HEDGEYE EDGE
Much like we commented on a few months ago, there are pockets of weakness and strength across the global leisure travel landscape but, on balance, the top down data remains “good enough” we think to instill confidence in the investment community. The spending shift from goods to services is ongoing and within services, leisure still has room to run.
Ahead of last earnings season, we had cast our doubts about the leisure backdrop for US Hotels (see HERE and HERE), but we’ve been more bullish on the backdrop for global leisure, which includes the OTAs and Cruise. As of today, our relative stance on global leisure is unchanged, and recent data over the last few weeks suggests September could be a solid finish to Q3. YoY growth is still decelerating relative to the beginning of the year, but of late, there’s been more YoY stability relative to Q2, and we’re curious to see if the rest of September brings about more upside.
Turning to the OTAs, the data suggests potentially solid Q3 top line & bookings beats for BKNG and ABNB with EXPE looking in line to slightly above Street expectations.
top down | DATA TRACKING – RESILIENT PERFORMANCE
The latest data read suggests resilient performance for the OTAs despite fears in the investment community of a sharp slowdown in leisure travel. Strong YoY growth in weekly active users of OTAs and lower but still strong growth in App downloads are encouraging. Sure, leisure travel growth has decelerated but judging by estimates, decelerating growth is already in expectations so looking to the quarters, the magnitudes of beats and directional color will be most impactful. For that, we generally see positives but the caveat for today is that it’s early in the month of September and we’ll need another checkup before the earnings prints in early October.
Our analysis in the charts and heatmaps provides a look vs ’19 comps to smooth out the volatility around Covid waves (Delta and Omicron) and provide longer form context. Additionally, some data and company disclosures issued through Covid have given the “vs ’19” comp more utility from a tracking and modeling standpoint. We suspect this is the last quarter where we quote vs ’19.
the companies | expe, bkng, & abnb
It may be too early to get a final read on Q3 earnings, so consider the below more of sneak preview, and for all intents and purposes we see positives across the Big 3 OTAs. The OTAs, given their global scale, are benefiting from outbound and cross border opening back up, China and Asia travel percolating, and the Western Hemisphere holding firm.
For EXPE, where the bar is a lot lower, we admittedly don’t see a perfect quarter as bookings are tracking more “in-line”, but we suspect the buyside is lower. A quarter of YoY acceleration in bookings (we expect that), followed by a revenue and EBITDA beat and big buy back, should do the trick. Last quarter was a disaster from a stock reaction perspective as investors were looking for EXPE to emulate BKNG’s clean sweep. That’s not going to happen, but the model still shows upside on an in line to slightly better bookings print. We see better merchant revenue (lodging) owing to the Expedia brand’s strong Q3, and better fixed cost leverage as model drivers for an EBITDA beat. Vrbo remains a headwind but looking ahead, Vrbo’s integration to the Expedia stack and the easing of comps should make the NTM look a lot smoother than the LTM.
For BKNG, we see another solid setup looking into quarter end and earnings. The company continues to exceed the growth of peers, gain market share, and now showing improvement in margins and cash conversion. The years of reinvestment into Connected Trip are finally paying off and that clearly shows in the data. Q3 likely won’t beat by the same magnitude but we expect a healthy beat across the board – bookings, revenues, EBITDA. BKNG is a name we continue to like and probably should have elevated the stock to Best Ideas status back in April, but we remain positively biased.
In the case of ABNB, we see upside to Room Nights growth, and given the backdrop for ADRs (read: sticky), we anticipate beats in both bookings and revenue. ABNB has had some issues managing expectations around the print, but the data read is a positive one as of today. If ABNB’s 1H of September strength continues, we’ll be taking a closer look at revisiting our investment thesis. Owing to the company being in the middle innings of a shareholder transition away from high growth investors, we’re just a little less confident in how the stock might react, and at $140, the stock ain’t cheap.
Data trackers by company – EXPE, BKNG, and ABNB – are shown below. Our TRIP tracker is being reset at the moment, so standby for an update on that next month. We intend to provide another update with a read into Q4 and finalized Q3 look at some point in October.
