Priceline Q1 2014: Beats Estimates Yet Again!

  • Priceline delivered a strong Q1 beating revenue and Non GAAP EPS estimates.
  • The company's guidance is typically conservative, as is the case this time.
  • We remain bullish on Priceline and think it has a significant upside potential.

Priceline Q1 2014 Beats Estimates Yet Again!

Priceline (PCLN) delivered yet another strong quarter, marginally beating revenue estimates and quashing EPS estimates. Of late, Priceline has been a victim of the broad based bearish sentiment that has gripped the momentum stocks or momos as they are referred to. Priceline’s stock is down about 19.5% in the last 2 months, since 5 March 2014. However, Priceline showed just why it doesn't fall into that basket of frothy tech stocks, even though the stock moved with the bunch to end up 2% lower on 8th May, following its Q1 results announcement.

Following a strong Q1 performance, the company issued a rather conservative guidance for Q2 2014, which again, was slightly below analyst estimates. However, that has been somewhat of a trend with Priceline and it has managed to beat estimates almost always.

Priceline Q1 2014: Estimates vs Actuals

Priceline beat revenue and non GAAP EPS estimates, both of which were above its own guidance. While the beat on the revenue front was marginal, Priceline delivered a huge beat on the EPS front.

Revenue ($ billion)

Non GAAP EPS ($)

Guidance (higher end)









Estimates Beat



Priceline Q1 2014: Key Financials

Priceline clocked a revenue growth of 26% Y/Y for Q1 2014 surpassing the upper end of its own guidance of 25% Y/Y growth. The figure of 25% has also incidentally been the company’s average Y/Y growth rate over the last 8 quarters.

Priceline Revenue and Profit Growth

Priceline recorded operating and net profit margins of 27% and 20% respectively marking an improvement from Q1 2013’s margins of 24% and 19%. The sequential drop in margins is not surprising since the company’s margins typically drop sequentially in Q1 every year, and peak in Q3.

The company registered operating and net income of $438 and $331 million respectively. GAAP EPS came in at $6.25 a share representing a 31% growth over Q1 2013’s EPS of $4.76 a share.

Priceline generated operating cash flows of $177 million for Q1, ending the quarter with cash and cash equivalents of $1.28 billion.

Revenue Segment

Q1 Y/Y Growth

Q1 % of Revenue

Agency Revenues



Merchant Revenues



Advertising & Other



Revenue growth was driven by the company’s ‘agency revenues’ segment. Though ‘advertising and other’ revenue showed massive growth, the same was a result of Priceline’s acquisition of Kayak in mid May 2013. Growth in this segment will look normalized and comparable on a like-to-like basis starting from Q3. However, given that the segment accounts for a small percentage of Priceline’s revenue, it doesn’t skew the larger picture too much.

At $12.3 billion, gross billing or ‘gross travel bookings’ as Priceline calls it, grew at a healthy 34% Y/Y albeit slower than the 36.4% Y/Y growth in Q1 2013.

Priceline Q2 2014 Guidance

Priceline expects revenue in Q2 to grow at 19-29% Y/Y with a guidance midpoint growth guidance of 25%. The company’s Non GAAP EPS guidance is slightly lower than analyst estimates.

Revenue ($ billion)

Non GAAP EPS ($)

Guidance (lower end)



Guidance (higher end)






As we had highlighted in our 2013 Q3 earnings review, Priceline’s guidance is typically conservative, and lower than analyst estimates. However, given that the company has almost always beaten estimates, we wouldn't worry too much about the guidance being lower than analyst estimates.

The company expects to see some pressure on operating margins as it invests aggressively on advertising and approaches the anniversary of its Kayak acquisition, which has improved operating leverage for Priceline. The impact of the operating leverage on Y/Y comparisons will wear-off going forward.

Priceline Company Valuation

At its current stock price of $1108, Priceline trades at Price/Sales and Price/Earnings multiples of 8.12 and 29.25 respectively. We feel the high P/S ratio should not be a concern for Priceline as it enjoys consistent top-line growth along with healthy gross and net profit margins to back it up.

In our DCF valuation of Priceline in March 2014, we found $1680 a share to be the intrinsic value of Priceline’s stock. There isn’t a revision in our view given that the company’s Q1 numbers are in line with our expectations. We think Priceline has significant upside potential at its current price.

Priceline is one of our top stock picks since May 22, 2013 and has returned over 44% in the period since. In the light of its latest quarterly performance, we continue to remain bullish on Priceline stock.

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

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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