I've been following Booking Holdings $BKNG overall, so I'd like to retroactively summarize the second quarter results here.
The numbers themselves were good. 325 million room nights booked, up 5% year-over-year. Gross bookings of $51 billion, up 9%, revenue of $7.35 billion, up 8%. Adjusted EBITDA margin of 36% and free cash flow of $3.6 billion in a single quarter, almost half of revenue. The stock closed about 4% higher the day after the release and is now trading about 8% below its annual high.
But I was more intrigued by the pace. Room night growth slowed from 9% in Q4 2025 to 5.9% and now to 5.3%. Flight bookings, which previously grew nearly 30%, added only 3.7%. Car rental days fell by 6.5%. The company attributes this mainly to the impact of the Middle East conflict on long-haul travel and gave Q3 guidance of only 3-5% room night growth.
The main thing, however, lies elsewhere. Marketing expenses were $2.37 billion for the quarter, which is 4.7% of booking volume versus 4.6% last year and roughly a third of total revenue. The share of nights booked through direct channels is around 55% according to the company and hasn't changed year-over-year. For years there's been talk that reliance on paid search and metasearch will decline. Based on these numbers, it hasn't declined yet.
And that's the heart of the problem for me. Booking is a superbly operated business, but I find it hard to identify what keeps the customer. I use it myself when traveling, yet I don't hold it in my portfolio. When I book a hotel, I decide based on price and selection, not on where I booked last time. Switching to a competitor costs me nothing. The supply side is strong, meaning the number of properties in the system, but a large portion of those hotels are also available to competitors.
One more thing worth noting. Adjusted earnings per share grew 15%, but adjusted net income grew only 8%. The difference is buybacks. The company bought back $3.7 billion of its own shares in the quarter, practically all of its free cash flow, and the share count is about 5.5% lower year-over-year. Shareholders' equity is negative $10.8 billion because of this. There's nothing unhealthy about that in itself, but it's good to know how much of the per-share growth comes from operations and how much from dividing by fewer shares.
To be fair, the other side is also strong. Operating leverage is exceptional, margins are growing even as growth slows, and the transformation program is expected to deliver annual savings of roughly $650 million by the end of 2027. The group also includes Agoda, which has a strong position in Asia, and I think the Booking.com brand alone would have a very hard time building that there.
What about you? Do you have the company in your portfolio?
