Booking Holdings Inc. (NASDAQ:BKNG)

The financial performance, as measured by economic profit, demonstrates a significant shift over the five-year period. Initially, the entity experienced economic losses, which transitioned to substantial economic profits in later years. This evolution is driven by changes in net operating profit after taxes, cost of capital, and invested capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a modest increase from US$670 million in 2020 to US$671 million in 2021. A substantial surge is then observed, reaching US$2,965 million in 2022, followed by further growth to US$3,758 million in 2023 and US$6,151 million in 2024. This indicates a strong and accelerating improvement in core operational profitability.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 19.98% and 20.44%. An initial increase from 19.98% in 2020 to 20.24% in 2021 is followed by a slight decrease to 20.02% in 2022, then increases again to 20.40% in 2023 and 20.44% in 2024. These changes are minimal and do not appear to be a primary driver of the observed shifts in economic profit.

Invested Capital

Invested capital decreased from US$14,563 million in 2020 to US$13,642 million in 2022. A further reduction occurred in 2023, reaching US$11,415 million, before increasing to US$12,973 million in 2024. The decline in invested capital, coupled with the increasing NOPAT, contributed to the improvement in economic profit.

Economic Profit

Economic profit was negative in both 2020 and 2021, registering at -US$2,240 million and -US$2,367 million respectively. A positive economic profit of US$234 million was achieved in 2022, which expanded significantly to US$1,429 million in 2023 and further to US$3,499 million in 2024. This demonstrates a clear transition from value destruction to value creation, driven primarily by the substantial growth in NOPAT and a reduction in invested capital.

In summary, the entity’s economic profit profile improved dramatically over the observed period. While the cost of capital remained relatively consistent, the combination of increasing NOPAT and fluctuating invested capital resulted in a substantial increase in economic profit, indicating improved financial performance and value creation.

The financial data indicates a pronounced upward trajectory in both net income and net operating profit after taxes (NOPAT) over the five-year period from 2020 to 2024. Specifically, net income exhibits significant growth, increasing from 59 million US dollars in 2020 to 5,882 million US dollars in 2024. This represents a nearly hundredfold rise, with the most substantial increases occurring between 2020 and 2021, and continuing robustly in the subsequent years.

Similarly, NOPAT trends upward, starting at 670 million US dollars in 2020 and reaching 6,151 million US dollars by 2024. This steady increase reflects growing operating efficiency and profitability after accounting for taxes over the period.

Net Income

2020: 59 million US dollars

2021: 1,165 million US dollars

2022: 3,058 million US dollars

2023: 4,289 million US dollars

2024: 5,882 million US dollars

Net Operating Profit After Taxes (NOPAT)

2020: 670 million US dollars

2021: 671 million US dollars

2022: 2,965 million US dollars

2023: 3,758 million US dollars

2024: 6,151 million US dollars

The disparity between the net income and NOPAT values in earlier years, particularly in 2020 and 2021 where net income is substantially lower than NOPAT, may signal differences in non-operating items, interest expenses, or taxes impacting net income. From 2022 onwards, the figures for both metrics converge more closely, indicating stronger alignment between operating performance and final profitability.

Overall, the data reveals marked improvement in financial performance, with increases in both earnings measures suggesting effective operational management and growth in core business profitability. This positive trend underscores an expanding capacity to generate net profits from operating activities over the period analyzed.

The income tax expense exhibited a fluctuating upward trend over the five-year period. Beginning at 508 million US dollars in 2020, the expense decreased significantly to 300 million in 2021, followed by a sharp increase to 865 million in 2022. The upward momentum continued with the tax expense rising to 1,192 million in 2023 and further to 1,410 million in 2024, indicating increasing tax obligations over the most recent years.

Cash operating taxes, which typically reflect the actual cash outflows for taxes, showed a consistent increase from 362 million US dollars in 2020 to a peak of 1,650 million in 2023. This represents more than a fourfold increase within four years. However, in 2024, a decline to 1,355 million was observed, slightly reducing the cash tax burden compared to the previous year but still maintaining a substantially higher level relative to the earlier years.

Income Tax Expense Trends

Initial decline between 2020 and 2021 followed by substantial growth through 2024.

Cash Operating Taxes Trends

Strong upward trajectory from 2020 to 2023, with a decrease noted in 2024.

Comparison Insights

The divergence in behavior during 2021, when income tax expense significantly dropped while cash operating taxes increased, could suggest timing differences or changes in non-cash tax items. The overall rising trend in both metrics from 2022 onwards aligns with increasing taxable income or changes in tax rates or regulations.

