Priceline Q3 2014 Earnings Review

  • Priceline reported Q3 2014 results on November 4, 2014 before market hours.
  • The company beat analyst consensus on both topline and bottomline, reporting $2.84 billion in revenue and Non-GAAP earnings per share of $22.16.
  • Priceline stock was hammered in a sell-off on account of Q4 2014 guidance, which was sharply lower than analyst estimates.
  • We reiterate our positive long term outlook on Priceline stock post Q3 results, as reflected in our Priceline stock analysis.

Priceline (NASDAQ:PCLN) group announced its Q3 2014 results before markets opened on November 4. Priceline reported Non-GAAP EPS (earnings per share) of $22.16, crushing analyst consensus estimate of $21.08. The company delivered solid topline growth and improvements in profit margins, leading to the huge earnings surprise. However, Priceline’s stock fell 8.4% in yesterday’s regular trading session, with concerns regarding the company’s Q4 2014 guidance. We take a look at the quarterly performance and update our Priceline stock analysis.

Priceline Earnings Summary For Q3 2014

Priceline reported revenue growth of 25% YoY in Q3, which was significantly lower than 33% YoY growth in Q3 2013 and 26% in Q2 2014. The fall in revenue growth was largely attributable to slower growth in Agency revenues, which contributed 74% of total revenue in Q3. The agency revenue grew 33% YoY, a significant drop from 41% YoY growth in Q3 2013 and 38.5% growth in Q2 2014. The slowdown in gross bookings growth, gross profit growth and revenue growth is attributable in a large part to negative forex movement in Q3. Priceline’s Q3 2014 growth metrics are summarized in the table below.

In millions of $, except EPS

Q3 2013

Q3 2014

YoY growth

Gross bookings








Gross Profit
















TTM free cash flow




Gross Margin Expansion Drives Priceline Earnings

The higher revenue share of agency revenues drove gross profit growth ahead of revenue growth, which led to a 4.7%% YoY improvement in gross profit margin. However, the operating costs outpaced gross profit growth, leading to significantly lower improvements in Operating profit margin, Adjusted EBITDA margin and Net Income margin.

The operating expenses (Op Ex) grew by 37% YoY, led by 80% growth in Offline advertising expenses followed by a 61% increase in depreciation and Amortization and 55% growth in Online advertising expenses. The management attributed the increase in Op Ex to build Priceline’s brands and support growth initiatives in restaurant reservations and hotel marketing services.

Priceline Q3 Earnings Cash Flow Analysis

Priceline’s ability to generate huge cash flows was once again highlighted in the Q3 results. The TTM (Trailing twelve month) free cash flow grew by 21% YoY. The company ended Q3 with cash and investments of $8.2 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.

Q3 was definitely a strong quarter for Priceline, outdoing analyst estimates and management guidance on most of the important metrics. However, an important question is if the company can continue to grow its earnings and revenues at such a clip. Priceline Q4 2014 guidance indicated a slowdown in topline growth, citing macro concerns in Europe. The Q4 2014 guidance is summarized below:

  • Year-over-year increase in total gross travel bookings of approximately 8% - 15% (an increase of approximately 13% - 20% on a local currency basis).
  • Year-over-year increase in international gross travel bookings of approximately 10% - 17% (an increase of approximately 16% - 23% on a local currency basis).
  • Year-over-year increase in domestic gross travel bookings of approximately 0% - 5%.
  • Year-over-year increase in revenue of approximately 11% - 18%.
  • Year-over-year increase in gross profit of approximately 17% - 24%.
  • Adjusted EBITDA of approximately $625 million to $665 million.
  • Non-GAAP net income per diluted share between $9.40 and $10.10.

The management’s Q4 guidance was significantly lower than consensus estimates, implying a Non-GAAP EPS growth of 10.2% YoY (at its midpoint). Analyst consensus stood at Q4 EPS of $10.96, implying a 24% YoY earnings growth (Source: Yahoo finance).

Priceline Stock: Future Outlook

Post the Opentable acquisition, Priceline will continue to invest in its B2C segment over the coming quarters, apart from geographical expansion of OpenTable and investment into the newly launched pay with OpenTable app. The company will also continue to execute on its investment in Ctrip, the largest online travel agent in China.

International growth and payments through OpenTable will accelerate Opentable revenue and earnings growth while the co-marketing effort could lead to cross selling benefits for both Opentable and other Priceline group brands.

The other areas of investment will be the hotel marketing services of Priceline, which the company offers to its hotel partners across the globe.

Priceline Earnings: Actual Performance Vs Estimates












Priceline beat analyst estimates on both topline as well as bottomline, with a 5% earnings surprise and a marginal revenue beat in Q3.

Priceline Valuation

Priceline stock continues to be attractively priced in the OTA space. As per Priceline DCF valuation we expect revenue growth of 22% in 2015. The below table displays Priceline’s PE ratio and Price-to-sales ratio in comparison with sector peers Expedia and Orbitz Worldwide.

Relative valuation

(as of November  5 closing prices)



Orbitz Worldwide

PE ratio




price-to-sales ratio




PEG ratio




one year forward PE




Compared with OTA sector peers Expedia and Orbitz Worldwide, Priceline is the most attractively valued company.

In conclusion, APAC focus will drive future growth at Priceline as markets in US and Western Europe mature. The company might be subject to short term forex impacts due to the strong gains of the USD over the recent months. However, Priceline’s increasing focus on the agency model and payments through OpenTable, will help to revive growth in the domestic markets, which lag the international operations of the group. The investments over the coming quarters could lead to contraction of profit margins, but these investments could sustain drive 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. The latest dip in Priceline stock presents an attractive entry point for the long term investor, given the attractive valuations and strong earnings growth. We continue to reiterate our positive long term outlook on Priceline, which is reflected in our current Priceline stock analysis.

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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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