First of all, Booking is #1.The company has an incredible sustainable competitive advantage (called "moat") and is a perfect example of a company with a "network effect". Like LinkedIn or Wikipedia, Booking is "the place to go" to book hotel accommodations for the simple reason that it has the largest available inventory in the world. 

The quality of service is second to none, especially with the famous free booking option. It is rare for a business to combine industry leadership with outstanding service quality. This is a direct credit to the management. 
 
Keeping in mind that we are witnessing here a very clear distortion caused by the pandemic (the year 2020 distorts a bit the long term trend on finances), let's look at the financial side over the decade 2012-2022, even though the 2022 results have not yet been released. Fortunately, the forecast here is quite reliable via the data estimated by the consensus on MarketScreener. 
 
  • First finding: revenues quadruple over the period, from $4.3 billion to $17 billion. 
  • Second observation: accounting profits and real profits (free cash flows) are well reconcilable (they evolve together). Moreover, FCF conversion (transformation of EBITDA into FCF) is estimated at 92% for 2022, an excellent ratio. 
  • Third observation: profitability is exceptional, with a net margin (calculated in relation to the free cash flow margin) well anchored around 30%. This margin is calculated conservatively, by fully adjusting for stock option compensation and various provisions.

All things being equal, on an expected revenue of 17 billion in 2022, Booking Holdings is expected to produce a cash profit of about 5 billion dollars. If we relate this to the market capitalization (perfectly identical to the enterprise value because there is no net debt), the company is currently valued at 19 times cash profits. 

This is for a superbly profitable business - 30% FCF margin with ROE around 50% - still growing strongly and protected by a sustainable competitive advantage that is getting stronger every day as the inventory grows.

 

Source: MarketScreener

On a forecast basis, with revenues of 19 billion and then 21 billion anticipated by analysts in 2023 and 2024, still at comparable profitability levels, Booking should produce an annual cash profit of around 6 billion dollars within two years: So here we are on an estimated valuation for next year of 16 times earnings.

Cash flow management, on the other hand, is very easy to follow, with $28 billion in cash profits generated between 2011 and 2021: of these, $23 billion was used for share buybacks and only $5 billion for various acquisitions. So it's good to see that the very impressive revenue growth was mostly organic, and we're dealing with a premium business, buyable at this price for very long-term investors convinced of the platform's merits. Other investors should keep an eye on the stock, because in the event of a pullback due to an exogenous cause (such as a generalized drop in the markets, complicated macroeconomic news related to the war in Ukraine) this could be an unavoidable entry point.

Chart Booking Holdings Inc.