The last 20 months have been extremely volatile for investors with exposure to the travel and hospitality industries. The COVID-19 pandemic resulted in global lockdowns and shutdown of borders bringing international, as well as domestic travel, to a screeching halt.
The accelerated pace of vaccine rollouts, especially in developed countries, renewed investor optimism at the start of 2021, but the emergence of new coronavirus variants continue to weigh heavily on travel services companies.
However, now could be a good time for contrarian investors to scoop up shares of some of these beaten down stocks.
Valued at a market cap of $15.5 billion, Trip.com is a China-based travel service provider for accommodation reservation, transportation ticketing, packaged tours and in-destination, and other travel related services. The company acts as an agent for hotel and transport-related transactions.
The company’s sales fell by almost 50% year over year in 2020 due to the ongoing pandemic. In Q3 of 2021, revenue was down 9% on a sequential basis at $831 million. The erosion in top-line was due to the increase in the number of COVID-19 infections across multiple provinces in China.
Trip.com emphasized staycation is a major driver of domestic travel recovery in China as intra-province hotel reservations rose 35% while local hotel bookings soared by 60% in Q3, compared to the same period in 2019.
Comparatively, international flight reservations rose by 40% sequentially, due to recovery of markets in the U.S. and Europe. Further, revenue associated with corporate travel management was up 20% year over year and 1% higher compared to Q3 of 2019.
One of the largest travel platforms in the world, Booking Holdings is valued at a market cap of almost $100 billion. The company’s sales rose from $14.5 billion in 2018 to $15 billion in 2019 and then fell to $6.8 billion in 2020. In the last 12-months, Booking.com sales have touched $9.2 billion and are forecast to 59.5% to $10.84 billion in 2021 and by 44.6% to $15.67 billion in 2022.
We can see it will take another year for Booking.com revenue to touch pre-COVID-19 levels. Room nights in Q3 slumped by 26% to the same period in 2019. This was a significant improvement compared to the 54% decline in the last quarter.
The company’s CEO Glenn Fogel claimed at the start of August 2021, Booking.com’s gross bookings for the remainder of the summer were higher compared to 2019.
UBS also emphasized that Booking Holdings is a top brand name in the travel space and expects adjusted EBITDA margin to grow by 4 percentage points in 2023 as the company is expected to sell directly to customers.
Its direct bookings, which account for the majority of bookings, might touch 54% by end of 2023, allowing it to improve EBITDA margins to 38%. Comparatively, Booking’s EBITDA margin stood at 39% prior to COVID-19.
The two companies are expected to increase revenue at an impressive pace in the near-term, especially if the pandemic is brought under control. Yet, I believe Booking.com’s stellar improvement in the bottom-line, better brand value, and a diversified revenue base make it a better bet than Trip.com right now.
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TRIP shares were trading at $28.21 per share on Monday morning, up $0.95 (+3.48%). Year-to-date, TRIP has declined -1.98%, versus a 28.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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