Booking Stock Downgraded As Jefferies Expects Slower Travel Growth

Booking Holdings (BKNG) was a winner as revenge travel surged, but the trend may be fading.

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Jefferies on Wednesday said it expects slower growth for online travel companies and downgraded Booking stock to hold, while also cutting estimates for Airbnb (ABNB) and Expedia Group (EXPE).

In a note to clients, Jefferies analyst John Colantuoni said the sustainability of room night growth for online travel companies is the “key debate” following earnings season for online travel stocks. Booking, Airbnb and Expedia each warned investors last month that they are seeing softer demand in certain markets, including the U.S. for Airbnb.

Travel industry growth has already eased compared to a surge that followed the lifting of pandemic-related restrictions in 2020. Colantuoni told clients that Jefferies is modeling further moderation.

“The slowdown is primarily driven by a normalization of demand trends, now that worldwide room nights have reached pre-pandemic levels,” Colantuoni wrote. Room nights refers to total number of hotel rooms or short-term rental units booked.

With the report, Jefferies downgraded Booking stock from buy to hold and lowered its price target to 4,200 from 4,350. Jefferies reiterated a hold rating on Airbnb stock and Expedia Group, but lowered its Airbnb price target to 120, from 125.

Slower Travel Industry Growth

Jefferies projects that worldwide room nights growth for online travel agencies will slow to 6.1% this year, compared to 11% growth in 2023. The analysts are forecasting 4.5% growth in 2025 and 3.6% growth in 2026. Notably, Jefferies is assuming a soft landing for the economy in its forecast, with potential further downside if there is a recession.

A surge in demand that followed the Covid-19 related travel shutdowns in 2020 — often referred to as revenge travel — helped online travel companies post eye-popping growth rates. For instance, hotel room nights booked through Booking Holdings jumped 66% in 2021, 52% in 2022 and 17% in 2023.

But Jefferies sees growth rates for travel normalizing toward pre-pandemic levels. The report noted that global consumer hotel nights booked grew an average 3% annually from 2017 to 2019. Jefferies also projects that online penetration of broader travel booking will slow after a “material adoption pull-forward” during the pandemic.

Booking Stock Downgraded

In downgrading Booking stock, Colantuoni noted that Booking Holdings offers “peer-leading” execution and free cash flow. But Booking stock’s upside is capped by the downside risk for its room nights growth, in the analyst’s view.

“In addition, slower growth in room nights and intensifying competition in alternative accommodations could pressure margin estimates,” Colantuoni  wrote.

On the stock market today, Booking stock is down a fraction at 3,789.22 in recent action. Shares fell 9% following Booking’s second quarter earnings report on Aug. 1. But a bounce-back for the stock since then has formed a cup base with a buy point of 4,144.32, according to MarketSurge charts.

Shares of Booking Holdings — which owns Booking.com and Priceline among other travel sites — have gained roughly 9% year to date. Booking stock surged 76% last year.

Airbnb stock, meanwhile, is trading flat at 115 in recent action. Shares fell 14% following Airbnb’s second quarter report and have traded tightly since then. Airbnb stock is down 15% this year.

Expedia stock is up a fraction at 137.59. Expedia stock jumped following what analysts called a “better-than-feared” Q2 report on Aug. 8. But shares are down 8% overall this year.

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