No Recession, Just Slow Growth and Booking Holdings [BKNG] Will Shine

October 26, 2022
Dan Wasiolek is a senior equity analyst for Morningstar Research Services and has Booking Holdings as a top pick

Dan Wasiolek, senior equity analyst, Morningstar Research Services

Dan Wasiolek has Booking Holdings [BKNG] as a top pick.  Mr. Wasiolek is a senior equity analyst for Morningstar Research Services.

He covers lodging, online travel, global distribution system, and gaming operators. Before joining Morningstar in 2014, Mr. Wasiolek spent 16 years as an analyst and portfolio manager covering U.S. mid- and large-cap strategies for Driehaus Capital Management.

Mr. Wasiolek holds a bachelor’s degree in business administration from Illinois Wesleyan University and a master’s degree in business administration, with a concentration in finance, from the DePaul University Kellstadt School of Business.

“Morningstar currently does not expect a recession in the U.S., although we do expect very low economic growth in 2023.

But if a mild recession were to occur, this might not follow the patterns that we’ve seen historically, like in the early 1990s, when a mild recession dipped U.S. hotel demand by several percentage points. Now, although demand has recovered from pandemic lows, we still think demand remains several percentage points below the normalized trend line.

So even if we get a mild recession that typically would contract hotel demand by several percentage points, we actually think that’s kind of where we are already, and that signals that there’s still some pent-up demand.

And then in addition to that pent-up demand there is the trend related to remote worker flexibility, which is something in this cycle that was not around in previous cycles that could aid this rebound, or continue to allow a recovery in travel demand.

As far as regulatory headwinds, the one that could come back is local governments restricting supply of alternative accommodations.

We did see that pre-pandemic, as local governments wanted to make sure that the quality of life of its residents were not overly impacted by units being rented out instead of given to residents to live in. But we’ve actually seen that regulatory headwind reduced during the pandemic.

And we think that trend might continue, at least in the near term, as a lot of local governments are probably depending on travel demand for economic revenue, especially if we’re going to go into a period of slower economic growth.”

This new type of leisure travel combined with business has an implication for selected stocks like Booking Holdings.

“With more people working at home or in a hybrid work-from-home environment, that’s allowed them to work from any location, and take what’s sometimes referred to as “bleisure” trips, where you might be working, but you’re also kind of taking a longer weekend with a family.

In support of this, hotel data shows increased demand for what are called shoulder days.

So you know, you have the weekend — Saturday and Sunday — and then the shoulder days would be Monday and Tuesday, and before the weekend, Thursday. So weekend hotel demand has been extending into these shoulder days, which is signaling that people are combining work with leisure type trips.

Further, both sentiment surveys and travel surveys indicate that people are taking incremental trips because of current worker flexibility.

So, to the degree that that remote flexibility endures, we think that that can allow for those incremental trips to continue to occur.”

This new trend leads the Morningstar analyst to his top recommendation.

“So the bleisure trend touches a lot of the travel industry — the hotel guys, the alternative accommodation players, and even the travel companies exposed to airline transactions. And one name in online travel is, which is the main core platform for the company Booking Holdings (NASDAQ:BKNG).

They have a really strong online travel network globally, where you can go and book all types of travel supply, like hotel or alternative accommodations, flights, experiences and so on.

So we think Booking shares actually trade at about a notable discount to our $3,000 per share valuation.

This discount is despite Booking being a really high-quality business and management team that continues to see strong demand.

That said, one headwind for the company would be currency, but we just think that their execution, the amount of demand recovery that they’ve seen, both for traditional hotels and alternative accommodations, has been indicating that they’ve been taking share during the pandemic.

A lot of people are familiar with Airbnb (NASDAQ:ABNB) when it comes to vacation rentals, but might not realize that the number-two player in alternative accommodations is actually Booking Holdings.

They have about half of the share of Airbnb in that vertical. And alternative accommodations probably represent about a third of Booking Holdings’ total room nights. So that would be one name that could benefit from this bleisure environment.

when you look at network advantages — which we think both Booking and Airbnb have — the network is kind of built by a lot of travelers going to that platform. And they’re going there because there’s a lot of supply from travel operators offering hotel content and other accommodations. So people might go to Booking versus Airbnb for several reasons. is a top 10 travel app in about 140 countries in the world. That compares with Airbnb which is a top 10 travel app in about 80 countries in the world. And the demand that Booking has stems from the fact that Booking is really well known in European countries and international countries, maybe even more so than Airbnb.

And in addition to Booking having alternative accommodations, they also have pretty much every hotel type room that you could think of, which is not something that’s present on Airbnb. So if you’re looking just for alternative accommodations, you’re going to go to Airbnb and maybe Booking. But if you’re not sure and you want to look at both hotel and alternative accommodations, you’re probably better off looking at Booking Holdings, especially from a global perspective.

And so Booking Holdings would be the one that we would highlight first in our travel coverage, because of the discount that we think it’s trading at relative to our $3,000 per share valuation. And we think it’s earned our top rating, also just because of the quality of its competitive position.”

Get the complete picture on Booking Holdings (NASDAQ:BKNG), Airbnb (NASDAQ:ABNB), and many more hotel and travel stocks by reading the entire 2,781 word interview, exclusively in the Wall Street Transcript.