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Booking Holdings’ Revenue Growth Likely to Slow Down in Q1

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Sluggish revenue growth expectations

Analysts anticipate weakness in the European market and an unfavorable exchange rate to weigh on Booking Holdings’ (BKNG) first-quarter top-line performance. For the to-be-reported quarter, Wall Street analysts forecast revenues to come in at $2.93 billion, almost flat compared to the year-ago quarter level.

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The company during its fourth-quarter 2018 earnings conference call also provided a dismal outlook for the first quarter. For the quarter, Booking Holdings anticipates revenues to be in the range of a 1% decline to a 1% increase. The top-line growth projection is in contrast with the strong double-digit revenue growth the company registered in the preceding four quarters.

The company during the conference call stated that though it projects hotel room night bookings to increase in the range of 6%–8%, extensive currency headwinds will limit its top-line growth.

Further, during the same conference call, Booking Holdings revealed that it had witnessed a slow start this year, mainly in the European market primarily due to macroeconomic factors. Booking Holdings’ arch rival Expedia (EXPE) had also given a similar view during its fourth-quarter results.

Nonetheless, the company’s continuously expanding prepaid business model is likely to offset the negative impact of factors as mentioned earlier. Notably, under the prepaid or merchant business, Booking Holdings collects cash from customers at the time of booking but remits payment to the hotel after customers complete their stay in the hotel.

This strategy brings in higher commission and helps the company in enhancing its cash flows. The company registered over 30% YoY growth in the Merchant segment revenues in the last four quarters.

Peers’ expectations

Among major online travel agencies, Expedia last week reported 4% YoY growth in first-quarter revenues. TripAdvisor (TRIP) and Ctrip.com International (CTRP) are anticipated witness a 2.4% and 19.8% YoY rise in their respective first-quarter revenues.

To gain exposure to online travel agency stocks, investors can consider Amplify Online Retail ETF (IBUY). The ETF has allocated 3.1% and 2.9% of its portfolio in Expedia and TripAdvisor stocks.

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