Booking Holdings Has A Supply Growth Problem, Analyst Says

Booking Holdings Inc (NASDAQ: BKNG) has a supply growth problem, which makes it difficult for the company to see a material reacceleration in the business, according to Guggenheim.

The Analyst

Guggenheim Partners' Jake Fuller maintains a Neutral rating on Booking Holdings with no price target.

The Thesis

The parent company of Priceline, OpenTable and other travel-related properties, showed on average a 10-percent room supply growth from the first quarter of 2017 to the second quarter 2018, Fuller said in a research report. Based on current checks, the company is likely to end the first quarter of 2019 with less than 2.3 million properties and around 28.3 million.

Fuller said these levels imply growth in average properties and rooms of 34 percent and 3 percent, respectively, while average rooms per property are down by 23 percent. When comparing the year-over-year change in ending room count versus average count, first-quarter growth is just 0.5 percent versus 3 percent.

The flattening growth in room count implies the online travel agency needs to be more reliant on improving the sell-through of current inventory to generate room night growth, according to the analyst. But management recently highlighted soft volume in paid marketing channels which "could be an issue."

The analyst isn't necessarily worried a slowdown in supply growth will translate to a poor room night performance in the first quarter, but it does suggest any material acceleration back to prior metrics seen in 2017 and 2018 will be difficult.

Price Action

Shares of Booking Holdings were trading around $1,739 Thursday afternoon.

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