- Priceline earnings are still growing at a fast pace, and beat estimates yet again.
- Priceline's main growth is internationally, and acquisitions could boost growth.
- The stock is up $100/share since the latest results, but Priceline is attractive for long term investors.
Priceline (NASDAQ:PCLN) is the juggernaut of global online travel. It continues, as it has for years, to grow at a fast pace, and although its main competitor, Expedia (NASDAQ:EXPE), has a stronger presence in the U.S., Priceline is leading the way in international travel offerings.
Priceline stock surged on Wednesday after easily beating earnings forecasts. The stock climbed by more than $100 per share or 8% from just three days ago.
Priceline's earnings per share (EPS) came in at $9.94. Priceline's adjusted EPS of $12.45, came in well above analyst estimates of $11.90. This is the EPS Adjusted for stock options and amortization expenses.
Priceline revenue met forecasts of $2.28 billion, a 7.4% increase compared to the same quarter last year. This number was slightly ahead of analyst projections of $2.27 billion.
Global sales continued to grow in spite of the strong dollar. On a constant currency basis, bookings increased by 26%. However, due to currency fluctuations, more Europeans stayed on the continent rather than book expensive, distant vacations. Europe is a major market for Priceline in addition to domestic travel.
Most of the growth came in international markets. International gross bookings increased an impressive 30% in constant currency from the same period last year. International gross bookings increased only 12.1% in U.S. dollars, reflecting the effect of the strong dollar.
Hotel and rental car bookings also showed strong increases. The company announced 113.1 million hotel room bookings, a year-over-year increase of more than 26%. Car rental reservations increased by more than 20%. Airline ticketing, by comparison showed a small increase of only 0.3% year-over-year.
In spite of posting strong numbers that exceeded expectations, profits were announced at $517 million, down 10% from the same period last year. This signals that while the company is still growing at a reasonably fast pace in spite of a slowdown due to the strong dollar, growth could slow further, in the face of currency headwinds.
Priceline is succeeding in using the agency business model. Under this model, hotels, airlines and other industry participants are able to list their offerings and prices on Priceline's platform which receives a commission on every sale. This allows cost of revenue to remain low and increased revenue more easily translates into profits.
Priceline is also growing through acquisitions. The company plans to roll out a new service, OpenTable (NASDAQ:OPEN), a restaurant reservations site it bought last year for $2.6 billion. The site offers reservations for restaurants around the world. This new service is expected to be available in the second half of 2015.
The company has offered guidance for next quarter at EPS $22.95 to $24.45. The average analyst forecasts is $23.58.
Priceline's global presence appears to make it a good indicator of consumers internationally. Investors should note that the stock has had a sharp climb in response to favorable earnings several times in the past two years. However, after an initial climb lasting 1-3 weeks, the market has sold the stock, often bringing prices down to its previous level.
Priceline remains a strong buy for the long-term investor.
Priceline Earnings Preview (Posted On 2 August 2015)
- The latest set of Priceline earnings numbers are due on 5 August 2015.
- Priceline could show short term weakness, given the shaky global macro-economic outlook.
- Priceline stocks could be an option worth considering for long term investors.
Priceline will be announcing their earnings before the Open on Wednesday, August 5.
Priceline has a history of beating earnings expectations, and has done it every quarter for at least the last 5 years. Part of the reason for this is the conservative guidance from the company, which is typically below analyst estimates.
This quarter appears to be no exception. Priceline has provided a range of estimated expectations for adjusted earnings below that of most analysts. The company's guidance of EPS is $10.95-$11.75 versus a consensus of analysts' estimates of $11.98, down from $13.10 per share three months ago.
This should come as no surprise. Given that beating expectations makes a company look good, many companies offer lower guidance as standard practice. However, the market is getting wise to this. Companies that do this consistently, like Priceline, are conditioning analysts and investors to expect the company to beat forecasts. What may work in the short-term will not work in the long-term as investors and analysts realize what is happening.
The question then becomes, beating forecasts by how much? To truly beat earnings forecasts, Priceline has to beat by a large margin, not by the usual amount that has become the new normal. Of course, if they only meet or fail to meet expectations, that will be considered missing estimates by a large margin. According to StreetInsider.com, Priceline beats earnings estimates by an average of 5.3%.
Not beating earning expectations by a large-enough margin is exactly what happened in the 1st quarter 2015 earnings release. The company announced adjusted EPS of $8.12 on May 7 while analyst estimates were at $7.72, handily beating expectations. However, the stock fell that day by more than $50/share or nearly 5%. The downtrend continued from there and Priceline shares lost an additional $100/share ending on June 29.
In spite of steady growth in revenue and earnings, the stock has failed to top the high of $1,379 in March 2014. Since then it fell to just below $1,000 in January and February 2015, and as on Friday, July 31, the stock closed at $1,243.57.
Also See: Priceline DCF Analysis - Valuation based on Priceline financial projections upto 2018
Priceline is the leader in global travel and is still growing steadily. However investors believe that Priceline will not be able to continue at previously super-fast growth rates. The company has achieved enormous growth over the last decade, but no company can grow extremely fast forever. Sooner or later, they gobble up most of the market.
With a global market to capture, there is still plenty of market for Priceline to capture. Priceline has fueled its growth by purchasing companies worldwide, including a 10% stake in Chinese travel company, CTRIP (NASDAQ:CTRP). This growth strategy is entrenching Priceline's dominance in the global market.
But with the strong dollar, trouble with Greece and other countries in the Eurozone, and a bubble bursting in the Chinese economy, there are immediate headwinds for Priceline to overcome in a soft world economy. As such, the company has lowered profit guidance for the past 7 quarters in a row. Any increase in the stock price that may come in response to the company beating earnings forecasts will likely be short-lived.
Priceline.com continues to have excellent outlook for the long-term. However, there could be weakness in the short term.