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  7. Priceline Earnings Preview - Q2 2014

Priceline Earnings Preview - Q2 2014

posted by Virendra Singh Chauhan | published by Amigobulls on
  • Priceline is slated to report its Q2 2014 numbers on Monday. Analyst consensus is Non-GAAP EPS of $12.02 on revenue of $2.15 billion.
  • Priceline has trumped analyst estimates for over 15 consecutive quarters.
  • Strong growth in property listings on booking.com and a solid Q2 performance by Expedia’s hotel segment indicate a Q2 beat is on the cards for Priceline.
  • We reiterate our positive long term outlook on Priceline stock, which is reflected in our Priceline stock analysis.

Priceline group companies

Priceline (NASDAQ:PCLN), the largest online travel agent by revenues is scheduled to announce its Q2 2014 results on August 11, Monday before markets open. Priceline stock has been among our top stock picks for over a year, returning over 60% since its inclusion. Priceline, with industry leading topline growth accompanied by its highly superior profit margins, has consistently delivered earnings growth over the last few years. Will this continue into Q2 or will Q2 spring some surprises? Here is our preview into what to expect in the Q2 numbers.

A history of growth, profitability and Huge Cash flows

Priceline has historically delivered strong growth in revenues, earnings as well as cash flows. A growth across each of these metrics is a testimony to the operating efficiencies of the OTA. Priceline revenue growth, earnings growth and free cash flow growth over the last few quarters is displayed in the chart below.

Priceline revenue growth, earnings growth and Free cash flow growth

Priceline revenue growth, Earnings growth, Cash flow growth

Priceline has an average revenue growth of 28.8% over the trailing twelve months (TTM) which has translated to a similar growth in earnings per share (EPS). The TTM free cash flow has grown at an average of 33% over the last 4 quarters.

Consistent and significant growth in Priceline cash balance

The combination of a solid topline growth and industry leading margins has led to Priceline churning out huge free cash flows quarter after quarter. The result is a constant and steady increase in the cash balance over the last few years.

Priceline historical Cash balance

Priceline ended Q1 2014 with cash and equivalents balance of $6.7 billion, a 30% YoY growth over Q1 2013. The cash balance at the end of first quarter was close to 2 times the total operating spends of Priceline over the last four quarters, implying a comfortable cash balance on its balance sheet.

Strong earnings history of Priceline

Priceline has a strong record of beating its guidance as well as trumping analyst consensus estimates. According to streetinsider.com data, the company has beating analyst consensus of ES for over 15 consecutive quarters, highlighting the strong results the company has reported consistently. The company has delivered an average earnings surprise of 7.1% over the last four quarters while beating revenue estimates by an average of 1.7% over the same period.

Priceline Q2 2014 guidance and Consensus estimates

The company has guided Q2 2014 revenue growth of 19% to 29% with analyst consensus of $2.15 billion implying a 28% YoY growth. EPS consensus is at the high end of the Priceline management’s guided range, implying a 24% YoY growth. Priceline Q2 2014 guidance and consensus estimate is summarized in the table below.

Q2 2014 lower guidance

Q2 2014 higher end guidance

Q2 2014 Guidance mid-point

Consensus estimate

Revenue (in millions of $)

1999.483

2167.507

2083.495

2150

Non-GAAP EPS ($)

11.22

12.02

11.64

12.02

Significant events in Q2

Booking.com, a subsidiary of Priceline, acquired Buuteeq while parent company Priceline acquired OpenTable during Q2. As we mentioned in an earlier post, Buuteeq is a good fit with Booking.com and the combination could propel agency revenues higher over the coming quarters. Priceline’s ability to take OpenTable global will also help unlock new revenue streams and drive earnings growth.

Conclusion

A recent post on Yahoo points to a solid growth in number of property listings on booking.com, up 57% YoY. The result will be a significant traction in the Agency revenues, which are primarily driven by Booking.com. Agency revenues contributed 63% of total revenues in Q1 2014 and solid growth in this segment will significantly impact the overall revenue growth of Priceline. Expedia recently reported a solid Q2 2014 performance in its hotel segment, 28% YoY growth in room nights leading to 24% growth in topline. The hotel bookings make for a lion’s share of Priceline’s topline, which strengthen our conviction of Priceline topping analyst estimates for Q2 2014. We reiterate our positive long term outlook on Priceline, which is reflected in our Priceline stock analysis.

Disclaimer: We do not hold any stake in the aforesaid stocks. Please read our detailed disclaimer.

About the author

Virendra Singh Chauhan
Virendra Singh Chauhan is a Financial Analyst & Editor at Amigobulls. An MBA(Finance) with specialization in investments, Virendra is a value investor who loves to analyze stocks and involve in discussions regarding investments in general. His areas of interest include personal finance as well as entrepreneurship, apart from equity analysis in particular. He loves companies with strong cash flows and profits today rather than companies built on promises of future. Contact him at virendra.chauhan AT amigobulls.com.
You can ,follow Virendra Singh Chauhan on Twitter.

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