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Elevator Pitch
This article looks at two travel stocks, namely Booking Holdings Inc. (BKNG) and Airbnb, Inc. (ABNB). Of the two, I think that Booking is the one to watch in 2022 as it is relatively more profitable with greater upside potential supported by its lower valuation multiples. A potential recovery in international travel demand later this year could be the catalyst that brings about a re-rating of BKNG’s valuations.
What Is The Difference Between Airbnb And Booking?
Airbnb specifically highlighted in its 2020 listing prospectus that the company’s “competitors include OTAs (Online Travel Agencies), such as Booking Holdings.” As such, it is relevant to understand the key difference between Airbnb and Booking.
Airbnb is the largest company in the alternative accommodations segment of the global travel market in terms of “booking share”, while Booking is the biggest OTA globally based on its top line.
Booking is relatively more focused on traditional accommodations such as hotels, although it does have a meaningful exposure to alternative accommodations as well. According to an August 8, 2020 Reuters news article, alternative accommodations “represented about 21% of Booking Holdings revenue” for 2019 (used as the basis for comparison to avoid distortions due to COVID-19).
In summary, Booking is the market leader in the overall online travel market worldwide and Airbnb dominates the alternative accommodations segment, which is the key difference between the two.
Is Airbnb Or Booking More Profitable?
Booking has historically been more profitable than Airbnb, and this is expected to be the case going forward as well.
In its listing prospectus released in late-2020, Airbnb revealed it has never been profitable since it started business, which it attributed to investments “to grow our host and guest community.” In other words, ABNB was losing money even prior to FY 2020 when travel companies were badly hit by the pandemic, and Airbnb still lost money in FY 2020. In contrast, Booking was profitable in every single year between FY 2003 and FY 2020.
Looking ahead, the sell-side analysts see Airbnb continuing to lose money in FY 2021 (as it did in FY 2020), but they expect ABNB to turn profitable by FY 2022 according to consensus financial estimates sourced from S&P Capital IQ. Nevertheless, Booking should still be more profitable than Airbnb in the next couple of years as per the table below.
A Comparison Of The Expected Future Profit Margins For Airbnb And Booking
| Stock And Financial Metric | FY 2022 | FY 2023 | FY 2024 | FY 2025 |
| ABNB’s Sell-side Consensus EBITDA Margin | 25.4% | 27.6% | 29.9% | 33.0% |
| BKNG’s Sell-side Consensus EBITDA Margin | 35.4% | 37.0% | 37.1% | 38.1% |
| ABNB’s Sell-side Consensus Normalized Net Profit Margin | 7.7% | 12.1% | 18.5% | 20.7% |
| BKNG’s Sell-side Consensus Normalized Net Profit Margin | 26.3% | 28.3% | 28.5% | 30.8% |
Source: S&P Capital IQ
The fact that BKNG is a larger (scale economies) and more mature business explains its relative superior profitability. Booking’s trailing twelve months revenue is +73% higher than that of Airbnb as per S&P Capital IQ data, and BKNG is in the later stage of the corporate lifecycle where there is a lesser need for substantial growth investments.
Is ABNB Or BKNG Stock Overvalued?
I don’t see both travel stocks as overvalued, but Booking’s valuations are much more attractive. I think that ABNB is fairly valued at best, while I view BKNG’s shares as undervalued.
A Comparison Of Valuations For ABNB And BKNG
| Stock | Consensus Forward FY 2022 Enterprise Value-to-Revenue Multiple | Consensus Forward FY 2023 Enterprise Value-to-Revenue Multiple | Consensus Forward FY 2022 EV/EBITDA Multiple | Consensus Forward FY 2023 EV/EBITDA Multiple | Consensus Forward FY 2022 Normalized P/E Multiple | Consensus Forward FY 2023 Normalized P/E Multiple | Consensus FY 2022-2025 Revenue CAGR |
| Airbnb | 11.1 | 8.9 | 43.9 | 32.3 | 185.1 | 97.2 | +21.1% |
| Booking | 6.0 | 5.1 | 17.1 | 13.7 | 23.7 | 18.6 | +11.8% |
Source: S&P Capital IQ
Although Airbnb boasts superior revenue growth prospects (as per FY 2022-2025 top line CAGR outlined in the peer comparison table) as compared to Booking, ABNB’s future profitability is expected to be inferior to that of BKNG (as highlighted in the preceding section). As such, Booking’s valuation discount to Airbnb appears to be excessive.
Also, BKNG’s mid-to-high teens forward EV/EBITDA multiples and forward P/E multiples in the high-teens to low-twenties range are undemanding, and support my view that Booking’s shares are undervalued.
Does ABNB Or BKNG Stock Have More Potential?
ABNB seems to have greater growth potential than BKNG in the intermediate term (fiscal 2022 and 2025), as evidenced by Wall Street’s consensus revenue growth forecasts presented in the prior section of this article. But Booking should witness a stronger revenue recovery this year. Market consensus (as per S&P Capital IQ data) expects Booking and Airbnb to deliver revenue growth of +44.6% and +23.5%, respectively, in FY 2022.
In my earlier June 8, 2021 article for ABNB, I noted that Airbnb “benefited from the growth in demand for domestic travel as a result of current international travel restrictions” put in place in 2021. In that article, I emphasized that “if the coronavirus pandemic is brought under control in 2022 with the acceleration in vaccine roll-out, people could switch from domestic travel to international travel.” I highlighted specifically then that this scenario could lead to “online travel agencies like Booking Holding” expanding “faster than Airbnb” in 2022. My views have remained unchanged, and this is supported by the sell-side’s FY 2022 consensus revenue growth forecasts for both companies.
A January 11, 2022 The New York Times article noted that “California hospitals find that Omicron causes fewer hospitalizations and shorter stays”, while Fortune reported on January 20, 2022 that “calls are growing in Japan to treat COVID-19 as endemic” based on data with regards to the Omicron variant. The Financial Times also highlighted in a recent January 26, 2022 article that Denmark has followed in the footsteps of “UK, Ireland and Netherlands” by “easing restrictions despite high number of (COVID-19) cases.”
As per the news articles I cited above, I think it is likely that there should be a significant relaxation of cross-border travel restrictions this year. This supports the case for Booking benefiting from travel demand recovery and witnessing robust revenue growth in 2022 by virtue of being the world’s largest OTA.
On the flip side, Airbnb’s revenue growth is expected to slow from +75.0% in FY 2021 to +23.5% in FY 2022 (as per the sell-side analysts’ forecasts sourced from S&P Capital IQ) with international travel recovery coming at the expense of slower domestic travel growth. Also, I think that the superior medium-term growth expectations for Airbnb (+21.1% FY 2022-2025 revenue CAGR) is premised on the assumption that there is a structural increase in demand for alternative accommodations, as hybrid work trends accelerated by the pandemic boosts demand for long-term stays in a permanent fashion. But there is always a risk that current workplace trends and travel behavior might revert back to what they were before the pandemic.
In a nutshell, BKNG has more growth potential in 2022 as a key proxy for the recovery in the overall travel industry. While ABNB’s growth prospects in the medium term seem more exciting, this is dependent on a permanent change in the workplace environment (more pronounced shift to the hybrid work model) and travel trends (greater preference for long-term stays due to increased work flexibility).
Is ABNB Or BKNG Stock The Better Buy?
BKNG stock is the better buy than ABNB. Booking’s valuations are more appealing and the potential easing of global travel restrictions in 2022 is a key re-rating catalyst for the stock. On the other hand, Airbnb’s valuations are very demanding on an absolute and relative basis, implying that the positives associated with the stock are largely priced in.