Artificial intelligence (AI) is transforming nearly every industry. The travel industry is no different, and established companies such as Booking Holdings (BKNG) and Expedia (EXPE) are turning AI in their favor.
Global travel demand has skyrocketed following the pandemic. Despite inflation and geopolitical tensions, people want to travel more to experience new cultures and places. Furthermore, rising disposable income and lifestyle changes have increased the demand for wellness-focused leisure travel.
According to Statista, the global travel and tourism market volume is expected to reach $1.1 trillion by 2029. Expedia and Booking Holdings both have the technological capacity and resources to capitalize on this rapid expansion. Let's see if this is the right time to buy these travel stocks now.
Travel Stock No. 1: Booking Holdings
Booking Holdings, the world's largest provider of online travel and related services, has always been my first choice when planning trips. It operates in 220 countries and territories, with a diverse portfolio of brands that includes Booking.com, Priceline, Agoda, OpenTable, and Kayak.
Despite the competition, it remains the dominant force in the global travel market. BKNG stock has soared nearly 50% year-to-date, outperforming the S&P 500 Index’s ($SPX) gain of 26.8%.
Booking has shown resilience in 2024, benefiting from a global resurgence in travel. Gross travel bookings increased 9% year-over-year to $43.4 billion in the third quarter. Total revenue of $8 billion, also increased 9% year-over-year, surpassing consensus estimates by $366.6 million. Adjusted earnings per share (EPS) increased 16% from the previous year's quarter to $83.89, exceeding consensus expectations.
Booking has heavily invested in AI to improve customer experiences. User engagement has increased thanks to features such as personalized search results, dynamic pricing, and AI-driven customer support. Management stated during the Q3 earnings call that the AI Trip Planner, which was launched last year, is making significant progress. The company is continuing to develop AI capabilities that will benefit both its customers and its supplier partners. With a cash and investment balance of $16.3 billion, the company is well-positioned to continue investing in AI.
In February, Priceline announced new generative AI-powered features for its AI travel assistant, Penny. According to the company, the 30 new features will "dramatically streamline the travel planning and booking process" and help consumers avoid becoming overwhelmed with travel planning.
Management anticipates an 8% increase in full-year gross bookings and a revenue growth rate of slightly less than 10%. Additionally, adjusted EPS could rise in the high teens.
Meanwhile, analysts covering Booking expect revenue to rise by 9.6% to $23.4 billion in 2024, with earnings up 20.1%. Revenue and earnings are expected to rise by 8.6% and 14.4% in 2025, respectively.
While challenges remain in the travel industry, Booking's strategic initiatives, strong financials, and ability to innovate position it for long-term success. Booking stock is priced at 25 times forward 2025 earnings, which appears to be slightly high. However, given the company's strong long-term prospects and the AI-led rapid expansion of the travel industry, this growth stock appears to be a good buy right now.
Is BKNG Stock a Buy Now?
Overall, BKNG stock is a “moderate buy” on Wall Street. Out of the 35 analysts covering the stock, 19 rate it a “strong buy,” two suggest it's a “moderate buy,” and 14 rate it a “hold.” Booking stock has surpassed its mean target price of $5,077.18. The high target price estimate of $5,850 implies upside potential of 12% over the next 12 months.
Travel Stock No. 2: Expedia Group
With a market capitalization of $23.7 billion, Expedia Group is a key player in the online travel and booking industry. Aside from Expedia, the company's diverse portfolio includes brands such as Hotels.com and the online vacation rental platform Vrbo, which ensures exposure across various travel segments.
Since 2020, Expedia has faced both challenges and growth. The company's most recent third-quarter earnings revealed a strong recovery in travel demand, driven by both leisure and business travel.
Compared to the broader market's gain, Expedia stock has surged 23.4% year-to-date.
In the third quarter, total revenue reached $4.1 billion, marking a year-over-year increase of 3%. Earnings increased 13% from the prior-year quarter to $6.31, beating consensus expectations. This could be because of the company’s efforts to discipline costs by lowering sales and overhead costs.
Total gross bookings increased 7% to $27.5 billion, with B2B segment revenue up 18% to $1.2 billion. The B2B segment generates revenue from a diverse range of travel and non-travel businesses that use Expedia's travel technology and resources to expand their offerings. Even the company's advertising business drew in 32% growth in revenue.
Management stated that while travel demand in the third quarter remained healthy, it was mixed, with international demand stronger than in the United States.
Only time will tell if Vrbo can catch up with vacation rental leader Airbnb (ABNB), but the company reported Vrbo's return to growth in the quarter. Expedia is also working to improve the app's performance by increasing its speed and adding new features to streamline research. Management believes Vrbo will maintain its positive momentum in the fourth quarter.
The travel industry is highly competitive. Like Booking, Expedia has also been investing heavily in AI to improve user experience. The company uses AI-driven chatbots to provide personalized recommendations, dynamic pricing, and efficient customer service.
Expedia's recent collaborations with airlines like Ryanair (RYAAY) and Alaska Airlines (ALK), as well as hotels and local tourism companies, aim to broaden the company's global footprint. Expedia also announced a new partnership with Microsoft (MSFT) to reward Bing users on bookings powered by Expedia.
A study conducted by Expedia in partnership with Atomik Research revealed that around 81% of mass-affluent Asian travelers revealed that travel is still a priority, despite inflation. This group plans to commit around a quarter of their income to travel in the next 12 months, meaning ample opportunities for Expedia to expand its business.
Looking ahead, management anticipates a 5% increase in gross bookings, resulting in a 6% increase in revenue in 2024. Furthermore, earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings before interest and taxes (EBIT_ margins may increase slightly compared to 2023.
Analysts covering Expedia expect revenue to rise by 5.7% to $13.6 billion, with earnings rising by 21.7%. Revenue and earnings are expected to increase by 8% and 20% in 2025, respectively. Expedia stock is currently a reasonable buy, valued at 13 times forward 2025 earnings, given the surge in travel demand.
Is EXPE Stock a Buy Now?
Overall, Expedia stock is a “moderate buy” on Wall Street. Out of the 32 analysts covering the stock, eight rate it a “strong buy,” one rates it a “moderate buy,” and 23 rate it a “hold.” Expedia has surpassed its mean target price of $180.54, while the high target price estimate of $225 implies the stock can rally as much as 22.5% over the next 12 months.
