ABNB - Booking (BKNG) vs Airbnb (ABNB): Which is the better travel stock?

2024-01-06 11:41:29 ET

Airbnb (NASDAQ: ABNB) and Booking Holdings (NASDAQ: BKNG) are some of  biggest travel companies in the world with a market cap of $87 billion and $118 billion, respectively. The two firms have done quite well in the past two years, helped by the strong recovery of the travel industry.

Airbnb stock jumped by 55% in the past 12 months while Booking is up by 58% in the same period. Analysts believe that the sector will continue doing well as inflation and interest rates start falling around the world. IATA, the association of airlines, expects that airline profits will hit $25.7 billion in 2024. So, which is the better buy between ABNB and BKNG?

BKNG vs Booking Holdings stock

The bullish and bearish case for Airbnb

Airbnb is a traveling pioneer that introduced the concept of vacation rentals. Its name is eponymous in the travel industry around the world. It now has over 4 million hosts around the world and is used by millions more customers.

Airbnb is widely seen as a cheaper and convenient way for people to travel. It is more convenient for families, friends, and colleagues. Instead of booking separate hotel rooms and pay expensive food, these groups can book one house and cook for themselves. As a result, Airbnb is mostly dependent on leisure travelers who are often more cost conscious.

Airbnb has grown at a faster pace than most travel companies over the years. Its total revenue jumped to $3.6 billion in 2018 and reached over $8 billion in 2022. It has generated over $9.6 billion in the trailing twelve months (TTM).

Over years, Airbnb has become a highly profitable company. Its net profit jumped to over $5.6 billion in the TTM. It had over $1.8 billion in net profit in 2022. In its most recent quarter, Airbnb said that it had a net income of $4.4 billion, which included a one-time income tax benefit.

Without the one-off payment, it hit a record $1.6 billion in net income and free cash flow of $1.3 billion. This helped the company to repurchase $500 million of its stock.

Airbnb has one of the best balance sheets in the industry. It ended last quarter with $10.5 billion in cash and short-term investments. It only has $1.9 billion in long-term debt, meaning that it benefited from the high-interest rate environment. Its interest income for the quarter stood at $192 million against interest expense of $6 million.

Airbnb has a huge market opportunity because of its strong brand name. As a result, it has a stronger market share compared to other brands like VRBO and Homestay. In this case, Airbnb is often seen as the Google of the vacation rental business.

However, Airbnb is also facing major challenges. For one, customers are complaining about the significant costs that the company charges. Also, other travel companies like Expedia and Booking are including vacation rentals in their platforms.

Most importantly, after years of hiking fees, it could get into a period of diminishing returns. As a result, the company’s growth could start to slow over time. This explains why several analysts from Barclays, Jefferies, and Evercore have downgraded their ABNB stock outlook. Those at Susquehanna, Needham, and Wedbush have lowered their targets.

The good and bad of Booking Holdings

Booking Holdings, unlike Airbnb, is not a widely-known company. However, most people have interacted well with its key brands, which include Booking.com, Priceline, Agoda, RentalCars, KAYAK, and OpenTable. It also owns other small brands like RocketMiles, Fareharbor, and HotelsCombined.

Booking Holdings is the biggest company in the industry. It makes money mostly through the referral fees it sends to hotels and airlines. It also makes money through its advertising business.

Like Airbnb, it is an asset-light and high-margin business since it does not own planes and hotels. Instead, it spends most of its money on marketing and boosting its technologies. Its revenue dropped to $6.7 billion in 2020 during the pandemic and then hit over $20.6 billion in the TTM.

Booking is also highly-profitable as its net profit has jumped from $59 million in 2020 to over $5.3 billion in the TTM. It also has a strong balance sheet with over $13.9 billion in last report. However, unlike Airbnb, it carries substantial debt, with over $11.8 billion in long-term debt.

Booking Group is also growing fast. In its most recent quarter, the company said that its customers booked 279 million in total bookings in the third quarter. Its gross bookings jumped to $40 billion, a 24% increase from the same period in 2022.

Booking has another advantage than Airbnb in that it makes money from hotels and airlines. It has also started to benefit from the vacation rental market where Airbnb dominates.

Better buy between ABNB and BKNG

I believe that both Airbnb and Booking Holdings are exceptional companies that dominate their industries. Most importantly, I expect that the two firms will continue doing well over time.

While I own both in my portfolio, I think Booking Holdings is a better investment because of its more comprehensive business portfolio than Airbnb. It is also growing its market share in the vacation rental business.

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