When the COVID-19 pandemic grounded planes and closed hotels around the world, the travel industry was immediately in dire straits. However, between the pent-up demand for travel and the resumption of everyday activities, the industry has rebounded, creating ample opportunities for online travel agencies.
Despite the earnings power of companies like Booking Holdings Inc (NASDAQ:BKNG) and Expedia Group Inc (NASDAQ:EXPE), share prices remain weak, creating potentially attractive entry points.
Recovery in the travel industry
The United Nations World Tourism Organization (UNWTO) recorded almost 250 million international arrivals in the first five months of 2022, compared to 77 million in the first five months of 2021. These figures show that the travel industry has recovered almost half of its pre-pandemic level Plains, meaning there is a significant runway for growth.
Meanwhile, Booking has surpassed pre-pandemic levels, reporting 213 million room nights for the second quarter of 2019 and 246 million room nights in the second quarter of 2022. With the travel industry still having plenty of room to recover, it suggests that Booking is poised for significant growth in the coming years.
Booking does most of its business in Europe, and the continent remains in recovery mode. In fact, the European Travel Commission estimates that Europe will regain 70% of its pre-pandemic travel demand in 2022. Booking’s greater exposure to Europe also suggests that significant growth is likely over the next few years.
Booking, Expedia benefit from regional recreation
According to recent 13F filings, Booking has been a popular position among hedge funds. Regulatory filings have shown that Expedia is also a favorite of hedge funds. Together, these two online travel agencies provide access to Europe and the US, which UNWTO says are leading the way in travel recovery.
The agency found that Europe saw more than four times the number of international arrivals in 2022 compared to the first five months of 2021. Meanwhile, arrivals in the Americas more than doubled year-on-year, demonstrating the region’s contribution to the travel industry recovery clarified.
But other parts of the world are also contributing to the recovery. Arrivals in the Middle East increased 157% from 2021, while arrivals in Africa increased 156% year-on-year, although the two regions remained 54% and 50% below their 2019 levels, respectively.
Arrivals in Asia and the Pacific nearly doubled in 2022 but remained 90% below their pre-pandemic levels due to the continued closure of some borders to non-essential travel.
Tourism spending is also increasing
The numbers also show that travelers are spending more money on their trips, giving online travel agencies like Booking and Expedia another boost.
UNWTO noted growing tourism spending from key source markets, pushing international spending by tourists from France, Germany, Italy and the US to between 70% and 85% of pre-pandemic levels. Meanwhile, spending by travelers from India, Saudi Arabia and Qatar has already surpassed 2019 levels.
Soaring tourism spending and soaring arrivals are interesting given this year’s skyrocketing global inflation. Growth in Europe is also surprising due to tensions caused by Russia’s invasion of Ukraine.
It seems that pent-up demand more than offsets such concerns, although much of the growth is in short-haul rather than long-haul travel.
Booking and Expedia
While Booking primarily operates in Europe, Expedia gets most of its business from the US. While they don’t necessarily compete with each other much, Booking has recovered from the pandemic much faster than Expedia.
Booking is also much bigger than Expedia, which led one hedge fund manager to say that he likes both Expedia and Booking, but if it weren’t for Booking, Expedia would be one of the best companies in the world.
In the second quarter of 2022, Booking reported adjusted earnings of $21.07 per diluted share and $21.15 per basic share on revenue of $4.3 billion, compared to the prior-year figure of a net loss of $4.08 per basic and diluted share on sales of $2.16 billion.
Notably, Booking has been profitable throughout 2021. Additionally, the company’s balance sheet looks better than Expedia’s at $11.13 billion in cash and equivalents and $6.25 billion in current liabilities and $11.4 billion in total debt.
Expedia reported second-quarter adjusted earnings per share of $1.96 on sales of $3.2 billion, although it lost money in the first quarter. The company was just barely in the green for 2021 after its massive $2.7 billion loss in 2020.
Valuation-wise, Expedia looks cheaper than Booking, at about 13x P/E versus Booking’s roughly 17.55x. However, Booking’s faster recovery and higher earnings numbers show that a premium is warranted, and both companies look cheap compared to their historical price-to-earnings multiples.
This article originally appeared on ValueWalk
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