Executive Summary / Key Takeaways

• Booking Holdings leverages its global scale, diversified portfolio of brands (Booking.com, Priceline, Agoda, KAYAK, OpenTable), and integrated "Connected Trip" strategy to capture resilient leisure travel demand, particularly in Europe and Asia.
• A core competitive advantage lies in its advanced technology, including significant investments in AI and Generative AI, which are driving operational efficiencies, enhancing traveler and partner experiences, and improving marketing effectiveness.
• The ongoing shift towards a higher mix of merchant bookings and alternative accommodations, coupled with strong growth in flights and attractions, diversifies revenue streams and strengthens the platform's value proposition, although the alternative accommodation mix may pressure margins slightly.
• Strong financial performance in Q1 2025, marked by healthy room night and gross bookings growth, disciplined expense management, and robust operating cash flow generation, underscores the company's operational efficiency and financial strength.
• Despite macroeconomic and geopolitical uncertainties leading to a widened full-year guidance range, management remains confident in achieving its long-term growth ambition of at least 8% constant currency growth for gross bookings/revenue and 15% for adjusted EPS, supported by cost savings from the Transformation Program and targeted reinvestments in strategic priorities.

Setting the Stage: A Global Travel Ecosystem

Booking Holdings Inc. (NASDAQ: BKNG) stands as a titan in the global online travel industry, operating a vast ecosystem designed to make experiencing the world easier for everyone. Through its portfolio of well-known brands – Booking.com, Priceline, Agoda, KAYAK, and OpenTable – the company connects travelers with a wide array of services, primarily online accommodation reservations, but also flights, rental cars, attractions, and restaurant bookings. This multi-brand approach, historically built through organic growth and strategic acquisitions like OpenTable and KAYAK, has positioned BKNG as a diversified player capable of capturing demand across various travel segments and geographies.

The company's strategy has evolved significantly from its roots primarily as an agency-model hotel booking platform. Recognizing the need for a more integrated and seamless experience, BKNG has invested heavily in building a foundational payments platform, enabling a growing mix of merchant transactions. This shift is not merely operational; it's strategic, facilitating the development of the "Connected Trip" vision – an ambitious goal to simplify the entire travel journey, from planning and booking to the in-trip experience, making it more personalized and enjoyable. This vision is underpinned by a belief in the enduring human desire to travel, a powerful long-term tailwind for the industry, alongside the ongoing shift from offline to online booking channels.

In the competitive landscape, BKNG operates alongside major players like Expedia Group (EXPE), Airbnb (ABNB), and Trip.com Group (TCOM), as well as indirect competitors like Google Travel and emerging AI-driven platforms. BKNG holds an estimated 25-30% aggregate market share in the OTA sector, generally outpacing rivals like EXPE (15-20%) and ABNB (10-15%) in overall scale and profitability metrics. While competitors like EXPE have strong B2B partnerships and ABNB excels in unique alternative accommodations and community-driven network effects, BKNG differentiates itself through its comprehensive, multi-vertical offering, global reach, and a growing emphasis on direct customer relationships and technological innovation.

The Technological Moat: AI at the Core

A critical differentiator for Booking Holdings is its deep-seated expertise and ongoing investment in technology, particularly in artificial intelligence (AI) and Generative AI (GenAI). With years of experience leveraging machine learning models, the company is now integrating GenAI across its platforms and operations to enhance both traveler and partner experiences and drive significant operational efficiencies.

This technological advantage is not merely theoretical; it translates into tangible benefits. The company's AI capabilities are already contributing to faster search results, improvements in conversion rates, and a reduction in customer support contacts. For travelers, this means tools like Booking.com's AI Trip Planner, Smart Filters that make searching easier, and AI Review Summaries. For partners, GenAI is being used for suggested responses to traveler queries and AI Partner Assistants to streamline onboarding, particularly for alternative accommodation hosts. Internally, AI is boosting developer productivity and contributing to efficiencies in customer service operations, such as improved topic detection and case summarization.

