Hey guys, it's sasha and today we're going to be looking at booking holdings, the company behind booking.com, kayak, agoda, priceline and a whole load of other brands. I am going to be analyzing the stock, telling you a few interesting bits of insight, my personal opinion and sharing my dcf model to show what my target price for booking holdings is. Is it a good buy? Well, let's see now before 2020 booking.com was absolutely killing. It they were growing massively destroying the competition.

The company was growing so fast that they earned 15 billion dollars in revenue in 2019, which was over three times the same company's revenue in 2011, and their net income was 32 of revenue, which is an incredible figure. Even in this industry - and there were very good reasons why booking was doing so well, they made a number of really smart commercial decisions which let them pull away from their competition. Most of booking's business is in letting people book, hotels, other kinds of travel, stuff, um, and they have put the customer first, which made them very quickly the hotel booking engine of choice for many customers booking. Let customers cancel their bookings on their penalties and made bookings with no down payments, both things that everybody else was not doing.

In fact, everybody else was doing the exact opposite. This has led to sticky customers who kept coming back to the platform which let booking grow at 17 per year, all the way, from 2011 to 2019 on average and they've made some other decisions as well. They are considerably different to other people in terms of marketing. They are the platform of choice for all the online content creators to work within the travel industry.

So there's a lot of things that are really good about them that, i think, put them in a really good position to continue growing when things go back to normal. But the travel industry did get decimated, did get hit very hard as a pandemic arrived and the numbers for booking completely plummeted. In 2020., we've seen a bit of a rebound in 2021 so far, but the travel industry is still down massively around the world. Now booking's share price tanked in march when the world went into log down when everything first began hitting and it bottomed out at around eleven hundred dollars.

But a quick rebound followed and the share price hit an all-time high a few days ago and is now trading in about two thousand four hundred dollars as i'm recording this video. The big question is: is booking a good recovery stock to buy, or is the bounce back on the share price way too optimistic? Well, let's look at the numbers, but before we do a quick shout out to anyone interested in buying us stocks, i use an investing platform called stake which, in my opinion, is the best investing app for people investing in u.s stocks in the uk, australia and new Zealand, they offer super low fees that are only charged when you deposit and withdraw money rather than on every transaction which most of the other people do, and you can get a free share worth up to 150 dollars. All you need to do is click my link in the description below sign up and make a deposit of 50 or more and i'll also get a small commission as well. So you get a free share and you get to support the channel at the same time.

So, thank you very much if you choose to do so anyway, back on the topic of booking holdings, obvious things being obvious, it is really hard to judge when the travel industry is going to bounce back. Given we still haven't, come out of this global pandemic and when the world does begin properly, opening up, what will the demand for travel look like? How long will it take for everything to go back to normal and how ready will the travel industry be ready to restart after this long pause? Now i've made some guesstimates in order to do this valuation. So let me share these with you. You can tell me in the comments below if you agree or disagree, here's my pretty basic dcf model.

I have it going out to 2027, so i've made it six years rather than usual, five, because we're now in q4 - and i wanted to have at least five full years, plus the remainder in the model for those watching in a few months time. That's why it's like that. So, let's look at the projections. First, i am taking a pretty conservative approach here in 2019, a booking made over 15 billion dollars in revenue and their average rate of growth at that point was spectacular, as i mentioned earlier, that all collapsed in 2020, when their revenue was under seven billion dollars.

That's 55 down on the year before, and if we look at the quarterly data you can see the small bounce back this year june is up considerably compared to june and 2020, although it is still 44 down from june 2019, and it is usually q3 where a Lot of the revenue and profit is made in the travel industry because of the summer breaks in the northern hemisphere, so i've penciled in 800 million dollars in ebitda for the rest of 2021, which would be close to last year's numbers. This year is more open for sure than last year, but the delta variant has hit the us very hard towards the end of the summer going in september. So i think that might suppress q3 numbers from what they could have been in any case 100 or 200 million dollars here doesn't really affect anything very much. It won't move the share price much at all, so i am projecting that we're going to see things begin.

Returning to normal in 2022, but definitely nowhere near to 100, now 2020 was 55 down from 2019 and i'm projecting the 2021 will be similar overall, when you balance the fact that it is going slightly better than last year, but also didn't benefit from the first three. Four months of not having this situation as we had last year, and i am projecting that ebitda will climb back up to four billion dollars in 2022. That would be almost four times higher than 2020. So some people might think that that is ambitious, but it is still 30 down from the level at which it was before the pandemic hit then 2023.

My model roughly matches 2019 with about six billion dollars in ebitda, and then i have a 15 rate of growth from there. That's in line with what their growth was before uh over the last decade, and i actually think that the pent up demand for travel would mean that we will see a few years of pretty big benefit in terms of growth rates for the travel industry. Then i have forecast other basic items in the same way further down the table, so we have depreciation working capital, capex and all that kind of stuff, and i'm also using a discount rate of 10 to get the present value. Some people might think that's too low.

I'm kind of happy with that. For now, then we have the two basic valuation methods. The perpetual growth model is somewhat straightforward. First, what it does is it takes the unlevered cash flow in 2027 and works out.

What the terminal value of that is. So, essentially, what the all the future years be beyond that are by using a four percent rate of perpetual growth. So to do that, i take that 7.4 billion dollars, which is the last available number in 2027.. I add one year's worth of growth at four percent and i then divide by the difference between the discount rate and the growth rate.

So ten percent minus four percent gives me six percent. That's how i get that 128.5 billion dollar number. Then i apply the discount rate to get the present value of that 128.5 billion. So if it's 128.5 billion 2027, what is the value of that today? Applying a discount, and that is 67 billion dollars? I then add the 21 billion dollars of free cash flow, which happens between now all the way through to 2027, because i am expecting to collect all of that money in my model, and that is the sum on line 20 in the spreadsheet uh.

If you're, following the second way to calculate the enterprise value, is a bit simpler than this uh, you decide on your ebitda value multiplier and i've put down 15 over here, which is pretty standard for this sort of company. In this sort of situation, i would say, and then i take the last ebitda number in my table for 2027 and i just multiplied by that number to get a different version of the terminal value. And then i do the exact same thing. I apply the discount rate, which basically leaves half of that number as the present value and i add the same free cash flow sum onto it in the same way as well.

The only thing left is to subtract the net debt position from both those numbers. So that's the summary of some. Not all of the assets take away the debts that the company has and then i am left with a number which i go and divide by the number of shares, which for booking is 41 million, and so doing all of that maths i get a target share Price of 2 000 to 2 400 for the stock, given the uncertainty over cash flow and the bounce back and the relative stability of the travel industry in the long run. If i excluded the last couple of years, i'd probably go nearer to the second number rather than the first.

So if i was doing this, i would set my target price at somewhere in the 2 300 to 2 400 range, and that just happens to be bang. On where the share price is, as i am, recording this video, so this quick analysis says that the stock is currently not really overvalued, not really undervalued. It is pretty much bang on what i would choose to pay for it and seeing as there isn't an upside to be had, i am not invested in booking and i am not planning to invest in it either. A few things could make this stock interesting.

If the world bounces back far quicker than i expect and if they have a few years of growing and more like 20 to 25 percent thereafter or even more, this could be really interesting. But i personally see better opportunities elsewhere for my money to be working at the moment. If you found this video useful, please don't forget the smash light button for the youtube algorithm. Thank you so much for watching.

I really appreciate it and, as always i'll see you guys later, you.