Total reported debt & leases

The total reported debt and leases exhibited an overall upward trend from 2020 to 2024. Starting at $12,539 million in 2020, the debt decreased slightly to $11,430 million in 2021 but then increased consistently over the following years, reaching $17,236 million by 2024. This indicates a rising reliance on debt financing or increased lease obligations over the analyzed period.

Stockholders’ equity (deficit)

Stockholders’ equity showed significant volatility and a declining trajectory across the five-year span. The value rose from $4,893 million in 2020 to a peak of $6,178 million in 2021. However, it dropped sharply to $2,782 million in 2022 and then moved into negative territory, reaching a deficit of $2,744 million in 2023 and further declining to a deficit of $4,020 million in 2024. This substantial decrease suggests deteriorating net asset value, potentially due to accumulated losses, share repurchases, or other equity-reducing activities.

Invested capital

Invested capital stayed relatively stable initially but showed a downward trend over time. It modestly increased from $14,563 million in 2020 to $15,004 million in 2021, followed by declines in the subsequent years, reaching a low of $11,415 million in 2023. A slight recovery occurred in 2024 when invested capital rose to $12,973 million. The pattern indicates possible divestitures, asset sales, or reductions in net operating assets before some stabilization or reinvestment in the last year.

The economic spread ratio exhibited a significant shift over the five-year period. Initially negative, the ratio transitioned to positive values, demonstrating an improving financial performance relative to the cost of capital. This improvement is coupled with fluctuations in both economic profit and invested capital.

Economic Spread Ratio

The economic spread ratio began at -15.38% in 2020 and remained negative in 2021, registering -15.77%. This indicates that, during these years, returns generated were insufficient to cover the cost of invested capital. A substantial positive change occurred in 2022, with the ratio increasing to 1.71%, signaling that returns began to exceed the cost of capital, albeit modestly. Further improvement was observed in 2023, reaching 12.52%, and continued strongly into 2024, culminating in a ratio of 26.97%. This represents a considerable increase in the spread between returns and the cost of capital.

Economic profit mirrored the trend in the economic spread ratio. Negative economic profit was recorded in 2020 and 2021, at -2,240 and -2,367 US$ millions respectively. A positive economic profit of 234 US$ million was achieved in 2022, followed by increases to 1,429 US$ million in 2023 and 3,499 US$ million in 2024. This demonstrates a clear progression towards value creation.

Invested Capital

Invested capital decreased from 14,563 US$ million in 2020 to 13,642 US$ million in 2022. A further decrease was noted in 2023, falling to 11,415 US$ million. However, invested capital increased in 2024, reaching 12,973 US$ million. The decreasing trend in invested capital, coupled with increasing economic profit, likely contributed to the substantial improvement in the economic spread ratio, particularly in the later years of the period.

The combined effect of increasing economic profit and fluctuating invested capital resulted in a dramatic improvement in the economic spread ratio. The shift from negative to significantly positive values suggests a strengthening of the company’s ability to generate returns exceeding its cost of capital.

The economic profit margin exhibited a significant shift over the five-year period. Initially negative, it transitioned to positive values, demonstrating improving financial performance. A clear upward trend is apparent in recent years.

Economic Profit Margin

In 2020 and 2021, the economic profit margin was negative, registering at -32.96% and -21.60% respectively. This indicates that the company’s economic profit, considering the cost of capital, was lower than its revenues during these years. A substantial improvement occurred in 2022, with the margin turning positive at 1.37%.

The rate of improvement accelerated in 2023 and 2024, with the economic profit margin reaching 6.69% and 14.74% respectively. This suggests increasing efficiency in capital allocation and a growing ability to generate returns exceeding the cost of capital.

The progression of the economic profit margin closely mirrors the trend in economic profit itself. The negative economic profit values in 2020 and 2021 correspond with the negative margins, while the positive economic profit values in 2022, 2023, and 2024 align with the positive and increasing margins.

Revenue Correlation

Revenues increased consistently throughout the period, from US$6,796 million in 2020 to US$23,739 million in 2024. The positive correlation between revenue growth and the improving economic profit margin suggests that increased sales are contributing to the company’s ability to generate economic profit.

However, revenue growth alone does not fully explain the margin improvement. The substantial increase in the margin from 2021 to 2022, despite significant revenue growth in both years, indicates that factors beyond sales volume, such as cost management or capital efficiency, are also playing a crucial role.

The observed trend suggests a strengthening financial position and improved profitability. The company appears to be effectively leveraging its revenue growth to generate returns that exceed its cost of capital, as evidenced by the consistently increasing economic profit margin.