BKNG Delivers Solid Execution, with Valuation Discount Plus AI Applications Providing Upside Optionality

Overview

The report believes that Booking Holdings Inc continues to demonstrate strong execution despite macro conditions and volatility in the Middle East. Second-quarter global travel demand remained resilient, and gross bookings, adjusted EBITDA, and adjusted EPS all exceeded Morgan Stanley's expectations. Although the upper end of third-quarter room night and booking growth guidance is slightly below prior forecasts, management's guidance style is relatively prudent, and July demand improved sequentially versus June. The company's global scale, diversified and distinctive accommodation supply, and stable direct traffic provide a foundation for resisting industry volatility and competition from external AI platforms.

Core views

The core investment thesis includes three points: first, global travel demand remains resilient, and BKNG's scale and geographic breadth are expected to drive stable or accelerating third-quarter room night growth; second, the company is using AI products to improve consumer discovery, conversion, repeat purchases, merchant communication, and customer service efficiency, creating potential upside not yet reflected in valuation; third, 2027 to 2028 earnings forecasts are largely stable, while the stock valuation is at a clear discount to historical averages, leaving room for valuation recovery if concerns about generative AI disruption ease.

Analysis framework

The report cross-validates quarterly actual results versus forecasts, third-quarter demand trends, 2027 to 2028 earnings forecasts, historical P/E ranges, EBITDA multiples of Internet platform peers, and bull, base, and bear scenarios. It also assesses the potential return on investment of the AI strategy across four dimensions: consumer side, accommodation supply side, internal operations, and model cost control.

Methodology notes

• Absolute ValuationForward P/E Valuation

  Estimate the target price by multiplying average 2027 and 2028 GAAP EPS by the target P/E ratio.

  The $230 target price is based on approximately $13 of average 2027 to 2028 GAAP EPS and an approximately 18 times P/E ratio, below the long-term average of about 20 times excluding 2020 to 2021.

• Relative ValuationComparable Company EBITDA Multiples

  Compare the adjusted EBITDA multiples implied by the target price with Internet platforms and accommodation booking peers.

  The $230 target price corresponds to approximately 13 times 2027 and 12 times 2028 adjusted EBITDA, which the report believes is broadly in line with leading platforms such as DASH and ABNB, its closest accommodation peer.

• Scenario AnalysisBull, Base, and Bear Scenarios

  Set different price scenarios based on revenue and earnings growth, changes in direct traffic, and valuation multiples.

  The bull-case target price is $275, assuming innovation drives faster growth and valuation returns to approximately 20 times; the base case is $230; the bear-case target price is $165, assuming external agent platforms divert high-margin direct traffic and valuation falls to around 14 times, close to the pandemic trough.

• Strategic AnalysisAI Return on Investment Assessment

  Evaluate AI applications from revenue conversion, user retention, merchant value, operating efficiency, and technology cost control.

  Key projects include Booking.com's AI discovery experience, the second-generation Penny intelligent assistant, hotel partner communication tools, internal customer service tools, and cost-aware model routing based on task complexity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BKNG.US

  Core subject of the report, maintains Overweight rating

  Strengths

  Global accommodation supply is large and highly fragmented, direct traffic is stable, and travel demand is resilient; AI products cover consumers, merchants, and internal operations, while the stock valuation is below historical averages.

  Weaknesses

  The business is sensitive to global travel demand, regional conditions, and the online customer acquisition environment. AI products are still in early stages, and their revenue contribution has not yet been fully validated.

  Comparison

  The $230 target price implies approximately 13 times 2027 and 12 times 2028 adjusted EBITDA, broadly in line with DASH and the closest accommodation peer ABNB; the current trading multiple is below the long-term average P/E ratio.

  Risks

  External agent platforms diverting travel search entry points, a decline in the share of direct traffic, rising paid customer acquisition costs, macro and geopolitical volatility, and AI returns falling short of expectations.

Key data

• Second-quarter gross bookings growthUp 8% year over year (excluding currency effects)About 2 percentage points above Morgan Stanley's forecast of approximately 6%.
• Second-quarter adjusted EBITDA1% above Morgan Stanley's forecastShows solid execution on profitability.
• Second-quarter adjusted EPS6% above Morgan Stanley's forecastThe beat was supported in part by larger-scale share repurchases.
• 2027 and 2028 EPS forecastsApproximately $12 / approximately $14Forecasts remained broadly unchanged after the quarterly results release.
• Target price$230Raised from the previous $220, with the report expecting approximately 12% upside.
• Target P/E ratioApproximately 18 timesBased on approximately $13 of average 2027 to 2028 GAAP EPS, below the long-term average of about 20 times.
• After-hours valuationApproximately 15 times 2028 EPSAbout a 25% discount to the long-term average P/E ratio, with PEG below 1 times.
• Direct traffic shareMid-60% rangeThe share remains stable, absolute traffic is still growing, and no obvious disruption caused by AI platforms has appeared for now.
• Customer service unit costDouble-digit percentage decline in cost per bookingReflects operating efficiency improvements from internal AI tools.
• 2026 to 2028 revenue forecasts$29.477 billion / $32.035 billion / $34.724 billionCorresponds to a sustained growth trend around the high single digits.
• 2026 to 2028 adjusted EBITDA forecasts$10.954 billion / $12.301 billion / $13.524 billionReflects revenue growth and operating leverage release.

Impact & implications

For investors, short-term catalysts come from continued improvement in travel demand, third-quarter results potentially exceeding prudent guidance, and narrowing valuation discounts; medium- to long-term upside depends on whether AI products can improve conversion rates, repeat purchase rates, and direct traffic while reducing customer service and technology costs. BKNG has large-scale, fragmented, and differentiated accommodation supply, which both strengthens its negotiating position with external agent platforms and helps maintain existing unit economics. However, if horizontal AI platforms control the travel search gateway and accelerate user migration, BKNG may need to increase paid customer acquisition, thereby pressuring margins and valuation.

Risks

• The situation in the Middle East and broader macro volatility may continue to weigh on global travel demand.
• If agent-based travel products from horizontal platforms such as GOOGL improve rapidly and gain adoption, they may divert travel search entry points.
• If high-margin direct traffic shifts to paid channels, customer acquisition costs will rise and margins will be weakened.
• Competitors such as EXPE and hotel direct sales channels may become more competitive in performance marketing bidding due to platform changes.
• AI products are still in early testing and deployment stages, and improvements in conversion rates, repeat purchase rates, and long-term unit economics may be below expectations.
• Morgan Stanley and its affiliates have securities holdings, service, or potential investment banking relationships with Booking Holdings Inc, and investors should pay attention to related conflict-of-interest disclosures.

What to watch

• Whether third-quarter room night and gross bookings growth exceed management's prudent guidance.
• Whether the demand improvement trend in July versus June can continue and achieve regional normalization.
• Whether the share of direct traffic can remain in the mid-60% range and continue to achieve absolute growth.
• The actual contribution of the Booking.com AI discovery experience and the second-generation Penny intelligent assistant to conversion rates and repeat purchase rates.
• Whether hotel partner AI communication tools can strengthen the value proposition for the fragmented supply side.
• Whether the decline in customer service unit costs can continue, and whether model routing can effectively control AI and technology costs.
• Whether the approximately $12 and $14 EPS forecasts for 2027 and 2028 need to be revised.
• After concerns about generative AI disruption ease, whether valuation can recover from approximately 15 times 2028 EPS toward the long-term average level.