Priceline Earnings Review Q4 2014

    • Priceline earnings of $10.85 on revenue of $1.84 billion beat analyst estimates of $10.05 EPS on revenue of $1.8 billion.
    • The stock gained in 8.5% in the regular trading session following the earnings announcement.
    • We reiterate our positive long term outlook on Priceline stock post Q4 results, as reflected in our Priceline stock analysis.

Update: You might be interested in Priceline stock analysis highlights attractive investment opportunity and our latest Priceline stock analysis video.



Priceline (NASDAQ:PCLN) delivered yet another strong quarter, beating revenue and EPS estimates by a fair margin. Priceline stock had lost over 12% in the year, prior to the latest earnings call, inspite of significant growth throughout FY 2014. The recent dip in Priceline stock price had more to do with cautious guidance numbers rather than actual performance. The strong growth in Q4, driven by stronger than expected gross bookings growth in Europe, seems to have allayed investor fears as the Priceline stock gained 8.5% in the regular trading session on February 19th, following the earnings conference call.

Priceline Earnings v/s analyst estimates

Priceline beat analyst earnings estimates for yet another quarter, making it over 10 consecutive quarters of earnings surprise. The company delivered earnings growth driven by higher than expected growth in international gross bookings and improvement in take rate.

Consensus Actual Beat/surprise
Revenue 1.8 1.84 2.2%
Non-GAAP EPS 10.05 10.85 8.0%

Priceline earnings summary Q4 2014

Priceline reported revenue growth of 19.4% YoY, which was significantly lower than 25% YoY growth in Q3 2014 and 29% in the year ago quarter. The fall in revenue growth was largely attributable to slower growth in Agency revenues, which contributed 67% of total revenue in Q4. The agency revenues, majorly generated by booking.com, grew 23% YoY, negatively impacted by forex headwinds. Also, the slowdown in gross bookings growth, gross profit growth and revenue growth is attributable in a large part to negative forex movement in the quarter. Priceline’s Q4 2014 growth metrics are summarized in the table below.

In billions of $ Q4 2013 Q4 2014 YoY growth
Gross bookings 9137 10659 16.7%
Total revenues 1541.153 1840.097 19.4%
Gross profit 1333.301 1674.685 25.6%
ADJ EBITDA 578.095 711.714 23.1%
Non-GAAP EPS 8.85 10.85 22.5%
GAAP EPS diluted 7.14 8.56 19.9%
Free cash flow TTM 2216.99 2782.89 25.5%

Priceline profitability analysis Q4 2014

Priceline recorded YoY expansion in profit margins, at Gross level. However, higher operating spends drove profit margins lower, at the operating level and flat at the net level.

Profit margin analysis Q4 2013 Q4 2014 YoY change
Gross profit margin 86.5% 91.0% 4.5%
Adj EBITDA margin 37.5% 38.7% 1.2%
Operating margin 32.5% 31.5% -1.0%
Net Income margin 24.5% 24.6% 0.0%

The gross margin expansion was driven by higher agency revenue (recorded on commission basis), which contributed 67% of total revenue as compared to 65% in Q4 2014.

The operating expenses (Op Ex) grew by 32% YoY, led by 74% growth in Offline advertising expenses followed by a 93% increase in depreciation and Amortization and 46% growth in sales and marketing. The management re-iterated the increase in Op Ex to build Priceline’s brands and support growth initiatives in restaurant reservations and hotel marketing services.

Priceline operating metrics Q4 2014

Priceline reported strong growth in key operating metrics in Q4 2014. While the gross bookings and revenue growth will continue to slow as the base gets bigger, 23% FX adjusted growth was pretty strong, given the base of $9 billion in Q4 2013.

Q4 2014 FX adjusted
International gross bookings growth 19.0% 27%
Domestic gross bookings growth 3.4% 3.4%
Gross bookings 16.7% 23%
Hotel room nights growth 24% NA
Revenue take rate (Revenue/Gross bookings) 17.3% NA
Rental car days 16.1% NA
Airline tickets -4% NA

Revenue takes rate ticked higher by 40 bps, which helped drive revenue growth higher than gross bookings growth. The only sore spot was decline in airline days. However, the air ticket business makes up a minor portion of Priceline’s overall business.

