Airbnb (ABNB -1.43%) is a popular stock, and for good reason. Travel has become a top priority for many American households, and out-of-town vacationing is rising around the world, too -- especially in developing economies with a growing middle class. Airbnb still has great long-term potential.
But there could be an even better buy hiding in plain sight: Online travel giant Booking Holdings (BKNG -1.15%), parent company of Booking.com, Priceline, Agoda, Rentalcars.com, and Kayak. Here's what you need to know.
Can slower really mean mightier?
Despite its popularity, some investors might be surprised to hear that Booking stock, not Airbnb, has been far and away the better performer over the last 12 months.
For one thing, Airbnb was working from a sky-high valuation that baked years of double-digit percentage expansion into the valuation this time a year ago. Booking, the "sluggish" internet giant with roots predating the dot-com bubble, did not. But that doesn't mean big and slow is bad. In fact, while Airbnb's revenue has increased a great deal more over the last few years, Booking's revenue growth has been rebounding rapidly and has bested Airbnb in the last reported 12-month stretch. In the second quarter of 2023, Booking reported a 27% year-over-year increase in revenue to Airbnb's 18%.
Data by YCharts.
Both of these companies are cash-generating machines, and after many years of charting the path for a solid online booking accommodation business model, Booking continues to excel in this area. Booking's Q2 2023 net income was $1.3 billion, up 51% from 2022 as the internet company continues to find new profit levers to pull. Net income per share was up 66%, up even more than straight net income thanks to Booking's massive cash return to shareholders via stock buybacks. Management has repurchased $5.25 billion worth of stock so far this year, nearly $3 billion more than in the first half of 2022.
If you're keeping score, smaller Airbnb did pretty well, too, scoring a 72% year-over-year increase in its net income as it still has a ways to go to catch up with Booking's lofty operating profit margin.
Data by YCharts.
Is Booking stock the better buy?
As I said a few months ago, I believe Booking could be a timelier purchase than Airbnb right now. Booking trades for 19 times expected 2024 earnings, compared to 31 times expected earnings for Airbnb.
Bear in mind this is a premium valuation for both stocks, perhaps especially so for Booking. Over the long haul (five-plus years), Airbnb could have more growth potential as it expands into new areas of the travel industry beyond its core accommodations hosting platform. Booking is already well diversified. And 2023 is seeing record travel again for the U.S., but signs are emerging that Americans are starting to feel the pinch from inflation. Expect growth to slow in 2024.
Interestingly, though, Booking management said on its earnings call that international room nights booked only just recovered to 2019 levels in Q2 2023. While overall travel spend should moderate going forward, world demand for vacations still has a long runway ahead of it.
To reiterate, Booking is no value stock. Expect some turbulence going forward, especially if travel demand does moderate. But if you're looking for a great travel stock for the long haul, Booking Holdings could be a timelier buy than Airbnb right now.
