Summer Has Begun: Booking vs Airbnb

Summer is coming. It is time to plan our summer vacations. Let’s find out if there are stocks of travel, hotel and leisure companies that can bring you extra enjoyment of your holiday.

Key takeaways:
-There is not a single company in this sector whose Eyestock Rating (business quality score) exceeds the significant mark of 100 and could be considered an outstanding one
—Airbnb seems preferable to Booking, but still a risky investment
-Booking Holdings has negative stockholders’ equity

The covid pandemic has been forgotten like a bad dream. There are no barriers to tourism and travel again. Companies like Airbnb and Booking collect money from guests when they book a trip and then invest it in short-term bonds and deposits. If this did not affect business earlier during the period of zero rates, now money can be placed at rates above 4%. Could this collectively mean that ABNB stocks are now viable investment idea? Are BKNG stocks more attractive for the portfolio? We have made a special selection of stocks related to the travel industry, but today we would like to highlight only 2 in detail.

Let’s figure it out starting with Airbnb.

Indeed, judging by the annual reports, the company is earning more and more from interest. For example, at the end of 2023, interest income amounted to $721 million, and this is a third of the company’s pre-tax profit — a significant amount! Moreover, interest income has increased 55 times over the past 2 years from 13 million.

If we evaluate Airbnb, the company has high margins (gross margin is 71% and net margin is significantly 48%) and a strong financial position. With a high ROE of more than 70%, when calculating ROIC, we stumbled upon the fact that the capital invested in operating activities was negative due to the high cash position and the share of current liabilities. This does not allow us to measure the return on invested capital for a comprehensive performance analysis. This, coupled with mediocre sustainability in net income growth, contributed to the company’s final Eyestock score of 79 points, leaving the company 21 points short of viable investment status. In our opinion, investing in ABNB shares involves certain risks.

Booking Holdings has a negative shareholders` equity

And this is the biggest problem, in our opinion. The company, like Airbnb, has a good net profit margin of 22%, although this is somewhat lower than the competitive one. According to the annual report, they also significantly increased his earnings on interest: interest and dividend income for 2023 exceeded $1 billion.

However negative capital, formed primarily by the policy of own shares repurchasing, greatly affects solvency metrics and does not make evaluating ROE possible. When the 2023 earnings report was published, our BKNG stock rating collapsed from 102% to 52% today.

Despite the apparent financial problems, the shares are up 68% in two years and are trading today at $3,776, 4% above the fair value calculated using the historical relative method.

Are there clear alternatives?

EXPE stock may be one of them. This company has a capitalization of almost $14B from the USA, significantly smaller than the main characters of today’s analytical analysis. Expedia Group finished its last quarter with a loss, but the EBITDA margin is 6%. Otherwise, the parameters are very close to the industry average: debt problems and high operating efficiency. As a result, although EXPE shares are undervalued by 56% relative to the median historical P/E estimate, the Eyestock Rating of 59% (100% is a benchmark for adding to a portfolio) hints at the relative weakness of the business and increased risks.

If you want more insights in this area, visit our selection page and discover 18 more companies by creating a FREE ACCOUNT. To see the plans comparison visit the pricing page.

The Eyestock Rating: We Delve Deep, So You Don’t Have To