S. dollars.
Business context and operating trends
Booking Holdings operates Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK and OpenTable. Its results depend predominantly on travel reservations. The company reported a continued travel-demand recovery: Q3 room nights rose 31.5% year over year and were 8% above Q3 2019. Management said growth versus 2019 moderated from Q2, primarily due to lower growth in Europe. Global accommodation average daily rates increased approximately 15% year over year on a constant-currency basis.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $6.052 billion | $4.676 billion | $13.041 billion | $7.977 billion |
| Operating income | $2.583 billion | $2.015 billion | $3.757 billion | $1.648 billion |
| Net income | $1.666 billion | $769 million | $1.823 billion | $547 million |
| Diluted EPS | $41.98 | $18.60 | $45.00 | $13.22 |
| Operating margin | 42.7% | 43.1% | 28.8% | 20.7% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $4.381 billion | $2.541 billion |
Q3 agency revenue increased 11.7% to $3.203 billion; merchant revenue increased 61.2% to $2.614 billion. Nine-month agency revenue rose 41.6% and merchant revenue rose 103.8%. Merchant gross bookings grew faster than agency bookings, reflecting the expansion of merchant accommodation services. Q3 revenue was 18.8% of gross bookings, down from 19.7%; management cited merchandising investment, a higher airline-ticket mix and foreign exchange, partly offset by payment-facilitation revenue.
Q3 marketing expense increased 30.3% to $1.795 billion; sales and other expense rose 79.3% to $540 million, primarily from merchant transaction and call-center costs. Nine-month marketing expense was $4.679 billion, up 65.5%. Q3 net income included $336 million of net losses on equity securities in other expense, versus $1.016 billion of losses in Q3 2021. Nine-month equity-security losses were $1.142 billion versus $589 million.
Cash, debt and capital allocation
- At September 30, 2022, cash and cash equivalents were $9.021 billion; short- and long-term investments totaled $2.766 billion. Management reported $11.8 billion of cash, cash equivalents and investments, including equity investments.
- Cash and cash equivalents declined $2.106 billion from year-end 2021. Nine-month operating cash flow was $4.381 billion; investing cash outflow was $1.028 billion and financing cash outflow was $5.376 billion.
- Operating cash flow benefited substantially from a $3.591 billion increase in deferred merchant bookings and other current liabilities, partly offset by a $1.358 billion increase in accounts receivable.
- Debt carrying value was $9.184 billion, including $1.234 billion current and $7.950 billion long-term debt; outstanding principal was approximately $9.2 billion. The $2.0 billion revolving credit facility had no borrowings outstanding, and the company reported covenant compliance.
- The company repurchased $4.3 billion of shares during the first nine months and had $6.2 billion remaining under its authorization at September 30. It repurchased approximately $595 million more in October.
- Current assets were $12.410 billion and current liabilities were $8.543 billion. Deferred merchant bookings increased to $2.253 billion from $906 million at year-end.
Changes, outlook and risks
Revenue, bookings and earnings rose substantially year over year as travel demand recovered. Q3 revenue growth was 29.4%; total gross bookings increased 35.6% to $32.120 billion. Nine-month gross bookings increased 63.2% to $93.958 billion. Results were affected by a stronger U.S. dollar: international revenue grew 29% as reported in Q3, versus approximately 48% on a constant-currency basis. Nine-month effective tax rate increased to 26.2% from 15.8%.
Management’s Q4 2022 scenario assumed room-night growth of approximately 10% versus Q4 2019. On that assumption, it expected gross-booking growth versus 2019 to exceed room-night growth by about 15 percentage points, revenue as a percentage of gross bookings below Q4 2019, and operating profit below Q4 2019; operating profit would be higher absent adverse foreign-exchange effects. Management cautioned that near-term room-night demand remained difficult to predict. October room nights were approximately 12% above October 2019.
Key risks include travel demand and COVID-related disruption, foreign-exchange movements, inflation and competitive labor costs, marketing returns, increased merchant-processing costs, regulatory changes and competition investigations. The EU Digital Markets Act and Digital Services Act may add obligations if the company is designated a gatekeeper or very large online platform. The filing also describes significant tax and legal matters: French tax assessments and related uncertainty; Italian and Turkish tax disputes; and a Dutch pension-fund case for which the company estimated a potential maximum loss of approximately €326 million ($320 million), excluding interest and penalties, but recorded no liability because the loss range could not be reasonably estimated. The company recorded a $184 million impairment on its Yanolja investment in Q2 and warned further impairment could result from market or valuation changes.
Other notable items: the company recorded a $40 million loss in the first nine months from transferring certain customer-service operations to Majorel. A $1.1 billion euro-denominated note matured and was repaid in March 2022. The Inflation Reduction Act includes a 1% excise tax on share repurchases and a 15% corporate minimum tax on book income, both effective January 1, 2023; the company was evaluating potential impacts.
Important facts for investors to verify
- Whether travel demand, room-night growth and ADRs sustain the recovery, particularly in Europe and Asia, and how flexible bookings affect cancellations.
- How foreign-exchange movements and revenue mix affect reported growth, revenue take rate and operating profit.
- Whether operating cash flow remains strong after accounting for the large working-capital contribution from deferred merchant bookings.
- Future equity-investment valuations and potential impairment exposure, including Meituan and the Level 3 Yanolja valuation; Meituan’s market price had fallen 16% by November 1 versus September 30.
- Developments in French, Italian and Turkish tax proceedings and the Dutch pension litigation, including potential cash payments, recoveries or changes to recorded tax benefits.
- Share repurchases, debt maturities and compliance with the revolving-credit covenant and related repurchase restrictions.