On Friday, Morgan Stanley updated its assessment of Booking Holdings (NASDAQ:BKNG), increasing the price target to $3,700 from the previous $3,000. The firm has maintained its Equalweight rating on the company's shares. This adjustment follows Booking Holdings' guidance for 2024, which forecasts gross bookings and revenue growth of over 7%, a figure that falls short of Morgan Stanley's estimate of approximately 10%. Additionally, the anticipated EBITDA growth rate, expected to be slightly higher than revenue, also did not meet Morgan Stanley's projection of around 14%.
The analyst at Morgan Stanley noted that the flat growth in U.S. room nights during the fourth quarter raises concerns about potential market share loss in the leisure hotel segment. This stagnation indicates a need for Booking Holdings to improve execution in 2024. Despite these challenges, Booking Holdings has shown competitive strength in alternative accommodations, with its alternative accommodation nights growing by 19% in the fourth quarter. This growth represents an addition of around 11 million nights, outpacing Airbnb by approximately 700 basis points and marking the fifth time in seven quarters that Booking Holdings has matched or exceeded the number of room nights added by Airbnb.
Morgan Stanley also highlighted early indications of efficiency gains from Booking Holdings' use of Generative AI. The AI Trip Planner and Penny have reportedly reduced customer service contact rates, while Generative AI tools have increased software developer productivity. Despite a slight downward revision in revenue and EBITDA forecasts for 2024, with a 2% and 3% decrease respectively, the 2025 estimates remain unchanged.
The revised price target of $3,700 is justified by a valuation roll forward and multiples that align with the company's long-term average. Morgan Stanley's price target is based on 14 times the estimated 2025 EBITDA and 18 times the estimated 2025 earnings per share.
InvestingPro Insights
As Booking Holdings (NASDAQ:BKNG) navigates market expectations and its own growth forecasts, InvestingPro offers a deeper look into the company's financial health and stock performance. According to InvestingPro data, Booking Holdings boasts a market capitalization of $134.22 billion, reflecting its substantial presence in the travel industry. The company's gross profit margin stands impressively at 86.14% for the last twelve months as of Q1 2023, underlining its efficiency in generating revenue relative to the cost of goods sold. This is particularly relevant in light of Morgan Stanley's focus on the company's operational execution.
Furthermore, Booking Holdings' P/E ratio is currently at 27.3, with an adjusted P/E ratio for the last twelve months as of Q1 2023 at 26.36. This metric is essential for investors considering the company's earnings relative to its share price. Notably, an InvestingPro Tip points out that the stock is trading at a low P/E ratio relative to near-term earnings growth, suggesting potential value for investors looking at the company's future earnings prospects.
Additionally, the stock has shown a robust return over the last year with a 60.81% price total return, indicating strong market confidence and performance. This aligns with another InvestingPro Tip that highlights Booking Holdings as a prominent player in the Hotels, Restaurants & Leisure industry, which could explain the company's resilience and competitive edge as observed through its outpacing of Airbnb in alternative accommodation nights growth.
To gain access to more insights and metrics that could inform investment decisions, readers can explore additional InvestingPro Tips for Booking Holdings. There are 17 more tips available, including analyses on share buybacks, sales growth expectations, and liquidity. For those interested in a comprehensive investment tool, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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