Priceline's (PCLN) Q4 Earnings Beat Estimates, Stock Rises

The Priceline Group Inc. PCLN posted better-than-expected fourth-quarter 2016 results, beating the Zacks Consensus Estimate on both counts.

Non-GAAP earnings per share of $14.21 beat the Zacks Consensus Estimate by 8.8% and were better than management’s guidance of $12.5 at the mid-point.

Investors cheered the performance and for once rewarded management for the tradition of guiding conservatively. This was reflected in the 3.31% appreciation in the stock price in afterhours trading.

Looking at the price movement over the last six months, shares of Priceline have outperformed the Zacks Internet-Commerce industry. While the stock returned 18.5%, the industry gained 10.1%.

Year-over-year, the agency business showed strong momentum but merchant business was a little lumpy. Room nights grew much faster than in the recent past. Rental cars also performed impressively. The only point of weakness was airline tickets.

Revenues

Priceline reported revenues of $2.35 billion, down 36.4% sequentially but up 17.4% from the year-ago quarter. Revenues beat the Zacks Consensus Estimate by a slight margin.

Revenues by Channel

Priceline generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 19/74% in the third quarter (previous quarter split was (17/78%).

Merchant revenues were down 41% sequentially and 1.4% year over year. Agency revenues decreased 66.6% sequentially but increased 24% year over year.

Advertising & Other revenue was down 3.4% sequentially but up 12% from last year. This is basically non inter-company revenues from Kayak and OpenTable. The restaurant reservation service that Priceline acquired some time back is rapidly building on the number of restaurants in North America and also expanding internationally.

Room nights, rental car days and airline ticket volumes were down a respective 15.3%, 28.6% and 18.8% sequentially. On a year-over-year basis, room nights were up 31%, rental car days increased 14.4% while airline ticket volumes were down 4.3%. Priceline’s room night growth is attributable to its geographically diverse inventory and brand recognition that tends to balance out macro uncertainties related to any one market, as well as growing competition from local and international players. The company did however see average daily rates for accommodations or ADRs declining. Rentalcars.com also did quite well but there was some softness in ticket volumes.

Bookings

Priceline’s overall bookings were down 22.2% sequentially but up 25.8% (28% in constant currency) year over year, better than guided.

Merchant bookings were down 26.7% sequentially but up 27.8% year over year. Agency bookings decreased 21.4% sequentially but increased 25.5% from the year-ago levels.

Margins and Net Income

Priceline reported pro forma gross margin of 96.9%, down 32 basis points (bps) sequentially but up 296 bps year over year.

Owing to the nature of its business and the mix of agency versus merchant revenues, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Priceline’s gross profit dollars were down 57.7% sequentially but up 21% (24% in constant currency) from last year, higher than the guidance. International gross profit grew 23% (26% on a constant currency basis). U.S. gross profit grew 9% from last year.

Priceline’s adjusted operating income was down more than 100% sequentially but grew 18.8% from $700.7 million reported last year. Operating margin of 35.4% declined 1377 bps sequentially but was up 40 bps from the year-ago quarter.

Priceline’s GAAP net income was $673.9 million or $13.47 a share, compared with $506 million, or $10.13 a share in the September quarter and $504.3 million, or $10 a share in the year-ago quarter.

The Priceline Group Inc. Price, Consensus and EPS Surprise

Balance Sheet

Priceline ended the quarter with cash and short term investments balance of $4.3 billion, up $783.6 million during the quarter. Priceline generated $1.1 billion of cash from operations. It spent around $518 million on capex and $256 million on share repurchases.

At quarter-end, Priceline had $6.17 billion in long-term debt with the net debt position being $4.09 billion,  compared with a net debt position of $3.92 billion in the previous quarter.

Guidance

For the first quarter of 2017, Priceline expects room nights booked to grow 20-25% and total gross bookings to grow 17-22% year over year (19-24% on a constant currency basis).

Priceline expects gross profit dollars to increase 9.5-14.5% (11-16% on a constant currency basis), with adjusted EBITDA in a range of $550-580 billion.

Pro forma earnings per share (EPS) are expected to come in a range of $8.25-$8.65. The Zacks Consensus Estimate is pegged at $10.72. GAAP EPS is expected in a range of $7.5-$7.9.

Zacks Rank & Stocks to Consider

Priceline has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT, Advanced Energy Industries, Inc. AEIS and Texas Instruments Incorporated TXN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, the estimates for Applied Materials and Advanced Energy  went up 8.7% and 18.2% respectively in the past 30 days. The same for Texas Instruments remained unchanged over the same timeframe.

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