Booking Holdings (BKNG) faces possible Federal Trade Commission (FTC) action over hotel ads. One source put the potential penalties at more than $500 million. No complaint has been filed and no fine imposed (the FTC confirmed an investigation but declined further comment). Shares closed at $156 on October 7, down 14% over the past three months.
What the FTC Is Looking At
The ads appear to lead to a hotel’s own website but send users to a third-party site, where they often pay more. Reuters identified the site as Guest Reservations, which gets room inventory from Booking through Priceline Partner Solutions, citing a San Francisco lawsuit. The FTC is weighing an impersonation-rule breach and possible fee violations.
The probe itself isn’t news. Booking’s Q2 10-Q disclosed that in July, FTC staff told Priceline they plan to recommend a complaint against it and a business-to-business affiliate partner. Priceline disagrees and remains in talks to resolve the matter.
$500 Million Against Booking’s Cash
Booking generated $9.54 billion of free cash flow over the last 12 months, up from $2.52 billion in 2021.
At that pace, a $500 million penalty equals about 5% of a year’s free cash flow, or less than three weeks of it. On the money alone, it’s small.
Analysts haven’t turned bearish either. Booking Holdings stock carries 24 Buys, 6 Outperforms and 7 Holds, with no Sells, and the $235 mean target sits 51% above the October 7 close.
The Remedy Is Booking’s Bigger Unknown
The fine is the easy part to size. The harder question is what Priceline might have to change. Booking’s 10-Q says Priceline could agree to commitments to change its business practices. An order aimed at how it supplies inventory to sites like Guest Reservations would hit an affiliate channel Booking doesn’t break out. Hotel brands sit on the other side of this: Hilton (HLT) and Marriott (MAR) both declined to comment to Reuters.
My view is this, a $500 million penalty looks manageable against $9.54 billion of annual free cash flow, but the ultimate amount and any required changes to Priceline’s business practices remain unknown.
You can pull up Booking’s free cash flow history and the Street’s target trend on TIKR for free, and see how the FTC exposure compares for yourself. Learn more here.
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