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Booking Holdings (BKNG) is trading flat despite the online travel reservation giant reporting big upside with its Q2 report last night. Both EPS and revenue were well ahead of analyst expectations. BKNG also guided Q3 in-line and guided FY25 revs to growing low double digits, which was better than expected. This was an important quarter because the reciprocal tariffs went into effect in early April, which hurt travel demand, so we did not really know what to expect. However, room nights, gross bookings and revs all exceeded prior expectations.

• In terms of Q2 metrics, room nights grew 8% yr/yr to 309 mln, up from +7% yr/yr growth in Q1. Q2 was driven by strong performance across Europe and especially Asia which was up low double digits. BKNG remains optimistic on Asia, which is currently BKNG's highest growth region. BKNG has now posted back-to-back 300+ mln for the first time ever. This metric is expected to slow in Q3 with guidance of +3.5-5.5%.
• The US continued to be its slowest growing region, but growth in Q2 improved slightly from Q1 and likely outpaced the broader US accommodations industry. However, in the US, BKNG observed lower ADRs as well as a shorter length of stay and booking window. The company believes this may suggest that US consumers are being more careful with spending in the current economic environment.
• BKNG noted that inbound travel to the US was down yr/yr, particularly from bookers in Canada and to a lesser extent from bookers in Europe. However, it did see strong growth in other travel corridors, including Canada to Mexico and Europe to Asia, contributing to accelerating room night growth overall. Also, BKNG continues to expand its alternative accommodations (think AirBNB), with listings reaching 8.4 mln in Q2, up 8% yr/yr.
• Looking ahead to Q3, BKNG has seen steady travel demand trends at the global level thus far in Q3. However, BKNG will be lapping tough compares in Aug/Sep and remains mindful of geopolitical dynamics and uncertainty. This is why BKNG's Q3 room nights guidance was lower than Q2, as mentioned earlier. However, gross bookings in Q3 are expected to increase 8-10%, reflecting higher flight ticket growth.

So why is the stock lower despite the nice beat? We think it is partly because BKNG has been reporting huge beats for several quarters. Investors have grown accustomed to it. Also, the room nights guidance for Q3 was a noticeable step down from the growth we have seen in Q1-Q2. Also, while Asia is doing very well, BKNG was a bit cautious on inbound US travel. And that seems to be pressuring hotels with the lower ADR rates. Finally, the stock has made a big run, up more than 20% from early April, so investors are booking profits a bit.