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Online travel company Booking Holdings (BKNG) is traveling south today despite reporting upside Q2 results with EPS and revenue increasing by 11% and 7%, respectively. The company's beat on the top and bottom lines, though, are being overshadowed by a muted Q3 outlook as the "travel market continues to normalize", in the words of CEO Glenn Fogel. That disappointing outlook is also dragging shares of competitors such as Expedia Group (EXPE), Airbnb (ABNB), and Tripadvisor (TRIP) sharply lower.

• This normalization in travel demand has been in the headlines throughout this earnings season in the wake of disappointing earnings reports from most airlines, including Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV). A combination of slowing domestic leisure travel demand and falling ticket prices due to an oversupply of seats following an industry-wide effort to ramp up capacity has weighed on airlines' results. Now, that supply and demand imbalance is creating a headwind for BKNG.
• During the earnings call, Mr. Fogel noted that decreasing flight prices are cutting into the company's bookings estimates. On that note, BKNG guided for Q3 bookings growth of 2-4%, down from Q2's growth of 4% and well below analysts' expectations.
• Meanwhile, a more cost-conscious consumer is starting to rethink their travel plans as reflected in a booking window that continues to shrink. The bookings window measures the number of days between a booking and the actual arrival to the customer's destination. When the bookings window is longer, it not only indicates that consumers are feeling more confident about their own finances, but it also provides better visibility and stronger occupancy rates for travel companies.
• This shrinking bookings window, which BKNG expects to expand less than in Q3 than it did in Q2, also caused the company to issue soft Q3 room night growth guidance of 3-5%, missing analysts' estimates. This metric has been on a steady decline, going from +14.9% in 3Q23, to +9.2% in 4Q23, to +8.5% last quarter, and finally to +7.1% in Q2.
• The good news is, BNKG continues to keep a tight lid on expenses, helping to drive margins and earnings higher, despite the more challenging environment. For the quarter, operating expenses increased by just 5.6% to $4.0 bln.

The main takeaway is that BKNG's soft Q3 outlook is the latest data point indicating a slowdown in the global travel market. BKNG is the leader in the online travel space, so the company should still perform better than most, but generating solid growth is becoming a much more difficult task.