A few days ago, I received a text from a friend asking the question that is the title of this article. He knew that Booking Holdings (NASDAQ: BKNG), an online travel agent, is one of the 50-plus companies that’s in my family’s investment portfolio.
Stalled growth
On 18 February 2020, I published my investment thesis on Booking. In it, I wrote that “The world – particularly China – is currently battling COVID-19. If the situation worsens, Booking’s business could be hurt.” Little did I know how badly Booking would suffer. International travel activities have essentially grounded to a halt since the publication of my thesis for Booking, with many countries closing their borders to control the spread of COVID-19.
In particular, the businesses of hotels and airlines across the globe have been crushed. A few days ago, Arne Sorenson, CEO of hotel operator Marriott International, said that the company’s seeing revenue declines of more than 75% in the US. At home, Singapore Airlines cut 96% of its flight capacity last week. Booking, as an online travel agent focusing on accommodations, is also facing a brutal operating environment.
Confidence
What gives me the confidence that Booking can survive? The company is the largest online travel agent in the world. The entire travel industry is awash in pain at the moment. But this also gives Booking the opportunity to win even more market share if some of its smaller/weaker competitors falter.
I believe that the COVID-19 crisis will blow over eventually (hopefully sooner rather than later, so that the incredible human suffering that’s currently happening can end as soon as possible). This will allow the travel industry to return to strength. When this happens, Booking will be in an even stronger position compared to before.
But Booking has to survive from now till then. I think the chances are very good that the company will. At the end of 2019, Booking held US$8.5 billion in cash, short-term investments, and long-term investments (this sum excludes US$3.3 billion in strategic investments) against total debt of US$8.6 billion.
I would prefer Booking to have significantly more cash than debt. But Booking’s debt is mostly long-term in nature (88.5% comes due on or after 31 December 2020). Moreover, the company’s debt has well-staggered maturities as shown in the table below. The earliest due-date for Booking’s long-term debt is September 2021 and it involves a manageable sum of US$1 billion. So there’s plenty of time for Booking to maneuver, and to wait for the travel industry’s health to improve.
No guarantee
But there’s no guarantee that Booking will survive. It could eventually crumble should the travel market undergo a long winter if COVID-19 proves to be a particularly tricky disease to combat. This is where diversification is important.
I mentioned earlier that Booking is one of the 50-plus companies in my family’s investment portfolio. Even if Booking fails to survive, my family’s portfolio will. Diversification is how I guard the portfolio against specific-company risks. With diversification, my family and I are able to stay invested in Booking and participate in its potential recovery without having to worry about a significant hit to the portfolio.
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