first-quarter earnings beat the Zacks Consensus by 66 cents
(13.2%). Revenues came in slightly higher than expected.
Priceline excludes charges and credits related to the taxation
of online travel bookings, which depend on rulings in different
states. In the last quarter, the exclusion of such unfavorable
rulings added 40 cents to the adjusted EPS.
Priceline reported revenue of $1.30 billion in the quarter,
representing a sequential increase of 9.4% and a year-over-year
increase of 25.5%. This was better than management's guidance of
$1.25 billion (at the mid-point).
Revenue by Channel
Priceline's business model has been changing over the last two
years or so, with the merchant business gradually becoming a
smaller percentage of revenue. This is mainly because the agency
business has been growing much faster than the merchant
Both businesses grew strongly from the previous and year-ago
quarters. The merchant business grew 11.9% sequentially and 6.5%
from the year-ago level. The agency business was even stronger,
growing 7.7% and 43.2% from the previous and year-ago quarters,
respectively. The merchant/agency mix went from 60%/40% in
the Dec 2012 quarter to 41%/59% in the last quarter.
Other revenue was up 9.1% sequentially and up 9.6% from last
year, remaining below 1% of the total revenue for the
Overall ADRs grew 1% on a local currency basis.
Priceline's overall bookings were up 39.0% sequentially and up
36.4% year over year, at the high end of the guided range.
Foreign currency had a very limited impact on gross bookings in
the last quarter.
Booking volumes were up both sequentially and year-over-year
across product lines with hotel room nights, rental car days and
airline tickets increasing 36.8%, 37.5% and 21.4%, respectively.
Room nights and rental car days were up strong double-digits
(37.7 and 43.5%, respectively) from last year, with airline
ticket volumes growing 6.3%.
Both international and domestic bookings contributed to the
growth and continue to indicate better-than-expected growth
trends. International was up 41.7% sequentially and increased
42.8% (43% excluding currency impact) year over year (at the high
end of the guided range). Domestic grew 25.7% sequentially and
8.7% over the prior year (within the guided range).
Other than the macro challenges in Europe, Priceline is also
facing regulatory hurdles in Argentina and stiff competition in
China and other Asia/Pacific countries. Despite these pressures,
the company has done relatively well (especially in the
Asia/Pacific through Agoda and booking.com). Increasing hotel
inventories and strategic tie-ups with companies like
Ctrip.com International (
China's leading online travel booking service are helping the
Priceline reported a pro forma gross margin of 79.1%, down 116
basis points (bps) sequentially and up 747 bps year over year.
Gross margins may remain under pressure as Priceline continues to
strengthen its position in geographies that typically yield lower
ADRs. The increase from the year-ago quarter is related to some
Easter-related sales being pulled into the quarter. Because of
the nature of the business and the mix of agency versus merchant
revenue, management usually uses gross profit dollars rather than
margin to gauge performance during any quarter.
Priceline's gross profit dollars were up 7.8% sequentially and
38.6% from last year. International drove the year-over-year
increase in gross profit, while domestic declined slightly. The
rapid growth in Asia and Latin America where ADRs are low and
margins respond strongly to higher volumes is the main reason for
the expansion of the international gross margin.
Priceline's operating income dropped 14.8% sequentially to
$399.7 million, but stayed 60.1% higher than the year-ago level.
The operating margin of 26.1%, shrank 739 bps sequentially and
expanded 202 bps from the year-ago quarter. Higher advertising
expenses as a percentage of sales drove the sequential decline
and moderated the expansion from the year-ago quarter. Online
advertising was the bigger driver (due to the mix shift to
international brands). The booking.com TV advertising campaign
kicked off in the last quarter, which also led to increase in
All other expenses declined sequentially as a percentage of
sales (due to the higher volumes), with S&M, personnel and
G&A declining 18 bps, 1 bp and 38 bps, respectively. S&M
and G&A also declined from last year.
Priceline reported adjusted EBITDA of $368.2 million, up 35.6%
from the year-ago quarter, better than management's expectations
of adjusted EBITDA in the $316-346 million range.
The pro forma net income was $290.9 million, or 22.3% of
revenue, compared to $329.6 million, or 27.7% in the previous
quarter and $204.2 million, or 19.7% in the year-ago quarter. Our
pro forma estimate excludes charges related to unfavorable
rulings, amortization of intangibles and other charges and tax
adjustments and includes stock based compensation of 42 cents a
share in the last quarter.
Including these items and deducting amounts attributable to
non-controlling interests, Priceline's GAAP net income was $244.3
million or $4.76 a share, compared to $288.7 million, or $5.63 a
share in the Dec 2012 quarter and $181.7 million, or $3.54 a
share in the year-ago quarter.
Priceline ended with a cash and short term investments balance
of $5.18 billion, down $1.58 million during the quarter.
Priceline generated $183.1 million of cash from operations. It
spent around $15.0 million on capex and $76.4 million on share
At quarter-end, Priceline had $936.0 million in long-term debt
and $526.2 million in short term debt, totaling $1.46 billion.
The net cash position at quarter-end was $3.72 billion, down $6.8
million during the quarter. Days sales outstanding (DSOs) were
around 33, up from 28 at the beginning of the quarter.
For the second quarter, Priceline expects total gross bookings
to grow 30-37% year over year (27-34% on local currency basis),
with international growing 36-43% (up 33-40% on local currency
basis) and domestic growing 5-10%. This is expected to yield a
year-over-year revenue increase of 15-22% ($1.57 billion at the
mid-point, slightly lower than the Zacks Consensus of $1.63
Priceline expects gross profit dollars to increase 26-33%,
with the adjusted EBITDA at $560-595 million.
The pro forma EPS is expected to come in at $8.87-$9.45, based
on a 16% tax rate and 51.6 million shares. The GAAP EPS is
expected to be $7.87 to $8.45. Analysts were expecting pro forma
earnings of $9.21 a share when the company reported earnings,
within the guided range.
Priceline reported another strong quarter, although the
topline guidance was a little lighter than expected.
International bookings trends could also have been better.
Management highlighted some issues in Argentina and also pointed
out that the Asia/Pacific market was very competitive. All things
considered, we still don't think the results and guidance were
While Priceline has significant exposure to Europe, it has
been steadily building position in other emerging international
markets. It is not only increasing its hotel inventories, but
also entering into strategic alliances and making strategic
acquisitions that could help growth in the future.
Considering economic conditions all over the world and the
fact that Priceline derives a significant chunk of revenue from
leisure travel, building a global presence that could balance out
macro effects in different geographies seems like a good
Priceline will continue investing in the business (look for
continued uptrend in advertising) to push growth and especially
to continue its international expansion strategy. This is likely
to exert some downward pressure on earnings.
Since overall trends appear to be positive and management
guidance is also not disappointing, we expect positive revisions
to estimates. Priceline shares currently carry a Zacks Rank #3
(Hold), better than peer
), which has a Zacks Rank #5, but not nearly as good as
), which has a Zacks Rank #2 (Buy).
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