Although the margins are lower than its core hotel business, the alternative-accommodation business is growing rapidly. If you count all of the units for rent at its properties, Booking.com has 5.7 million listings. That's more than privately held Airbnb, which has a little more than 5 million listings worldwide.
And unlike Airbnb, all of Booking's listings are instantly bookable. There are no back-and-forth e-mails or text exchanges with the property owners or managers.
The company is constantly adding new properties to its inventory, creating more choices and value for its customers. Over the last year, it has added more than 200,000 new properties globally. That's 11% more properties.
You can book air travel and rental cars, as well as make restaurant reservations, on its websites. But the accommodation business not only provides most of the company's revenues, it is also its growth engine. And the company expects that trend to continue. The growth is fueled by several powerful trends:
- Offline-to-online booking,
- Adoption of mobile devices, and
- Growth of travel in Asia Pacific.
These trends ensure the company has many more years of double-digit growth ahead of it. The online travel-booking market is still growing at double-digit rates. According to Zion Market Research, it is expected to grow by 12% a year through 2026. Only 40% of hotel bookings today are done online.
The Asia Pacific region – and China specifically – is the fastest-growing travel market today. Booking is investing heavily there. It spent close to $1 billion in recent years buying Chinese tech companies. And it has a minority interest in its top Chinese rival, Ctrip.
I love the growth. Bookings also has wider margins and better cash flow than its competitors.
For example, Booking generated free cash of more than $16 billion over the last five years, 34% of the $48 billion in revenues it generated over that time. That means it turned every dollar of revenue into $0.34 of free cash available for shareholders. Expedia only generated $0.11, and TripAdvisor only $0.21 of free cash for every dollar of revenue. The average of the companies in the S&P 500 is only $0.09 of free cash for every dollar of revenue.
Booking is able to crush its peers on most metrics because most of its business – about 75% – is generated by the agency model. Expedia generates less than 30% of its revenues through the agency model.
With the market beaten up over the last week, his gives us a good opportunity to jump in at a great price level.