Booking Holdings Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; filed November 2, 2023. Booking Holdings operates Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK, and OpenTable, connecting travelers with travel providers and earning most revenue from online travel reservations.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $7.341B | $6.052B | $16.581B | $13.041B |
| Operating income | $3.103B | $2.583B | $5.226B | $3.757B |
| Net income | $2.511B | $1.666B | $4.067B | $1.823B |
| Diluted EPS | $69.80 | $41.98 | $110.02 | $45.00 |
| Operating margin | 42.3% | 42.7% | 31.5% | 28.8% |
Q3 revenue grew 21.3% year over year (about 18% on a constant-currency basis); nine-month revenue rose 27.1%. Operating income grew 20.1% in Q3 and 39.1% for the nine-month period. Net income rose 50.7% and 123%, respectively. Nine-month earnings comparisons were substantially affected by other income: 2023 included $783 million of interest and dividend income and $151 million of net equity-security losses, versus $88 million and $1.142 billion of losses, respectively, in 2022. The 2023 period also included a $149 million loss on the sale of Meituan shares.
Q3 gross bookings were $39.813 billion, up 24.0%; nine-month gross bookings were $118.932 billion, up 26.6%. Q3 room nights increased 14.9% to 276 million; nine-month room nights rose 19.5% to 818 million. Q3 accommodation ADRs increased about 4% on a constant-currency basis. Merchant gross bookings grew 53.5% in Q3, and merchant transactions represented 56% of Q3 gross bookings, versus 45% a year earlier.
Marketing expense increased 12.7% to $2.022 billion in Q3 and 14.1% to $5.340 billion for nine months, but declined as a share of gross bookings, reflecting higher performance-marketing returns and more direct traffic. Sales and other expense rose 33.8% in Q3, principally due to higher merchant transaction costs and call-center costs. General and administrative expense rose 47.7% in Q3, including a $90 million Etraveli termination-fee accrual. Interest expense increased to $254 million in Q3 and $689 million for nine months.
Cash, liquidity, debt, and capital allocation
- Nine-month operating cash flow was $5.998 billion, versus $4.381 billion in 2022. Investing activities provided $1.525 billion, including $1.785 billion of investment sales and maturities; capital expenditures were $251 million. Financing activities used $6.419 billion, mainly for share repurchases.
- At September 30, cash and cash equivalents were $13.294 billion; short-term investments were $624 million and long-term investments $420 million. Management reported $14.3 billion of cash, cash equivalents, and investments and said existing liquidity should fund operations, capital expenditures, and obligations for at least 12 months.
- Total debt carrying value was $13.769 billion: $1.913 billion current and $11.856 billion long term. Current debt included the $863 million convertible notes due May 2025, classified as current because holders could convert during Q4. A new five-year $2.0 billion revolving facility had no borrowings outstanding; $18 million of letters of credit were issued.
- The company issued euro-denominated notes in May 2023 with principal amounts of €500 million due 2028 and €1.25 billion due 2033, and repaid $500 million of notes at maturity. Nine-month cash interest paid was $557 million.
- Share repurchases totaled $7.961 billion in the first nine months. Remaining authorization was $16.2 billion at September 30; management expected to use it within four years, assuming no major travel-market downturn. A $72 million estimated excise-tax liability on repurchases was recorded.
Material changes, outlook, and risks
- Management expects Q4 2023 room nights to grow about 9% year over year, taking into account the Israel-Hamas war. It projected Q4 gross-bookings growth about five percentage points above room-night growth, revenue as a percentage of gross bookings slightly above Q4 2022, and operating profit above Q4 2022.
- For full-year 2023, assuming room nights grow by a mid- to high-teens percentage, management expected gross bookings to grow more than 20%, revenue as a percentage of gross bookings slightly above 2022, and operating profit above both 2019 and 2022. October room-night growth was estimated at about 8%, or 9% excluding Israel.
- The company reported that the Israel-Hamas war affected October room-night growth, particularly in Israel, and could further affect demand if it continues or expands. It had suspended travel bookings in Russia and Belarus following Russia’s invasion of Ukraine.
- Greater merchant-booking mix supports payment flexibility and the Connected Trip strategy but increases payment-processing, fraud, chargeback, and customer-service costs, which management said can pressure operating margins. Alternative accommodations, lower-margin non-accommodation services, competition, discounting, and marketing returns also create margin risks.
- Regulatory and legal exposures include competition and consumer-protection inquiries, including investigations in Spain and Poland; the European Commission’s prohibition of the Etraveli acquisition led to the $90 million termination fee. Booking.com was designated a Very Large Online Platform under the EU Digital Services Act and expected to notify the Commission if DMA thresholds were met.
- Tax matters include a €93 million (about $103 million) Italian VAT settlement paid in July 2023. Separately, Italian transfer-pricing assessments total about €251 million (about $266 million); the company reported €74 million (about $78 million) in prepayments and expects the matter to proceed through a mutual-agreement process.
- In the Netherlands pension-fund litigation, the company said a loss was probable but could not reasonably estimate a range and recorded no liability. It estimated a maximum potential loss of about €405 million (about $428 million), excluding possible interest and penalties.
- Other notable items include a $24 million Yanolja investment impairment in 2023, foreign-currency exposure, and a remaining $690 million U.S. transition-tax liability payable over the next three years. Management reported effective disclosure controls; financial-control processes are changing as a multi-year SAP implementation continues.
Most important facts for investors to verify
- Whether Q4 and full-year booking and operating-profit expectations were achieved, especially given geopolitical disruption and travel-demand changes.
- Whether the shift to merchant bookings and growth in alternative accommodations improve bookings while keeping payment, fraud, service, and margin costs controlled.
- How operating cash flow, debt maturities, interest costs, and the planned $16.2 billion of remaining repurchases affect liquidity and balance-sheet flexibility.
- Developments in the Italian tax matters, Dutch pension litigation, and competition and consumer-protection investigations, including potential financial or operating remedies.
- The effect of equity-investment valuations and foreign-exchange movements on reported earnings; the filing reports material period-to-period volatility in both.