Analysis BKNG
Booking beat its travel forecast. Why did revenue fall?
Revenue categories grew before the FTC adjustment turned that increase into a reported decline. Travel activity exceeded earlier forecasts, while the next-quarter outlook slows.
Booking Holdings recorded a $1 billion accounting hit over an FTC matter involving Priceline. It reduced third-quarter revenue by $900 million and added $100 million to general and administrative expenses.
Priceline remains in discussions with the Federal Trade Commission. A settlement has not been agreed, and the FTC could seek more. The staff's recommendation to bring a complaint was already disclosed in August.
Research by Ticker Byline shows that Booking's combined revenue categories grew $785 million before the FTC adjustment. The $900 million reduction turned that increase into a $115 million decline in reported revenue.
| Revenue bridge | Change |
|---|---|
| Merchant revenue | +867 |
| Agency revenue | -106 |
| Advertising and other revenue | +24 |
| Combined change before FTC adjustment | +785 |
| FTC revenue reduction | -900 |
| GAAP revenue change | -115 |
GAAP revenue fell to $8.893 billion from $9.008 billion. Under the new adjusted definition excluding the FTC item, revenue was $9.793 billion, up about 9%.
Travel activity exceeded the earlier forecast
The travel business performed better than several of Booking's own August forecasts. Room nights grew 6.7%, gross bookings rose 9.6% and adjusted EBITDA increased about 9%.
| Measure | Forecast | Actual |
|---|---|---|
| Room nights | 3%-5% | 6.7% |
| Gross bookings | 4%-6% | 9.6% |
| Adjusted EBITDA | 4%-6% | About 9% |
Adjusted EBITDA removes interest, taxes, depreciation, amortization and selected other items, including the FTC provision. It reached $4.607 billion. Its margin on adjusted revenue rounded to 47% in both quarters.
GAAP net income edged down to $2.717 billion from $2.748 billion. A lower share count helped diluted EPS rise to $3.61 from $3.38, while adjusted EPS increased to $4.66 from $3.98.
The next quarter looks slower
Booking expects fourth-quarter room-night growth of 1%-3%, adjusted revenue growth of 0%-2% and roughly flat adjusted EBITDA. Management said international travel softened late in Q3, and its outlook assumes the direct and indirect effects of the Middle East conflict persist through year-end.
The annual sales outlook now uses adjusted revenue, excluding the FTC item. August's revenue forecast used GAAP revenue.
Cash and capital returns add context
Quarterly operating cash fell to $1.137 billion from $1.435 billion, but the nine-month total rose about 2% to $8.071 billion. Free cash flow, operating cash less capital spending, also rose about 2% year to date.
Booking repurchased about $2.1 billion of shares under its program during Q3. The Booking Holdings company profile tracks those returns, traveler advance payments, debt and the legal exposure.