Booking Holdings Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Booking Holdings operates Booking.com, Priceline, agoda, Rentalcars.com, KAYAK and OpenTable. Its results remain highly dependent on travel demand; most revenue relates to online accommodation reservations.
Key financial and operating metrics
| Metric | Q1 2022 | Q1 2021 | Change/context |
|---|---|---|---|
| Revenue | $2.695bn | $1.141bn | +136.3% |
| Operating income (loss) | $174m | ($311m) | Operating margin 6.5%, versus (27.3%) |
| Net income (loss) | ($700m) | ($55m) | Net margin (26.0%), versus (4.8%) |
| Operating cash flow | $1.695bn | ($207m) | Strongly supported by working-capital changes |
| Gross bookings | $27.293bn | $11.935bn | +128.7% |
| Room nights | 198m | 99m | +99.7%; Q1 2022 was 9% below Q1 2019 |
Agency revenue was $1.450bn (+102.3%); merchant revenue $1.050bn (+181.5%); advertising and other revenue $195m (+283.1%). Merchant gross bookings rose 240.6%, reflecting both demand recovery and expansion of Booking.com’s merchant services. Accommodation ADRs were up approximately 22% year over year on a constant-currency basis. Revenue was 9.9% of gross bookings, compared with 9.6%.
Operating expenses totaled $2.521bn, including marketing of $1.147bn (+148.8%), sales and other expenses of $339m (+203.8%), and personnel of $596m (+8.1%). Marketing was 42.5% of revenue and 4.2% of gross bookings. Operating improvement reflected the substantial travel recovery, although marketing and merchant transaction costs increased with activity.
The net loss included $987m of net losses on equity securities, principally Meituan, Grab and DiDi, recorded in other expense; the comparable 2021 period included $36m of net gains. Other expense, net, was $955m versus $131m of income. Cash operating performance and reported net income therefore diverged materially. The Q1 2022 effective tax rate was 17.6%, versus 80.2% in Q1 2021.
Liquidity, debt and capital allocation
At March 31, 2022, cash and cash equivalents were $10.549bn and short- and long-term investments totaled approximately $2.224bn, for combined cash and investments of about $12.8bn. Current assets were $12.875bn and current liabilities $7.478bn; deferred merchant bookings rose to $2.765bn from $906m at year-end, reflecting advance traveler payments, which may be subject to cancellation refunds.
Debt principal was approximately $9.8bn; carrying value was $9.768bn, including $1.333bn current and $8.435bn long term. The company repaid about $1.1bn of euro-denominated notes at maturity during the quarter. Its $2bn revolving facility had no borrowings outstanding, and the company reported covenant compliance. Operating cash flow was $1.695bn, investing cash outflow $121m, and financing cash outflow $2.139bn, including $1.1bn of debt repayment and approximately $1.0bn of share repurchases. Cash and restricted cash decreased by $574m.
Material changes, outlook and risks
- Recovery and outlook: Management said Q1 room nights were 9% below Q1 2019, improving from a 21% shortfall in Q4 2021. April 2022 room nights were approximately 10% above April 2019. For Q2 2022, management expected an operating profit, gross-bookings growth versus Q2 2019 to exceed room-night growth by about 20 percentage points, largely due to higher ADRs, and revenue as a share of gross bookings to be below Q2 2019. Management cautioned that it could not accurately predict Q2 room nights given COVID-19 and the Ukraine conflict.
- Ukraine and COVID-19: The company suspended travel bookings in Russia and Belarus in March, leading to lost bookings and elevated cancellations. It reported a temporary deterioration in European trends after the invasion, followed by improvement. Further conflict, sanctions, travel restrictions, new COVID-19 variants or changes in travel behavior could harm demand and operations.
- Unusual items and investments: A $36m charge followed the classification of customer-service-operation assets and liabilities for transfer to Majorel as held for sale. Publicly traded equity investments were approximately $1.9bn at quarter-end; a hypothetical 10% decline in public and private equity investment values would have caused an estimated $220m pretax loss. DiDi announced plans to consider delisting its U.S. ADSs; by May 3, DiDi and Grab share prices were down 20% and 10%, respectively, from March 31.
- Strategic commitments: The proposed Etraveli acquisition, announced at approximately €1.6bn ($1.8bn), remained subject to closing conditions including regulatory approvals. The Getaroom acquisition’s purchase-price allocation remained provisional.
- Contingencies: Booking.com faces tax disputes in France, Italy and Turkey, and an Italian VAT audit report recommended a €154m ($171m) assessment that was not a formal assessment; no liability was recorded for that report. In a Dutch pension-fund dispute, the company said a loss was probable but not reasonably estimable and recorded no liability; its estimated maximum exposure was €301m ($335m), excluding interest and penalties.
- Capital returns and regulation: The company had $9.5bn remaining under its repurchase authorization and expected to complete repurchases over three years, subject to continued recovery and liquidity/covenant conditions. A credit-facility amendment requires at least $6bn of pro forma liquidity for distributions and repurchases before specified later covenant tests. Competition, consumer-protection, digital-platform and privacy regulation may increase costs or require business changes.
- Other operating pressures: Management cited lower marketing returns versus Q1 2021, higher talent and compensation costs, and potential near-term margin pressure from Connected Trip investment, merchant transactions and alternative accommodations. The company stated existing liquidity should fund operations and obligations for at least 12 months.
Most important facts for investors to verify
- Whether travel recovery and room-night trends continue, particularly amid geopolitical and pandemic uncertainty.
- How much reported earnings volatility stems from equity-investment marks, and subsequent performance of Meituan, Grab and DiDi holdings.
- Cash conversion and the sustainability of operating cash flow, including the effect of deferred merchant bookings, cancellations and refunds.
- Debt maturities, covenant compliance and the conditions governing further repurchases and distributions.
- Developments in tax and pension proceedings, the Etraveli approval process, and other regulatory or competition matters.