EXPE: Expedia vs. Booking Holdings: Which Travel Stock is a Better Buy

The travel industry has been one of the worst hit industries amid the pandemic. With a complete lockdown in the initial weeks, followed by several weeks of social distancing and general panic among people, travelling, particularly for recreation, took a backseat. Management consulting firm McKinsey predicts that the international travel industry’s recovery to 2019 levels might last until 2024, while domestic travel should witness strong rebound within the next two years.

Companies such as Expedia Group, Inc. (EXPE - Get Rating) and Booking Holdings, Inc. (BKNG - Get Rating) have been witnessing some recovery due to the ongoing holiday season. In light of the holiday season and FDA authorization of Pfizer, Inc. (PFE) and BioNTech’s (BNTX) COVID-19 vaccine, both EXPE and BNKG have announced substantial discounts to fuel demand, paving the way for a smooth recovery from the initial days of the pandemic.

Both companies have generated significant returns over the past nine months. While EXPE gained 60.5% over this period, BKNG returned 44.8%. In terms of past six-month price performance as well, EXPE is the clear winner with a 58.3% gain versus BKNG’s 31.5% return. However, BKNG gained 4.5% over the past month, beating EXPE’s 2.8% returns over this period.

But which stock is a better buy now?

Latest Developments

On November 23^rd, BKNG’s wholly owned subsidiary, Priceline, offered a range of discounts and over 50 custom deals on multiple products from flights to hotel bookings for Black Friday.

Similarly, on December 10^th, EXPE announced special two-week ‘Work from Here” trip packages to Canadian citizens starting at $20.20. The sale is designed in the form of a lucky draw, with only 6 packages priced $20.20 available for a trip scheduled in April 2021.

Recent Financial Results

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Both EXPE and BKNG reported declining revenues for the third quarter that ended September 2020, primarily due to the COVID-19 related business slowdown. BKNG reported $2.64 billion in revenues for the quarter, while EXPE’s generated $1.50 billion.

However, BKNG managed to generate net income of $801 million, and EPS of $19.46 over this period. This compares to EXPE’s net loss of $221 million, and loss per share of $1.56.

Expected Financial Performance

Analysts expect BKNG’s EPS to rise 2,186.9% next year, and at a rate of 2.9% per annum over the next five years. The consensus revenue estimate of $10.29 billion for next year indicates a 52.6% rise from the same period last year.

EXPE’s EPS is expected to increase 12.6% in the next quarter (ended March 2021), and 108.7% next year. The consensus revenue estimate of $7.92 billion for fiscal 2021 indicates a 46.1% improvement from the year-ago value.

Profitability

BKNG’s trailing 12-month revenue is 1.27 times what EXPE generates. BKNG is also more profitable with a gross margin of 102.6% compared to EXPE’s 71.3%.

Moreover, BKNG’s ROE and ROA of 25.7% and 5.3%, respectively, compare favorably with EXPE’s negative values.

Valuation

In terms of trailing 1-month Price/Sales, BKNG is currently trading at 9.67x, 288.4% more expensive than EXPE, which is currently trading at 2.49x. BKNG is also more expensive in terms of trailing 12-month EV/Sales (9.76x versus 3.53x) and trailing 12-month price-to-book ratio (17.42x versus 10.66x).

Though BKNG is much more expensive compared to EXPE, this premium valuation is justified given its higher earnings growth potential.

POWR Ratings

BKNG is rated a “Strong Buy” in our proprietary POWR Ratings system, while EXPE is rated a “Buy”. Here’s how the four components of the POWR Ratings are graded for both these stocks:

BKNG has an “A” for Trade Grade, Peer Grade and Industry Rank, and “B” for Buy & Hold Grade. In the 59-stock Internet industry, it is currently ranked #3.

EXPE has an “A” for Trade Grade and Industry Rank, and “B” for Buy & Hold Grade and Peer Grade. It is currently ranked #19 in the same industry.

The Winner

The holiday season this year is the stepping stone for recovery for the travel industry. With most people feeling the strain of prolonged periods of working and learning from home, recreational travel, at least within a country should bounce back pretty soon, making both EXPE and BKNG well positioned to rebound from the business disruptions earlier this year.

However, BKNG has been recovering at a faster rate and the company managed to generate profits in the July – September quarter, while EXPE reported losses over this period. With a higher profit margin, analysts expect BKNG’s revenue and EPS to grow at a higher rate compared to EXPE, which justifies its premium valuation.

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EXPE shares were trading at $123.05 per share on Monday afternoon, up $0.03 (+0.02%). Year-to-date, EXPE has gained 14.21%, versus a 15.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...