As concerns regarding the pandemic began to subside, there was widespread optimism that travel and tourism stocks would enjoy a roaring return to form in 2022 amid a vibrant holiday season for travelers across the world. However, Russia’s invasion of Ukraine and growing geopolitical tensions have caused stocks to suffer in Q1.
For tourism-oriented stocks leading the markets, this has caused a period of volatility, and overcoming recent downturns will now represent a clear indication as to whether optimism will return to the travel and tourism industry ahead of what was billed as a big summer for businesses that had been among the hardest hit during the peak of the pandemic.
There are few stocks where this mood swing is clearer than with Booking Holidays (BKNG): On February 16, BKNG rode a wave of optimism that saw the stock recover to briefly hit an all-time high value of $2,703.26. By March 7, less than three weeks later, Booking.com’s stock had collapsed to $1,817.16, representing a fall of 32.78%. Booking Holidays’ strong price performance prior to the downturn has been a result of the company’s proactive response to the pandemic, and its quick-thinking in the face of an uncertain climate for tourists.
“When the Covid-19 pandemic hit, Booking aggressively raised significant amounts of capital. The aim was to have enough liquidity for a couple of years - assuming no revenue. The company also cut costs, aiming to cut staff by 25% globally,” said Maxim Manturov, head of at Freedom Finance Europe. “As a result of these actions, BKNG's share balance sheet is stable as a rock. In fact, since the end of March, the company's cash balance has jumped by $4 billion to $11.2 billion as of the 30th of September, making it one of the most reliable travel companies.”
With the company outperforming its 2021 Q4 financial expectations, Booking Holiday’s recent decline appears solely down to geopolitical uncertainty in Europe.
Overcoming a European downturn
Booking Holdings has a strong presence across the European market, and derives the majority of its revenue from the continent. The conflict between Russia and Ukraine has brought with it a series of far-reaching economical impacts throughout Europe which has seen the stock suffer.
Movement between countries has been restricted, with travelers from Russia currently banned from visiting European countries, while fears of an escalation in the conflict has led to other vacationers shelving their plans to travel in Europe altogether. There’s also the heavy economic effect that the geopolitical tensions have brought on. As countries all around the world impose sanctions on Russia, oil (a leading commodity in Russia) has endured significant price rises elsewhere in the world. This impacts much of the travel industry and could hinder the volume of flights taking place throughout the summer.
With this in mind, it appears that travel restrictions and economic risks appear to be key factors in driving Booking’s stock lower following a strong start to the year. This, however, may pave the way for a buying opportunity for investors should the political climate across Europe take a turn for the better prior to the beginning of summer.
BKNG recently reported that its earnings reached revenues of $3 billion in Q4 2021, up some 140% year-over-year. As a cause for further optimism, gross bookings were also 160% higher in Q4 2021 compared to the previous year. This strongly implies that the recent Booking Holidays stock sell-off may have been unjustified, and that a return to form may not be difficult to achieve regardless of the current state of uncertainty in Eastern Europe.
Could BKNG be a buy for investors?
Could it be worth buying Booking Holidays stock? While the political climate presents a degree of uncertainty for travel, Booking acknowledged that travel to Russia and Ukraine represents a very low percentage of the company’s gross total bookings - meaning that the stock is likely to perform well as long as demand for holidays remains intact throughout the year.
Early signs suggest that a bustling holiday season may be in the cards this year, even in spite of rising living costs due to Russian sanctions and inflation reaching 40-year highs. According to demand trends, room nights across the opening two weeks of February matched 2019 levels, while gross bookings are outperforming 2019. This may indicate that the recent sell-off could be been an overreaction to geopolitical tensions, and that early signs of a rebound may grow into a full recovery as vacationers continue with their long-awaited post-Covid summer unperturbed.
There’s likely to be plenty more volatility ahead as the Russian invasion of Ukraine continues to bring uncertainty to the markets, but the early signs are there to suggest that Booking Holidays will enjoy a busy summer for the first time since the pandemic.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.