3. Booking Holdings, Inc. (NASDAQ:BKNG)
No of HFs: 113
Total Value of HF Holdings: $6.67 Billion
Booking Holdings, Inc. is an American company that owns and operates several travel fare aggregators and travel fare metasearch engines. The company was ranked 216th on the 2019 Fortune 500 list of largest US corporations by revenue.
In an article, Wedgewood Partners decided to liquidate their position during the second quarter.
“After a holding period of several years, we decided to liquidate our position in Booking Holdings during the second quarter. We trimmed our position earlier this year, as the COVID-19 outbreak unfolded and we deployed proceeds into better opportunities elsewhere, but a combination of a significantly worsening fundamental picture and a recovery in the stock led us to sell our position entirely.
There has been no fundamental change to our view of the quality of the business model or the management team, and we wouldn’t be surprised if the stock found its way back into our portfolio again. However, the outlook for industry fundamentals quickly became much worse than we previously had anticipated, and we think normalization may be a multi-year process. Furthermore, comparing global travel and hospitality data to trends in Booking’s consensus estimates at the time we decided to sell our position, we believed even reduced expectations for the company’s results still were too high, likely by a considerable amount. In fact, shortly after our sale, Booking reported much worse than expected first quarter booking trends, coming in -30% below lowered expectations. In addition, the Company reported that April was even worse, with booked room nights collapsing -85% in the month.
Despite the superiority of the business model, and despite the fact that we expect Booking’s competitive position to emerge considerably stronger from this crisis, we believe there will be an extended period of adjustment before travel returns to anything like normal, meaning it will be a long time before we can call Booking a “growth company” again, and we can deploy the proceeds somewhere more attractive until then.”
In a separate article, Wedgewood also commented on the stock,
“As we have been writing since Booking began discussing a change in its advertising strategy back in 2017, we believe investors have completely failed to grasp the significance of the Company’s strategic initiatives over the past few years. Booking had found that traditional search engine optimization (SEO) advertising, primarily with Google, was not generating the return in bookings/revenue and profits that it had generated in the past. Furthermore, Booking noted this was in some part due to metasearch providers (such as TripAdvisor) – of which Booking was the most important customer – competing directly with its online travel agency customers for bookings by investing in SEO themselves, rather than “staying in their lane” and functioning solely as a search service. This dwindling return on advertising spend had led to continually shrinking margins, as Booking had to invest more and more to generate the same level of booking growth.
Booking laid out a clearly articulated strategy to reduce its reliance on SEO advertising as well as its spend with the metasearch providers that were using Booking’s own ad dollars to compete against it, and it proceeded to execute this strategy exactly as laid out. This led to slowing – but still healthy – bookings growth, but it also led to rapidly accelerating profit growth, exactly as planned. Furthermore, and more importantly, its business model developed less reliance on more expensive forms of advertising, such as SEO, and its strategy changed the behavior of the major metasearch providers, dissuading the Company from competing directly against its customers, such as Booking.
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