While specific, comprehensive quantifiable benefits across all AI initiatives are still emerging as the technology is in its early days, the strategic intent is clear: leverage AI to create a more personalized, seamless, and efficient travel experience that is difficult for competitors to replicate without similar data, resources, and expertise. The company's proprietary data, accumulated over decades of transactions and user interactions, is a crucial asset in training and refining these AI models, providing a competitive edge over platforms with less extensive or fragmented data sets.

Furthermore, BKNG is actively engaging with leading GenAI organizations on agentic developments, viewing these collaborations as opportunities to stay at the forefront of the rapidly evolving AI landscape and potentially access new customer traffic sources. This proactive approach to technological advancement is a key component of BKNG's competitive moat, aiming to enhance its market positioning and drive future growth by making its platforms more intelligent, intuitive, and valuable than those of its rivals. The company's Transformation Program, while encompassing broader organizational changes, includes investments in modernizing systems and technology, with expected cost savings partially linked to efficiencies achievable with GenAI.

Recent Performance and Financial Strength

Booking Holdings delivered a strong start to 2025, demonstrating the resilience of leisure travel demand and the effectiveness of its operational execution. For the three months ended March 31, 2025, the company reported:

• Total Revenues: $4.76 billion, an increase of 7.9% year-over-year (or approximately 10% on a constant currency basis). This exceeded the high end of prior guidance, partly due to higher revenues from facilitating payments.
• Gross Bookings: Increased 7.2% year-over-year (approximately 10% constant currency), reaching $46.67 billion. This growth was driven by increased room nights and higher flight gross bookings, partially offset by foreign exchange impacts.
• Room Nights: Grew 7.2% year-over-year to 319 million, exceeding the high end of prior expectations. Growth was primarily driven by increased travel demand in Europe and Asia.
• Adjusted EBITDA: Approximately $1.1 billion, an increase of 21% year-over-year, significantly exceeding the high end of prior guidance due to higher revenue and better-than-expected adjusted fixed operating expenses.
• Net Income: $333 million, or $10.07 per diluted common share. Adjusted EPS was $24.81, up 22% year-over-year.

• Operating Cash Flow: $3.28 billion for the quarter, up from $2.70 billion in the prior year period, benefiting significantly from a seasonal increase in deferred merchant bookings ($1.90 billion increase in deferred merchant bookings and other current liabilities). This robust cash generation highlights the strength of the business model.

Financially, BKNG maintains a strong liquidity position, with $16.1 billion in cash, cash equivalents, and investments at March 31, 2025.

The shift towards a higher merchant mix continues, reaching 67% of total gross bookings in Q1 2025, up from 59% in Q1 2024. While this increases certain expenses like payment processing and chargebacks (recorded in Sales & Other and Personnel), the incremental revenues from facilitating payments have been greater than the associated variable expenses over the trailing twelve months.

Alternative accommodations continue to be a growth driver, with Booking.com listings reaching approximately 3.6 million properties and alternative accommodation room nights growing 12% year-over-year in Q1 2025. This segment's increasing mix (37% of Booking.com room nights in Q1 2025) may introduce some margin pressure due to higher associated costs, but it expands traveler choice and contributes to overall growth.

Growth in other verticals remains strong, with airline tickets up 45% and attraction tickets up 92% year-over-year in Q1 2025. These verticals, while smaller contributors to revenue than accommodations, are crucial components of the Connected Trip vision and help attract new customers and increase engagement.

The company actively returns capital to shareholders, authorizing a new $20 billion share repurchase program in Q1 2025 (with $25.9 billion remaining authorization) and paying $319 million in dividends in the quarter. The recent increase in the quarterly cash dividend to $9.60 per share further signals confidence in future earnings and cash flow.

Strategic Initiatives and Future Outlook

Booking Holdings is focused on several key strategic initiatives to drive long-term value creation, all woven into the overarching Connected Trip vision and enabled by its technological advancements.

Expanding the merchant offering and payments capabilities is fundamental, providing flexibility to travelers and partners and enabling cross-vertical merchandising. The Genius loyalty program is being expanded beyond accommodations to other verticals, aiming to increase traveler loyalty, frequency, and direct bookings, particularly among the growing base of high-tier members (over 30% of active travelers).