Priceline Q1 2015 Guidance & analyst estimates

Priceline expects revenue in Q1 to grow at 4-11% Y/Y with revenue of $1.76 billion at the midpoint (7.5% YoY). The company guided to Non-GAAP EPS of $7.2 - $7.75 (midpoint of 7.48). The guidance is significantly lower than current Priceline Q1 2015 analyst consensus estimate of $8.36 EPS on revenue of $1.83 billion.

Priceline cash flow analysis Q4 2014

Priceline’s ability to generate huge cash flows was once again highlighted in the Q4 results. The TTM (Trailing twelve month) free cash flow grew by 25% YoY. The company ended Q4 with cash and investments of $4.3 billion. The strong growth in free cash flow and significant cash balance continue to provide the management with sufficient resources to invest in newer avenues of growth. The company will continue to explore opportunities, as highlighted by the management in the con call. The recent acquisition of Rocketmiles was another proof that the management is open to pursue inorganic path to grow its business.

Priceline Outlook over the coming quarters

Priceline will continue to invest in OpenTable, booking suite (Buuteeq and Hotel Ninjas) and online advertising over the coming quarters. The company also announced an a share repurchase authorization of up to $3 billion, which is a good move considering that the stock has been trading at significantly discounted valuations over the last few months.

Priceline Valuations

The recent pullback in the stock price has seen Priceline valuations drop significantly. Priceline stock currently trades at:

      • PE ratio of 26.61
      • Price to sales ratio of 6.97

Priceline is trading at a significant discount to average valuation multiples over the last one year. The stock is currently trading at a 16% discount to the average PE ratio over the last one year and a 11% discount to the one year average price-to-sales multiple.

Conclusion

In conclusion, APAC focus will drive future growth at Priceline. The company might be subject to short term forex impacts due to the strong gains of the USD over the coming months. However, Priceline’s increasing focus on the agency model will help to revive growth in the domestic markets, which lag the international operations of the group. The investments in OpenTable, offline advertising and booking suite over the coming quarters could lead to contraction of profit margins, but these investments will sustain Priceline’s long term earnings growth. The company continues to have huge cash balances, which can be used to invest in inorganic avenues of growth. Priceline stock present an attractive entry point for the long term investor, given the attractive valuations and strong earnings growth of Priceline. We continue to reiterate our positive long term outlook on Priceline, which is reflected in our current Priceline stock analysis.

Priceline Earnings Preview

-- Priceline Q4 2014 Earnings Preview (published on February 2, 2015)

  • Priceline is scheduled to report its Q4 2014 results on Feb 19th before market hours.
  • Analysts estimate the company to report Non-GAAP EPS of $10.01 on revenue of $1.8 billion.
  • Huge and rapidly growing international bookings share will face headwinds from the appreciating dollar, negatively impacting Priceline revenues and earnings to that extent.

Priceline, the largest online travel agent is scheduled to announce its Q3 2014 results on February 19, Tuesday before markets open. Priceline has been among our top stock picks for over a year, gaining more than 51% since its inclusion. Priceline has consistently outgrown its peers and delivered higher earnings growth fuelled by its industry leading profit margins.  Will this growth in earnings continue into Q4? The company will face strong headwinds from the appreciating dollar, which has gained over 14% against the Euro in 2014.

Priceline Earnings Schedule

Priceline earnings release and conference call for Q4 2014 is scheduled as below.

  • Priceline Earnings Date - 19 Feb 2015
  • Priceline Earnings Release -  7:00 AM EST
  • Priceline Earnings Call – 7:30 AM EST

Priceline Q4 Earnings Estimates

Analysts expect Priceline to report non-GAAP earnings per share (EPS) of $10.01 on revenue of $1.8 billion.

Q4 2013 Q4 2014 Guidance Consensus estimate
Revenue (in millions of $) 1541.15 1749.21 1797
Non-GAAP EPS ($) 8.85 9.75 10.01

Source: Estimize

Analysts expect Priceline earnings to beat the high end of the management guidance on both earnings (range of $9.4 to $10.10) as well as revenue (guided range: $1.7 billion to $1.8 billion). The consensus estimate implies earnings growth of 13% and revenue growth of 16.6% on a YoY basis.

The GAAP EPS that was reported for the same quarter a year ago was $8.04.

