Shares in Booking Holdings Inc, parent company of Booking.com, have recovered so well from their Covid-19 crash that the stock is currently sitting more than 20% higher than its pre-pandemic highs. Booking Holdings has shown other travel stocks that prosperity in the age of omicron is possible, but just how has the industry leader managed to perform so well in a pandemic?
The Nasdaq-listed stock, BKNG, has performed exceptionally well in 2022 also, growing around 20% in the opening six weeks of the year. Along with other online travel firms like Expedia and Trip.com, Booking.com is showing signs of considerable outperformance against the S&P 500 Index, and Dow Jones Industrial Average (DJIA).
At a time when many blue-chip stocks are taking a battering, online travel companies appear to be performing well. With this in mind, could travel stocks become a smarter place to invest in 2022?
As the chart above shows, Booking Holdings is currently up 60.94% on its share price five years ago and appears to have recovered rapidly from the stock market crash of early 2020.
However, the stock’s performance is at odds with the travel and tourism industry as a whole, so what factors have enabled Booking Holdings to perform so exceptionally well in spite of a loss of custom? According to Maxim Manturov, head of investment advice at Freedom Finance Europe, the outperformance is down largely to an exceptional plan of action for circumstances that could impact custom.
“When the Covid-19 pandemic hit, Booking aggressively raised significant amounts of capital. The aim was to have enough liquidity for a couple of years – assuming no revenue,” Manturov explained. “The company also cut costs, aiming to cut staff by 25% globally. As a result of these actions, BCNG’s share balance sheet is stable as a rock. In fact, since the end of March, the company’s cash balance has jumped by $4 billion to $11.2 billion as of the 30th of September, making it one of the most reliable travel companies.”
“But even despite the cuts, the company has continued to invest in research and development and new innovations. One of the most promising initiatives is the ‘connected travel vision’. The idea is to provide a seamless customer experience that is supported by sophisticated payment systems. This is something that should help reduce costs as well as increase overall conversion and renewal rates, leading to greater revenue growth,” Manturov added.
Standing the Test of Time
Measuring the performance of Booking Holdings against benchmarks like the S&P 500 shows that its current outperformance is nothing new. In fact, according to Nasdaq calculations, a $1,000 investment made 10 years ago in February 2012 would be worth around $4,863.61 today. This represents a gain of 386.36% whilst excluding dividends but still including price increases.
For reference, the S&P 500 rose by 239.30% over the same period of time, whilst the price of gold increased by 1.9% – further illustrating the success that Booking.com has undergone considering the severe challenges that the travel and tourism industry’s facing.
The recent removal of travel restrictions in countries recovering from the Covid-19 pandemic has provided a further boost to Booking Holdings, and it’s likely that the company will build more momentum as more travellers across Europe look to their summer holiday plans.
Strong growth across the rental car, airline ticket units, and booked room nights is another sign of positive growth throughout the industry. The ongoing vaccination drive and lifting of travel restrictions remain as key tailwinds for the stock. However, Booking.com may need to contend with some emerging issues related to staff cutbacks to maintain momentum on Wall Street.
Potential Challenges Ahead
Booking Holdings laid off around 25% of its workforce across 60 countries in 2020 and 2021, due to the difficult industry landscape left by the Covid-19 pandemic. Recent news suggests the culling isn’t over though, with Booking.com set to cut a further 2,700 call center jobs over the coming months.
The employees of around 12 call centers, excluding those set up in Amsterdam and Manchester, will take up positions with outsourcing specialists Majorel, which is based in Luxembourg.
Although the outlook for Booking.com appears to be bright with hopes for a busy summer for the tourism industry, the cutbacks on staff may put the company in somewhat risky territory from an image perspective.
With some countries opting to keep restrictions in place at this stage, Booking’s customer service departments are likely to be in heavier demand this year than throughout the 2010s. Should the company’s cutbacks lead to negligence of the company’s users, the company’s reputation may impact its positive outlook for now.
However, with Booking Holdings’ navigating the difficult Covid-19 landscape exceptionally well from a stock market perspective, investors should remain confident that the holiday giants will continue to outperform its benchmarks into the post-pandemic landscape.