The Transformation Program, announced in November 2024, is expected to yield approximately $400-$450 million in annual run rate savings over the next three years, primarily from workforce reductions, technology investments, and procurement/real estate optimization. While only $32 million in transformation costs were incurred in Q1 2025, actions have been initiated to realize about $150 million in cost savings in 2025, primarily in variable costs. These savings are intended to fund targeted reinvestments of about $170 million in 2025 in areas like GenAI, the Connected Trip, and fintech, supporting future growth while still expanding adjusted EBITDA margins.

Looking ahead, management provided guidance for the second quarter and full year 2025:

• Q2 2025 Outlook (Year-over-Year):

  • Room Nights: 4% to 6% growth (includes slight Easter shift headwind).
  • Gross Bookings: 10% to 12% reported growth (6% to 8% constant currency), including ~2pp positive impact from higher flight growth and flat constant currency accommodation ADRs.
  • Revenues: 10% to 12% reported growth (6% to 8% constant currency), including ~3pp benefit from Easter shift.
  • Adjusted EBITDA: $2.15 billion to $2.2 billion (16% growth at high end), including ~7pp Easter shift benefit and ~2pp FX impact.

• Full Year 2025 Outlook (Constant Currency Year-over-Year):

  • Gross Bookings: Mid to high single-digit percentage range growth.
  • Revenues: Mid to high single-digit percentage range growth.
  • Operating Income: Increase.
  • Adjusted EBITDA: High single-digits to low double-digits growth.
  • Adjusted EBITDA Margins: Expand between 50 and 100 basis points.
  • Adjusted EPS: Low to mid-teens growth.
  • CapEx: About 2% of revenue.

Management noted that the widening of the full-year constant currency growth range reflects the increased uncertainty in the geopolitical and macroeconomic environment, although trends have remained stable so far in Q2. They reiterated confidence in achieving their long-term growth ambition (at least 8% constant currency growth for gross bookings/revenue and 15% for adjusted EPS) if these uncertainties do not significantly impact demand.

Risks and Challenges

Despite its strong position, Booking Holdings faces several risks. The uncertain geopolitical and macroeconomic environment could negatively impact travel demand, consumer spending, and travel patterns. Regulatory scrutiny regarding competition and consumer protection laws is ongoing globally, potentially resulting in fines, restrictions on business practices (as seen with the CNMC fine in Spain and ongoing investigations in Switzerland, Poland, and France), and increased compliance costs, particularly following designations under the EU Digital Markets Act and Digital Services Act.

Tax-related audits and litigation in various jurisdictions (including the Italian transfer pricing assessment and the Netherlands pension fund matter) could result in liabilities in excess of current provisions. Fluctuations in foreign currency exchange rates can impact reported financial results, although the company uses derivative instruments and debt hedges to mitigate some of this exposure. Competition remains intense, with rivals potentially offering aggressive pricing or leveraging their own technological advancements. The successful execution of the Transformation Program and the integration of AI capabilities require significant investment and management focus.

Conclusion

Booking Holdings has demonstrated a strong start to 2025, building on solid performance in the prior year. The company's core investment thesis is rooted in its global scale, diversified brand portfolio, and the enduring growth of the online travel market. Strategic initiatives focused on building the Connected Trip, expanding merchant capabilities, growing alternative accommodations, and leveraging AI are enhancing its competitive position and driving operational efficiencies.

While macroeconomic and geopolitical uncertainties warrant caution and have led to a wider guidance range for the full year, management's confidence in achieving its long-term growth ambition appears grounded in the company's financial strength, robust operating cash flow generation, disciplined cost management (including savings from the Transformation Program), and targeted reinvestments in key growth areas like AI and fintech. The company's technological leadership, particularly its advancements in AI, serves as a crucial moat, enabling it to enhance the user experience, improve efficiency, and differentiate itself in a competitive landscape. For investors, BKNG represents a high-quality play on the global travel recovery and long-term growth, backed by a proven track record of execution and a strategic focus on innovation and efficiency.