When the COVID-19 pandemic grounded planes and closed hotels around the world, the travel industry immediately found itself in dire straits. However, the industry has come back strong between pent-up travel demand and the resumption of day-to-day business, creating plenty of opportunities for online travel agencies.
Despite strong earnings from companies such as Booking Holdings Inc (NASDAQ:BKNG) and Expedia Group Inc Inc (NASDAQ:EXPE), stock prices remain weak, potentially creating attractive entry points.
Q2 2022 Hedge Fund Letters, Talks & More
- Recovery in the travel industry
The United Nations World Tourism Organization (UNWTO) recorded almost 250 million international arrivals in the first five months of 2022, compared to 77 million in the first five months of 2021. These figures show that the industry du voyage has recovered nearly half of its pre-pandemic revenue. levels, which means there is significant growth avenue.
Meanwhile, Booking surpassed its pre-pandemic level, reporting 213 million room nights for the second quarter of 2019 and 246 million room nights in the second quarter of 2022. Given that the travel industry still has plenty of room for recovery, this suggests that Booking is set to experience significant growth in the coming years.
Booking derives most of its business from Europe, and the continent remains in recovery mode. In fact, the European Travel Commission estimates that Europe will recover 70% of its pre-pandemic travel demand in 2022. Booking’s greater exposure to Europe also suggests significant growth is likely in the coming years. .
- Booking, Expedia takes advantage of regional recovery
Booking has been a favorite position among hedge funds, according to recent 13F filings. Regulatory filings have shown that Expedia has also been a favorite of hedge funds. Together, these two online travel agencies offer exposure to Europe and the United States, which UNWTO says are leading the travel recovery.
The agency found that in 2022, Europe had more than four times as many international arrivals as in the first five months of 2021. Meanwhile, arrivals in the Americas more than doubled by a year on year, highlighting the region’s contributions to the recovery of the travel industry.
However, other parts of the world are also contributing to the recovery. Arrivals to the Middle East were up 157% from 2021, while arrivals to Africa were up 156% year-on-year, although the two regions remained 54% and 50% lower respectively at their 2019 levels.
Arrivals in Asia and the Pacific region nearly doubled in 2022, but remained 90% below pre-pandemic levels due to the continued closure of some borders to non-essential travel.
- Tourism spending also on the rise
The figures also show that travelers are spending more money on their trips, giving online travel agencies like Booking and Expedia a further boost.
UNWTO has detected an increase in tourism spending from key source markets, which has lifted international spending by tourists from France, Germany, Italy and the United States to 70% to 85% of pre-levels. the pandemic. Meanwhile, spending by travelers from India, Saudi Arabia and Qatar has already exceeded 2019 levels.
The growth in tourism spending and the rapid increase in arrivals are interesting in light of soaring inflation around the world this year. Growth in Europe is also surprising due to tensions caused by Russia’s invasion of Ukraine.
It appears that pent-up demand is more than offsetting these concerns, although much of the growth is in shorter trips rather than long-haul travel.
While Booking is primarily exposed to Europe, Expedia derives most of its business from the United States. However, while they may not necessarily compete much, Booking has recovered from the pandemic much faster than Expedia.
Booking is also much bigger than Expedia, prompting a hedge fund manager to say he loves both Expedia and Booking, but if Booking didn’t exist, Expedia would be one of the best companies in the world. .
In the second quarter of 2022, Booking reported adjusted earnings of $21.07 per diluted share and $21.15 per basic share on $4.3 billion in revenue, compared to year-ago figures. net loss of $4.08 per basic and diluted share on $2.16 billion in revenue. .
It’s worth noting that Booking was profitable for all of 2021. Additionally, the company’s balance sheet looks better than Expedia’s, with $11.13 billion in cash and cash equivalents and $6.25 billion in dollars in current liabilities and $11.4 billion in total debt.
Expedia reported adjusted earnings of $1.96 per share on revenue of $3.2 billion in the second quarter, although it lost money in the first quarter. The company was barely in the green for 2021 after its steep $2.7 billion loss in 2020.
When it comes to valuation, Expedia seems cheaper than Booking, with its P/E of around 13x versus Booking’s at around 17.55x. However, Booking’s faster recovery and stronger earnings numbers show a premium is warranted, and both companies look cheap relative to their historical P/Es.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.