By Adil Yousuf
Priceline.com. (NASDAQ:PCLN) has served as the ideal middleman for years, with William Shatner satisfying all your travel needs at the price you desire. The "Negotiator" has contributed significantly in making Priceline's name-your-own-price business model unique and robust despite competition from several travel startups.
Priceline has evolved from being an archetypal, irrationally-priced poster child of the dotcom bubble to being an E-commerce standard-bearer. Today, the Company is immensely successful and exhibits sound fundamentals to back up its stock price. With the stock approaching the $1000 mark, we'll address whether Priceline can continue its upward trajectory by analyzing the following:
- Company Fundamentals, and
- Growth prospects for the Company.
Priceline reported better-than-expected earnings ($5.76 per share vs. $5.27 per share) for Q1 2013. Fueled by a 36.4% increase in gross travel bookings, the Company surpassed revenue expectations ($1.3 billion vs. $1.28 billion) as well.
Domestic gross bookings growth accelerated in the quarter with improving results in hotel and rental car businesses, while international gross bookings climbed 43%. Seeing a favorable trend in revenue, Priceline expects double-digit revenue growth for Q2 2013 1.
However, despite broad optimism, the company has provided muted earnings guidance for Q2 2013, citing economic uncertainty and competition to weigh on the bottom line. Priceline expects EPS between $8.87 and $9.45, below consensus expectations of $9.57 a share, and expressed concerns over sovereign debt woes and the viability of the Euro.
Nonetheless, the cautious outlook for Q2 2013 has failed to weigh down on analyst estimates since Priceline has been getting a chorus of upgrades. While analysts are broadly bullish toward Priceline shares 2 — 13 out of 16 analysts covering the Company recommend a “Strong Buy” rating — some investors have wagered on a breakdown. Over last two reporting periods short interest has increased by almost 13%, and now accounts for 5.6% of the stock's available float. This provides potential for a short-covering rally on any good news or continued upside in the stock.
Market IQ's proprietary Fundamental metrics give Priceline a Neutral+ rating. Market IQ characterizes Priceline as a high Quality, but average Value stock (see below).
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The above Quality - Value chart consists of the following companies: Priceline (NASDAQ:PCLN), Orbitz Worldwide Inc. (NYSE:OWW), Travelzoo Inc. (NASDAQ:TZOO), Expedia Inc. (NASDAQ:EXPE), and Trip Advisor Inc. (NASDAQ:TRIP).
The Company's Qualitative strength can be seen in multiple areas such as Revenue growth, Financial Strength, and growth in Net Income.
- Over the trailing 12 months, revenues have increased by 20.79%. Growth in revenue appears to have helped boost the earnings per share.
- Priceline has Equity to Debt ratio of 1.62, which is significantly higher than the industry average of 0.102, indicating strong Financial Strength relative to its peers.
- Net income increased by 34% when compared to the same quarter one-year prior.
Based on Market IQ's Valuation metrics, Priceline has average Value relative to its peers (see below).
Priceline has been no stranger to using acquisitions to increase sales and fend off competition. Most recently, the Company acquired Kayak Software Corp. (NASDAQ:KYAK) for $1.8 billion, adding profitable search tools to its services that help customers' book flights and hotels online.
With increased reliance on mobile devices, the mobile platform offers immense growth potential for travel services. To leverage this, Priceline has been focusing on developing new applications and upgrades to the mobile web. Owing to its increasing investment in building a strong mobile platform, Priceline owned Booking.com saw the total transaction value of mobile hotel bookings grow from $1 billion in 2011 to over $3 billion in 2012.
An expanding hotel market and a rapidly rising mobile user base are two key trends driving growth in the online travel market. An increasing global hotel footprint combined with rising booking volumes via the mobile platform will augur well for Priceline's future growth.
The company maintains a larger international customer base relative to its competitors, which, if intra-European travel finally picks up, could be a further boon to Priceline’s growth potential. Priceline is poised to benefit from improving economic outlook, as individuals become more likely to travel. In particular, the rising stock market, which creates a wealth effect, should help the travel sector as a whole going forward.
1Priceline expects revenues growing 15% to 22% for Q2 2013.
2Consensus Earnings estimates for 2013 have increased from $36.94 per share 90 days ago to a current estimate of $37.52 per share.
This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.