Booking Holdings (NASDAQ:BKNG) (formerly known as Priceline) is a pioneer and global leader in the online travel industry. The company’s strong brands, significant investment expenditures and scale advantages have given it a formidable network effect. Add to that the company’s geographic exposures, revenue mix and superior online traffic conversion, and it is clear that Booking has one of the best operating models in the industry. Yet the share price fell after the company issued weaker than expected quarterly guidance due to rising macroeconomic pressures in Europe and the company’s increased investment expenditures. Booking has been investing heavily in alternative accommodations, payments, business travel and other ancillary businesses, and we believe this approach will further enhance the company’s competitive position and allow it to exceed market growth rates over the long term. The company’s highly regarded management team also has a long history of growing per share business value. We expect Booking to repurchase nearly 10% of its total share base over the two-year period, ending at the close of 2019, and that it will grow earnings at above-average rates while maintaining its pristine balance sheet. On our one-year forward estimate, Booking trades at a discount to the market’s P/E ratio (excluding its net cash and investments), despite a superior growth outlook and well above-average return profile, which should earn it a premium valuation.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund first-quarter 2019 shareholder letter.
