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CEO Hints Booking Holdings Is Ready to Buy More Companies

05/13/2019| 10:06:40 AM| 中文

We will look to drive shareholder returns through a combination of organic growth investment, share repurchases, and opportunistic M&A.

High-growth companies slow down as they expand. Online travel conglomerate Booking Holdings is hoping to defy that by investing into new markets like alternative accommodations. But progress has been slow.

During the first-quarter, Booking Holdings saw its total revenues decline 3 percent, year-over-year, to $2.8 billion.

One other path to new growth could be more acquisitions, CEO Glenn Fogel suggested on an earnings call Thursday.

The company partly blamed a weakness in the U.S. dollar’s value relative to other currencies for the revenue drop. Without the currency issues, revenue growth would be up about 3 percent, the company said.

Either way, the company’s growth is now tepid compared to the 16 percent average annualized year-over-year revenue growth that it enjoyed between 2014 and last year.

Looking ahead, the company is forecasting merely 5 to 7 percent revenue growth in the second quarter.

GROWTH THROUGH ACQUISITIONS? 

During the call, Fogel said he three times that he was considering opportunistic mergers and acquisitions. For example, he said, “As we continue to execute against a very large market opportunity, we will look to drive shareholder returns through a combination of organic growth investment, share repurchases, and opportunistic M&A.” He also said, “We will continue to utilize M&A and strategic investments to accelerate key growth opportunities.” 

It wasn’t clear what size company or sector he had in mind. The inferred context was that the conglomerate has several opportunities to knit together an interlocking set of travel services to do a better job of cross-selling and upselling customers on an array of products throughout the life of a trip.

It’s somewhat unusual for executive to highlight an interest in acquisitions. However, Fogel previously was the leader of the company’s corporate development efforts and was the architect of several famous deals.

Earlier this month, Booking Holdings acquired a guest management platform for restaurants and other businesses called Venga with an apparent intention to offer it to the more than 51,000 restaurants that list on its reservation service OpenTable.

“In terms of opportunistic M&A,” Fogel said, “as you know, we wouldn’t talk about any specific targets or anything of that nature. But you know we built this company over time by bringing in great teams, great products, things that we didn’t really have, and that’s what we’re going to continue to do.”

Elsewhere during in the call, Fogel briefly mentioned tours and attractions as another possible growth category for the company. He said that its acquisition of FareHarbor, a reservation booking service, had set the company up for expansion of market share. But he didn’t elaborate on that opportunity or the sector’s potential.

CAUSES OF WEAKNESS

Executives did not provide a succinct explanation for the slowing growth. Analysts noted that the company reported that the average daily rates hotels charged for bookings in the quarter were down 2 percent year-over-year.

Executives alluded to a few possible factors driving hotel pricing sluggishness. As Booking Holdings aims to expand into emerging markets, it increasingly plays in markets experiencing price wars and that have lower average daily rates.

The company has also been trading off some of its commissions to offer consumers bundles of products, such as hotels along with ground transport, to gain share in emerging markets.

Existing markets in Western Europe also showed some sluggishness in the first months of the year, executives said.

Yet another cause of weakness was the company’s decision to focus on maximizing profits rather than growth. The company continued to seek efficiencies in its marketing expenditure rather than try to spend freely to drive growth.

In the first quarter, Booking generated $765 million in net income, a 26 percent increase versus the prior year. That was a higher-than-average level compared with the previous two years.

LOOKING TO RENTALS FOR GROWTH

Booking Holdings executives repeated their belief that alternative accommodations will become as big and profitable of a business as their flagship hotel booking business.

Booking Holdings and Airbnb are in a rental listings dead heat.

In March, Airbnb said it had 6 million global home-rental listings, slightly ahead of Booking Holdings, which reported on Thursday that it had more than 5.8 million listings.

Besides racing to build listings, both companies are competing on marketing spending and regulatory issues.

Airbnb on Wednesday put out a memo talking about how it doesn’t need to spend nearly as much on marketing as some other players. It claimed it has a positive flywheel of people staying at Airbnb-hosted properties, having positive stays, and then becoming inspired to host their own properties. It did not provide data on how often this effect happens, however.

Booking Holdings has said about half of its users come to it directly. Executives reiterated Thursday that the group had made progress on cross-selling by persuading customers who shop for one type of product to also buy other products. But it similarly didn’t provide data to support the claim.

Both Booking and Airbnb need to grapple with regulatory compliance of short-term property owners in every jurisdiction where they operate, too.

Expedia Group is another formidable player in alternative accommodations, but it has had some hiccups in the operation of its short-term rental businesses, which is largely put together via acquisitions.

In the first quarter Expedia Group’s brands saw a slowing in revenue growth in alternative accommodations. Booking Holdings declined to say if it saw a similar deceleration in growth in alternative accommodations in the quarter.

WORK TO BE DONE

Booking Holdings needs help if growth is its goal. First quarter gross travel bookings for Booking Holdings were $25.4 billion, an increase of merely 2 percent over a year ago.

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TAGS: Booking.com | Airbnb | alternative accommodations
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