I need a vacation from vacation stocks.
We are long-term investors here at MyWallSt and recommend companies that we believe will have consistent growth for years to come. Updates are an opportunity for us to reaffirm our stance on a company while keeping you up to date on its developments. By renewing our comments with the latest information, we ensure that investors have confidence in our selections, regardless of their start date.
As the pandemic set in across the globe, stocks were rocked by uncertainty and a temporary bear market set in. After managing their initial shock, investors quickly began searching for obvious, short-term opportunities, and a scramble for stay-at-home stocks emerged. Companies we'd favored for their longevity, like Zoom, Docusign, and Netflix, were suddenly the crown jewels of retail investors who scooped them up at their March 2020 lows, hoping for a few months of great returns. As usage and revenue pulled forward, investor mania increased, and even the most stable of companies watched their multiples skyrocket. Now, we enter the reverse of this trend: reopening stocks.
For this piece, I'll be focusing on the most obvious and talked about come-back candidate: travel stocks, or more specifically, online booking conglomerates Booking Holdings and Trip.com Group. Bulls will argue we're about to enter a Gatsby-like revival of excessive spending, partying, and vacationing which will fuel the sector like never before, but I'm here to remind you not to get distracted by that promising green light and instead focus on the horizon.
With borders closed, planes grounded, and hotels used for little more than quarantine, the travel sector took a significant beating. According to the United Nations World Tourism Organization, "the decline in international travel in 2020 resulted in an estimated loss of $1.3 trillion in global export revenues". This figure is more than "11 times the loss that occurred in 2009 as a result of the global economic crisis" so it will take more than a decadent summer to right this ship. This is something both Booking and Trip.com have been transparent about.
Booking Holdings controls Priceline, Agoda, KAYAK, Rentalcars, Open Table, and its own namesake Booking.com. Based in the U.S., the company has expanded throughout the globe via acquisitions and now controls the world's most popular travel search engines and fare aggregators. Trip.com Group, on the other hand, is a domestic darling turned global wannabe. Founded in China as Ctrip, the company carved out a dominant share of the Chinese travel platform market by acquiring a diverse range of competitors. However, following in the footsteps of Booking, Ctrip realized real growth lies internationally, so it acquired American travel service Gogobot (later known as Trip.com) in 2017 and Scottish search engine Skyscanner in 2016. While the diversity of both companies have been their strengths, allowing them to avoid localized downturns, target emerging markets, and maximize profit through international travel, it also left them particularly exposed to a worldwide pandemic.
This was reflected by Booking CFO David Goulden who stated "it will be years, not quarters for global travel to fully recover to pre-virus levels with domestic travel recovering much faster than international". Booking estimates it will reach $9.3 billion in net revenue this year, which is a 37% climb compared to 2020 but still a far cry from 2019, where the company raked in $15.1 billion.
However, signs of life are certainly emerging. Both Booking and Trip.com have reported domestic bookings within the United States and China are on the rise. In Q1 of 2021, Booking recorded higher room night numbers within the USA than pre-pandemic. Similarly, during the May holiday in China, TCOM reported approximately 230 million trips were made by tourists domestically, representing a 3% increase compared to the same period in 2019. So things are improving, just not at a pace investors are clearly hoping for. Both stocks have been pushed past their January 2020 highs. Surprisingly, Booking reached an all-time high in April 2021. Clearly, we may have jumped the gun a little.
Readjusting to the long term, both companies have made moves during the pandemic to prepare them for emerging trends in travel, a great sign for any investor. Booking has focused on expanding its alternative accommodation to challenge Airbnb and Trip.com created a multi-year plan to further expand its presence in the international market. TCOM's international business accounted for 35% of overall revenue in 2019, it hopes to increase this to between 40 and 50% by 2022 and become Asia’s No. 1 online travel company. Part of this plan included acquiring an almost 50% stake in India's travel platform MakeMyTrip, another rapidly emerging economy with a growing middle class.
Both companies have also proven themselves against new, intimidating competition. Google launched Google Flights and Google Hotels to the shock and horror of Expedia and Tripadvisor but Booking didn't seem to mind. Turns out, these new Google products just became another part of Booking's customer funnel and CEO Glenn Fogel stated “we built this company on pay per performance to begin with and it’s no secret that we did it with Google. Google and us have had a very good relationship together." Similarly, TCOM's Ctrip has proven itself against Fliggy, an Alibaba-backed travel platform. Fliggy initially gained a significant number of upstream suppliers due to reduced commission rates but the platform has a hands-off approach to customer service. This has meant an increase in customer dissatisfaction, causing many users to remain loyal to Ctrip, forcing suppliers to return.
Booking and Trip.com are long-term stocks caught up in a short-term mindset. While their immediate future is unclear, their five or ten-year prospectus looks promising. In light of this, we have updated our comments on Booking Holdings and Trip.com Group. To start with Booking, click on the stock button below, or select Trip.com (TCOM).