The coronavirus from China has wreaked havoc on the markets over the past two weeks. Booking Holdings (NASDAQ:BKNG) has been hit, along with virtually every other stock out there.
In the five days after the panic began on Feb. 20, BKNG stock was down nearly 15%. And, like many other stocks, BKNG rebounded slightly after the initial panic. However, unlike Apple (NASDAQ:AAPL) — a company that has a wide range of products and services — Booking Holdings is focused on one thing: travel.
If there is one area of the economy that’s going to be battered by a global coronavirus pandemic, it’s tourism. That spells bad news for BKNG stock through 2020.
The Coronavirus Is Bad News for Booking Holdings
The coronavirus has resulted in chaos in the stock markets. The Dow Jones Industrial Average suffered its largest one-day fall, and comparisons are being made to the 2008 financial crisis. Few companies have been immune, even Apple. But Apple has a wide range of products and services. Even if iPhone sales slow, people will keep listening to Apple Music. And, as InvestorPlace’s Luke Lango points out, once the coronavirus runs its course, people will go right back to buying iPhones.
Booking Holdings is entirely reliant on travel. That largely means tourism. Through its various websites including Priceline.com, Booking.com and Kayak.com, consumers book hotel rooms, flights and rental cars. So long as the coronavirus remains active, tourists are reluctant to travel — you never know where the next outbreak might pop up.
Even they don’t fear contracting the virus during a trip, when countries experience outbreaks, airlines may cancel flights, disrupting travel plans.
We’ve seen this before, when the global travel industry was hit by SARS in 2003. It took at least a year before the situation was normalized. One estimate puts the impact of the loss of Chinese outbound tourism alone on the global travel industry in 2020 at $80 billion.
What about corporate travel? That’s also in trouble. In the past few weeks, Amazon (NASDAQ:AMZN) and other companies have been banning non-essential employee travel.
Adding to BKNG’s challenges, if the coronavirus triggers a global recession, consumer discretionary spending will go down as a result. And travel is right up there with the luxuries that people can do without when finances are tight.
Obviously, nothing about the coronavirus is good news for BKNG stock, and this situation is not going to go away any time soon.
Lowered Guidance, Lowered Price Targets
On Feb. 26, Booking Holdings released fourth-quarter earnings. Travel services booked by customers were up 6% year-over year, and the number of room nights booked increased by 12%.That generated $3.3 billion in revenue for the quarter, a 4% YOY increase, along with an 81% increase in net income.
What analysts were watching closely was the company’s Q1 guidance. Booking Holdings is projecting a decline in gross travel bookings between 8% and 13% compared to last year. That could translate to a YOY revenue decline between 3% and 7%.
The company summed up the earnings and guidance, putting an emphasis on the long term to help prevent investor panic.
“We were pleased with our fourth quarter and full-year 2019 results. While the outlook for global travel in the near-term is uncertain due to the coronavirus, we will manage the business appropriately to enhance long-term value for our stakeholders.”
The market didn’t exactly panic, but there was a reaction. Feb. 27 saw a flurry of price target cuts for BKNG stock. Among these, Wedbush cut its target from $2,000 to $1,750 while JPMorgan slashed its BKNG price target from $2,030 to $1,840.
With BKNG currently trading at $1,642, those reduced price targets still represent upside, but it’s single-digit. And if the coronavirus situation worsens, look for another round of reductions.
The Bottom Line for BKNG Stock
Booking Holdings has a long list of competitors, including companies like Expedia Group (NASDAQ:EXPE). However, in 2020, it’s not competition that’s a concern for BKNG and its investors, it’s a force of nature.
The coronavirus is unpredictable. Will it turn into a global pandemic, or will it be contained? We don’t know. What we do know is that international travel is already taking a big hit, and if the situation worsens, the global tourism industry is going to be hammered.
Booking Holdings has already issued revenue guidance warning of the impact of the coronavirus on its Q1 revenue. Multiple brokerage firms have significantly lowered their price target for the company’s shares. Now is definitely not the time to be buying BKNG stock.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
