Citi Reviews Booking Holdings' (BKNG.US) Q3 Results: Strong Travel Demand Exceeds Expectations, Maintains “Buy” Rating

The Zhitong Finance App learned that Booking Holdings (BKNG.US) handed over a report card for the third quarter that was better than expected: overnight volume, total reservation amount, and adjusted EBITDA completely exceeded market consensus. However, while the results exceeded expectations, the headwind of travel demand, which continued from the end of the third quarter to October, weighed down the fourth quarter guidance — according to Citi's comparison, the four-quarter night volume and total reservation value guidelines were lower than the seller's consensus, and the adjusted EBITDA growth rate guidelines were only “roughly flat year over year.” Citi reconfirmed its “buy” rating for Booking Holdings with a target price of $236.

Performance: Booking amount and EBITDA both surpassed consensus

Specifically, room nights (Room Nights) increased 6.8% year-on-year to 345 million nights in the third quarter, clearly outperforming the 3-5% year-on-year growth guideline range set by the company itself, and also exceeding the consensus by about 1%. Total bookings were $54.5 billion, up 11% year over year at fixed exchange rates, exceeding consensus by about 4%.

The revenue side needs to be viewed on two scales: after excluding the $900 million fee associated with US Federal Trade Commission (FTC) matters, the adjusted revenue was 9.8 billion US dollars, up 8.7% year over year at a fixed exchange rate, corresponding to a monetization rate of 18%, exceeding the consensus by about 3%; if this fee is included, the total revenue was 8.9 billion US dollars. On the profit side, adjusted EBITDA was $4.6 billion, with a profit margin of 47%, exceeding consensus by about 3%.

Reservation structure: strong air tickets, weak car rental

By business, the three reservation metrics showed clear differentiation. The 345 million nights were the core support for overall exceeding expectations; ticket bookings were 23 million, up 19.4% year over year, significantly exceeding the consensus by about 8% — Citibank analysts believe this growth rate “may be higher than the overall level of the industry.” In contrast, the number of car rental days was 21 million, down 0.7% year on year, about 2% below the consensus. It is the only inferior segment of the three indicators.

The fourth quarter guidance fell short of consensus, and the year-round guidance remained largely unchanged

The guidelines are the weak point of this financial report. The company expects nighttime volume to increase by only 1%-3% year-on-year during the fourth quarter; total reservation volume will increase by 4%-6%, lower than the agreed year-on-year increase of 7.1%; revenue will increase by 2%-4% at a fixed exchange rate, lower than the agreed 7%; and adjusted EBITDA will be “roughly flat” year over year. Citi pointed out that the guidelines for night volume and total reservation value for the fourth quarter fell short of consensus expectations.

On a full-year basis, the 2026 guideline is “generally maintained”: total reservation volume maintained high single-digit (HSD) growth at a fixed exchange rate; revenue growth guidelines were raised from “medium to high single digits” (fixed exchange rate caliber); adjusted EBITDA growth (high single digits) and adjusted EPS growth (low to medium double digits) remained unchanged.

Five key points of focus of the conference call: AI strategy comes first

Citi emphasized that the market's attention is still focused on Booking's AI strategy — the company has previously released horizontal agents such as Lola, Vayo, and Muse. Citi listed five major points of focus in the performance conference call: one is the progress and vision of the generative AI strategy, including Lola, Vayo, Penny, and the updated horizontal smart device Muse; second, travel demand trends in the third quarter, regional strength (especially the European market, considering concerns raised by the Middle East conflict), and trend clues for the fourth quarter; third, direct sales traffic share and “Connected Trip” (Connected Trip) penetration rate; fourth, demand for alternative lodging and supply construction in the US market; five is the 2027 profitability trend. Includes benefits from the company's $100 million incremental cost savings.

Valuation and Ratings: Reiterated purchase, target price of $236

Citi reconfirmed its buying rating for Booking Holdings with a target price of $236. According to the Citigroup rating system, the purchase rating corresponds to an expected total return of at least 15% over the next 12 months. The price target is based on 19 times the 2027 projected price-earnings ratio, multiplied by Citi's 2027 GAAP earnings of $12.40 per share. Based on the stock price of $155.67 on November 3, corresponding to the expected stock price return of 51.6%, plus the expected dividend yield of 1.1%, the expected total return is 52.7%, which is far above the purchase rating threshold; the company's market value is about US$116.967 billion.

For the target multiplier of 19 times, Citi gave the reasons: the dividends brought by Booking's consistent execution, payments (Payments), loyalty (Loyalty) and “Connected Journey” strategy, as well as the profit margin of continuous expansion.

Risk Alerts

Citi also listed the risks that may prevent the stock price from reaching target prices: first, the recovery in travel activity was slower than expected; second, the monetization rate and adjusted EBITDA profit margin declined as the company expanded beyond the core European lodging business; third, there was a risk that profit forecasts would be lowered due to exchange rate headwinds; and fourth, exogenous market shocks continued to have an impact on the global travel market (including COVID-like events).