10-QPeriod: Q1 FY2014

Booking Holdings Inc. Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 8, 2014For Securities:BKNG

Summary

Booking Holdings Inc. (then The Priceline Group Inc.) reported robust financial performance for the first quarter ended March 31, 2014, with total revenues growing 26.1% year-over-year to $1.64 billion. This growth was primarily driven by a significant 35.2% increase in agency revenues, largely attributed to the strong performance of its international brands, particularly Booking.com. Merchant revenues saw a slight decrease of 0.3%, impacted by a shift away from the higher-revenue-recognition 'gross' Name Your Own Price® model towards 'net' recognition models like Express Deals® and agoda.com. The company demonstrated impressive operational efficiency, with gross profit increasing by 39.3% to $1.41 billion and gross margin improving to 85.7% from 77.5% in the prior year period. This improvement was driven by a favorable shift in revenue mix towards higher-margin agency revenues and a decrease in cost of revenues, partly due to a reduced reliance on the Name Your Own Price® model and the inclusion of KAYAK. Net income applicable to common stockholders surged to $331.2 million, a substantial increase from $244.3 million in Q1 2013, leading to diluted EPS of $6.25, up from $4.76. Liquidity remains strong, with cash, cash equivalents, and short-term investments totaling $6.7 billion as of March 31, 2014, with a significant portion held internationally. The company continued its share repurchase program, repurchasing shares for tax withholding obligations and holding $654.5 million remaining authorization. Key risks and focus areas include intense competition, evolving digital advertising landscape, foreign currency fluctuations, and ongoing litigation related to travel transaction taxes.

Financial Highlights

52 data points
Beta

Revenue

$1.64B

85.7% Gross Margin

Net Income

$331.22M

20.2% Net Margin

EPS (Diluted)

$0.25

Total Assets

$10.81B

Cash & Equivalents

$1.29B

Free Cash Flow

$147.27M

Financial Statements
Beta
Revenue$1.64B
Cost of Revenue$235.33M
Gross Profit$1.41B
Operating Expenses$967.75M
Operating Income$438.73M
Interest Expense$17.75M
Net Income$331.22M
EPS (Basic)$0.25
EPS (Diluted)$0.25
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.33B

Key Highlights

  • 1Total revenues increased by 26.1% to $1.64 billion for the first quarter of 2014 compared to the same period in 2013.
  • 2Agency revenues grew by 35.2% to $1.04 billion, primarily driven by the international segment, notably Booking.com.
  • 3Gross profit increased significantly by 39.3% to $1.41 billion, with gross margin expanding to 85.7% from 77.5% year-over-year.
  • 4Net income applicable to common stockholders rose to $331.2 million, resulting in diluted EPS of $6.25, up from $4.76 in Q1 2013.
  • 5The company maintained a strong liquidity position with $6.7 billion in cash, cash equivalents, and short-term investments as of March 31, 2014.
  • 6Online advertising expenses increased by 29.2% but decreased as a percentage of gross profit due to the inclusion of KAYAK and a shift in brand mix.
  • 7The company continues to face ongoing litigation concerning travel transaction taxes, with an accrual of $54 million established as of March 31, 2014.

Frequently Asked Questions

The primary driver of revenue growth was a substantial increase in agency revenues, up 35.2% year-over-year, largely fueled by the strong performance of the company's international brands, particularly Booking.com.

The inclusion of KAYAK, acquired in May 2013, had a significant favorable impact on advertising expenses as a percentage of gross profit. It also contributed to increased operating expenses such as personnel, general and administrative, information technology, and depreciation and amortization, but overall boosted total revenues and gross profit.

The company believes that the travel transaction tax laws at issue do not apply to its services and is vigorously contesting these claims. However, it has established an accrual of approximately $54 million as of March 31, 2014, to account for the probable cost of resolving these issues, acknowledging that the actual cost could be significantly different. The company believes its available cash would prevent a material impact on liquidity even with adverse determinations.

The company manages its exposure to foreign currency fluctuations primarily through derivative instruments for short-term risks and by intending to permanently reinvest funds held by its international subsidiaries. While revenue grew on a local currency basis, currency exchange rates had a negative impact on reported U.S. Dollar revenue.