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Booking: Priceline, Kayak & OpenTable

09/27/2018 5:00 am EST

Focus: CONSUMER

Douglas Gerlach

President, ICLUBcentral, Inc.

In February, Priceline changed its name to Booking Holdings (BKNG); while somewhat cumbersome, the new name aligns with the firm’s leading website, Booking.com, the world’s largest brand for online reservations based on room nights booked, notes Doug Gerlach, editor of Investor Advisory Service.

As of June 2018, Booking.com offered approximately 1,925,000 properties consisting of 425,000 hotels, motels, and resorts, and 1,500,000 homes, apartments, and other unique places to stay.

Booking Holdings' properties include Priceline, Kayak, Agoda, Rentalcars and OpenTable, a restaurant reservation service. The company also owns a $2.4 billion stake in the Chinese travel company Ctrip (CTRP).

Booking Holdings earns much of its revenue and profit overseas. In 2017, 89% of gross profit came from international operations, mostly Booking.com. The company is especially strong in cross-border travel, which is growing faster than domestic travel.

The firm’s strategy for maintaining double digit growth is threefold. First, the company wants to combine and offer an entire travel package, not just a hotel reservation. It is using technology to aggregate travel services and provide automated customer service through mobile devices, the most common communication method for worldwide customers.

Second, the company is continuing to aggressively pursue alternative accommodation properties. Because of Booking Holdings’ strength in cross-border travel, the company has attracted customers that alternative property owners covet. This has led to 54% year-over-year growth of these properties on the Booking.com website as of June 2018.

Finally, China and other countries with rapidly growing middle classes, like India, are a priority. In addition to its investment in Ctrip, the company is investing $500 million in DiDi Chuxing, the leading ride-sharing platform that reaches 550 million users worldwide.

Five years of 14% earnings growth and a future high P/E of 29.5 could generate a stock price as high as 4,192. We use a low price of 1,402, the product of trailing twelve-month EPS of 83.14 and a low P/E of 19.0. The upside/ downside ratio is 4.5 to 1.

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