) fourth-quarter earnings beat the Zacks Consensus by 26 cents
(4.2%). Revenue growth was more or less in line with
expectations. Shares responded very positively, gaining 3.7% in
extended trading, following the 1.0% increase during the day.
Priceline reported revenue of $1.19 billion in the quarter,
representing a sequential decline of 30.2% and a year-over-year
increase of 20.2%. This was better than management's guidance of
$1.17 billion (at the mid-point).
Volumes were down sequentially across the business (in line
with normal seasonality), with hotel room nights, rental car days
and airline tickets declining 16.3%, 23.4% and 17.6%,
respectively. Room nights and rental car days were up strong
double-digits 37.5% and 35.8%, respectively) from last year, with
airline ticket volumes remaining flat.
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 at more than three times the rate of
growth of the merchant business.
The merchant business picked up very strongly in the third
quarter, so there was a sequential decline in the fourth.
Overall, the merchant business declined 57.8% sequentially, while
remaining 5.9% higher than the year-ago level.
The agency business remained strong however, growing 22.2% and
31.9% from the previous and year-ago quarters, respectively.
The merchant/agency mix went from 66%/34% in the Sep 2012
quarter to 40%/60% in the last quarter.
Other revenue was flat sequentially and up 13.1% from last
year, remaining below 1% of the total revenue for the
Domestic ADRs grew 1% in the last quarter, impacted by the mix
of hotels and also hurricane Sandy, which hurt high-margin sales
in the New York City market. Global ADRs were however down 1%,
impacted by lower-cost inventories (a trend that may be expected
Priceline's overall bookings were down 15.9% sequentially and
up 32.8% year over year, far exceeding the high end of the guided
range. Excluding the impact of foreign currency, total bookings
were up 35% from the year-ago quarter.
Both international and domestic bookings contributed to the
sequential decline and year-over-year increase and both came in
higher than guided, indicating better-than-expected growth
trends. International declined 15.1% sequentially and increased
40.4% (43% excluding currency impact) year over year. Domestic
slid 19.8% sequentially but increased 4.4% over the prior
The better-than-expected international bookings were on
account of strong room night growth in Europe, as well as
seasonal strength in the emerging Asian and Latin American
markets. Significantly higher hotel supply (41% year-over-year
increase at Booking.com) and strategic tie-ups with companies
), China's leading online travel booking service are helping the
Priceline reported a gross margin of 80.3%, down 156 basis
points (bps) sequentially and up 714 bps year over year due to
higher volumes in the international business, helped by better
pricing in the U.S. 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 down 31.6% sequentially
and up 31.9% from last year. While both the domestic and
international businesses contributed to the year-over-year
growth, international growth was much stronger at 37% (39% on a
local currency basis), with domestic growing 4%.
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 47.8% sequentially to
$398.6 million due to lower volumes, but stayed 28.0% higher than
the year-ago level. The operating margin of 33.5%, shrunk 1,127
bps sequentially and expanded 204 bps from the year-ago
While all expenses increased sequentially as a percentage of
sales (due to the lower volumes), the most significant were
online advertising (up 378 bps), personnel (up 240 bps) and
G&A (up 175 bps). Cost of sales declined significantly from
last year, while most other expenses increased.
Priceline reported adjusted EBITDA of $425.7 million, up 23.7%
from the year-ago quarter, better than management's expectations
of pro forma EBITDA in the $381-425 million range.
The pro forma net income was $329.6 million, or 27.7% of
revenue, compared to $624.3 million, or 36.6% in the previous
quarter and $251.7 million, or 25.4% in the year-ago quarter. Our
pro forma estimate excludes amortization of intangibles, other
charges and tax adjustments and includes stock based compensation
of 39 cents a share in the last quarter.
Including these items and deducting amounts attributable to
non-controlling interests, Priceline's GAAP net income was $288.7
million or $5.63 a share, compared to $596.6 million, or $11.66 a
share in the Sep 2012 quarter and $225.7 million, or $4.41 a
share in the year-ago quarter.
Priceline ended with a cash and short term investments balance
of $5.18 billion, up $515.2 million during the quarter. Priceline
generated $496.8 million of cash from operations. It spent around
$16.2 million on capex and a very small amount on share
At quarter-end, Priceline had $936.7 million in long-term debt
and $520.3 million in short term debt, totalling $1.46 billion.
The net cash position at quarter-end was $3.73 billion, up $510
million during the quarter. Days sales outstanding (DSOs) were
around 28, up from 26 at the beginning of the quarter.
For the first quarter, Priceline expects total gross bookings
to grow 30-37% year over year, with international growing 36-43%
(up 35-42% on local currency basis) and domestic growing 5-10%.
This is expected to yield a year-over-year revenue increase of
17-24% ($1.25 billion at the mid-point).
Priceline expects gross profit dollars to increase 30-37%,
with the adjusted EBITDA at $316-346 million.
The pro forma EPS is expected to come in at $4.90-$5.30, based
on a 15.5% tax rate and 51.6 million shares. The GAAP EPS is
expected to be $4.12 to $4.52. Analysts were expecting pro forma
earnings of $4.87 a share when the company reported earnings,
well below the guided range.
Priceline's fourth quarter results tell an encouraging story.
Europe continues to do better than expected and other
international markets, such as APAC and South America continue to
Priceline has significant exposure to Europe and has been
building its 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.
Also, considering the condition of the global economy and the
fact that Priceline derives a significant chunk of revenue from
leisure travel, which is discretionary spending, its possible
that the company is taking some market share. The guidance was
well above consensus, so shares are likely to maintain their
Priceline will continue investing in the business to push
growth and especially to continue its international expansion
strategy. This is likely to exert some downward pressure on
Since overall trends appear to be positive and management
guidance has also surprised positively, we expect positive
revisions to estimates. Priceline shares currently carry a Zacks
Rank #2 (Buy), better than peers
), both of which carry a Zacks Rank #3 (Hold).
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