KEY POINTS
- Tracker Suggests Moderate Slowdown: We rebuilt our tracker after it misfired last quarter (backtest below). Note that this tracker is mostly for directional purposes (accel vs. decel) since there is greater volatility in its growth rates vs. BKNG's room nights (compare axes in chart below). The tracker is pointing to slowing room-night (RN) growth at a comparable trajectory to its 3Q18 guidance. But similar to the 2Q18 read, the 3Q18 read is registering the smallest absolute rate of change that we've seen in the time series, so the output is relatively inconclusive. We'll have a tracker update for 4Q to-date in the coming weeks.
- BKNG Thesis Developments: It became a lot clearer on the prior call that BKNG's priorities have shifted away from driving room night growth to rationalizing the industry. BKNG is trying to make it harder for Meta (TRIP & TRVG) to compete for traffic top of funnel. BKNG is their largest single customer, so if it isn't willing to spend as much with meta, then meta can't afford to acquire as much traffic, which in turn should clear some of the froth out of bid rates. Over the longer term, this move should solidify BKNG's stronghold in the space via increased traffic share, while simultaneously saddling its largest competitor (EXPE) with a declining asset (TRVG) that may be impossible to manage to profitability. But in the interim, BKNG's strategic pivot will remain a headwind to its room night growth. The question now is how much longer this continues. For context, BKNG's ad spend on Trivago declined -36% y/y in 2Q18 after declining -18% and -16% in 1Q18 and 4Q17, respectively, yet still represents ~60% of TRVG's net revenues.
Let us know if you have any questions or would like to discuss further.
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet
Todd Jordan
Managing Director
@HedgeyeSnakeye
Sean Jenkins
Associate