Priceline eps chart
Source: Priceline EPS chart by Amigobulls

The estimates have been significantly lowered over the last three months, as the management guided lower citing forex headwinds in particular. Priceline stock was hammered post PCLN Q3 earnings report based on weak Q4 guidance which indicated slow-down in top line growth. The analyst consensus EPS has been lowered by 8.2% from $10.9 on October 14 2014. The revenue estimate has been lowered by 7% from $1.93 billion on October 11 2014. The decline in earnings has accelerated through the quarter as the dollar has gained strength against most major currencies in general and the euro in particular.

International Bookings Driving Priceline Growth

International gross bookings are the major driver of Priceline gross bookings over the last 3 years.

Priceline International Gross Bookings to Domestic Gross Bookings

Priceline gross bookings growth

A bulk of the international gross bookings growth is driven by booking.com, Priceline’s subsidiary in Europe. The strong growth in international gross bookings has seen the international to total gross bookings share rise from 75% in Q1 2012 to 85% in Q3 2014.

Priceline Total Bookings by Geography

Priceline gross bookings by segment

The total international bookings in Q3 2014 amounted to $12.1 billion, up 3x from $3.9 billion in Q4 2011. The international ops contribution to Priceline gross profits was 90% in Q3 2014, which puts in perspective the forex exposure Priceline’s bottomline is subject to, and also implied pressure on earnings growth.

Rise In US Dollar Impacts Priceline International Segment

The 14% gain in the US dollar to Euro exchange rate will be a critical headwind for Priceline’s revenue. However, the impact on the earnings might be muted as the company hedges its EBITDA and Net Earnings against forex exposure till the end of Q4. Quoting Darren Huston, CEO of Priceline, from Priceline earnings call for Q3 2014,

“We’ve hedge contracts in place to substantially shield our fourth quarter EBITDA and net earnings from any fluctuation in the Euro or the pound versus the dollar between now and the end of the quarter but these hedges do not offset the impact of translation on our gross bookings, revenue, gross profit or operating income and do not hedge our earnings beyond the fourth quarter."

Priceline Earnings History

Priceline has a strong record of beating its guidance as well as analyst consensus estimates. The company has beaten analyst consensus EPS for over 15 consecutive quarters, highlighting the strength of the company’s operations. The earnings history over the last few quarters is summarized in the below table.

Quarter EPS consensus Actual EPS Revenue consensus Actual revenue EPS beat Revenue beat
Q314 21.08 22.16 2.83 2.84 5.1% 0.4%
Q214 11.97 12.51 2.135 2.124 4.5% -0.5%
Q114 6.86 7.81 1.632 1.642 13.8% 0.6%
Q413 8.22 8.85 1.524 1.541 7.7% 1.1%
Q313 16.2 17.3 2.209 2.27 6.8% 2.8%
Q213 9.41 9.7 1.649 1.68 3.1% 1.9%
Q113 5.25 5.76 1.265 1.302 9.7% 2.9%
Q412 6.54 6.77 1.182 1.191 3.5% 0.8%
Q312 11.81 12.4 1.656 1.706 5.0% 3.0%

The company has delivered an average earnings surprise of 6% and average revenue beat of 1.3% over the last 9 quarters.

Priceline Valuation

Priceline valuation multiples have contracted significantly over the last one year. Priceline stock currently trades at:

  • PE ratio of 22.78
  • Price-to-sales ratio of 6.5

Priceline stock has traded at the following one year average multiples:

  • One year average PE ratio of 31
  • One year average price-to-sales ratio of 8.7

The current PE ratio of Priceline is 26.5% lower than the one year average multiple while the price-to-sales multiple is 25.3% lower than the one year average multiple.

Priceline has reported over 25% revenue growth and profit margin expansions through the first three quarters of 2013. The stock price on the other hand has lost 12% in the last one year, making the current valuations extremely attractive for the long term investor. In spite of the lower guidance, the company has a couple of things going for it. While Priceline-Ctrip investment will help drive growth in APAC region which is much needed as the markets in US mature, the Opentable acquisition provides Priceline with a wider moat in the domestic market giving customers the ability to plan restaurant visits also with their trip planning. Another plus is the huge cash balnce that Priceline has which can be re-invested in other growth areas.

We reiterate our positive long term outlook on Priceline, which is reflected in our Priceline stock analysis. Priceline’s solid earnings history and strong performance throughout 2014 could see the company report ahead of analyst estimates for Q4 2014.

Also, bookmark this page for our coverage and analysis of Priceline Earnings.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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