second-quarter earnings beat the Zacks Consensus by 3 cents.
Revenues were also encouraging, especially after
) poor showing. The strong revenue and earnings growth drove
shares up 5.4% in after-hours trading.
Priceline reported revenue of $1.68 billion in the quarter,
representing a sequential increase of 29.0% and a year-over-year
increase of 26.6%. This was better than management's guidance of
$1.57 billion (at the mid-point). Kayak accounted for more than
$30 million in revenue.
Revenue by Channel
Priceline's operating model has been changing over the last
two years or so, with the merchant business gradually becoming a
smaller part of its business. This is mainly because the agency
business has been growing much faster than the merchant
While both segments grew in the last quarter, agency was again
much stronger than merchant. The merchant business grew 9.8%
sequentially and 5.3% from the year-ago level. The agency
business on the other hand grew 38.3% and 37.9% from the previous
and year-ago quarters, respectively. The merchant/agency
mix went from 41%/59% in the Mar 2013 quarter to 35%/63% in the
Other revenue was up 904.9% sequentially and up 846.1% from
last year, benefiting from the Kayak acquisition.
Both hotel room nights and rental car days were up strongly.
Room nights were up 9.8% sequentially and 38.2% year over year
Rental car days were even stronger - up 26.3% and 45.3% from the
previous and year-ago quarters, respectively. Airline tickets
were flat however from both the previous and year-ago
Overall ADRs grew 1% on a local currency basis.
Priceline's strong results indicate share gains in both
domestic and international markets.
Priceline's overall bookings were up 10.5% sequentially and
38.0% year over year, just over the guided range. Foreign
currency had a very limited impact on gross bookings in the last
Both international and domestic bookings contributed to the
growth and continue to indicate better-than-expected growth
trends. International was up 10.2% sequentially and 44.1% (hardly
any currency impact) year over year (much better than guided).
Domestic grew 12.3% sequentially and 11.7% over the prior year
(again better than guided).
Despite the macro challenges in Europe, Priceline's business
has remained relatively steady, which we think is partly because
of the lower-end inventory that management has built up. The
Asia/Pacific business is gaining from both Booking.com, which
deals with outsiders travelling to the region and Agoda, which
largely deals with travelers within the region. Increasing hotel
inventories and strategic tie-ups with companies like
Ctrip.com International (
China's leading online travel booking service are helping the
Both merchant and agency bookings growth followed revenue
growth patterns, indicating steady growth at current rates in the
next quarter as well.
Priceline reported a pro forma gross margin of 82.4%, up 324
basis points (bps) sequentially and up 668 bps year over year.
Gross margins benefited from the very strong volume growth in the
hotel and rental car businesses and steady ADRs in the hotels
business. Ticket volume also did not decline, which is a
positive. 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
Priceline's gross profit dollars were up 34.3% sequentially
and 37.8% from last year. Both international and domestic gross
profits were up strong double-digits, although international was
again much stronger than domestic. 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 jumped 69.6% sequentially to
$576.0 million and stayed 23.5% higher than the year-ago level.
The operating margin of 34.3% expanded 820 bps sequentially and
shrank 88 bps from the year-ago quarter. While strong revenues
helped the sequential comparison, high advertising costs (both
online and TV) to promote the Priceline and Kayak businesses
impacted the year-over-year comparison. The integration of Kayak
costs (mainly personnel) also had an impact.
Priceline reported adjusted EBITDA of $621.3 million, up 25.5%
from the year-ago quarter, better than management's expectations
of adjusted EBITDA in the $560-595 million range.
The pro forma net income was $470.4 million, or 28.0% of
revenue, compared to $290.9 million, or 22.3% in the previous
quarter and $355.2 million, or 26.8% in the year-ago quarter. Our
pro forma estimate excludes charges related to
acquisition-related costs, amortization of intangibles and other
charges and tax adjustments and includes stock based compensation
of 67 cents a share in the last quarter.
Including these items and deducting amounts attributable to
non-controlling interests, Priceline's GAAP net income was $437.3
million or $8.39 a share, compared to $244.3 million, or $4.76 a
share in the Mar 2013 quarter and $352.3 million, or $6.88 a
share in the year-ago quarter.
Priceline ended with a cash and short term investments balance
of $5.95 billion, up $763.5 million during the quarter. Priceline
generated $593.4 million of cash from operations. It spent around
$21.4 million on capex, $330.7 million on acquisitions and $346.9
million on share repurchases.
At quarter-end, Priceline had $1.76 billion in long-term debt
and $532.2 million in short term debt, totaling $2.30 billion.
The net cash position at quarter-end was $3.65 billion, down
$61.4 million during the quarter. Days sales outstanding (DSOs)
were around 35, up from 33 at the beginning of the quarter.
For the third quarter, Priceline expects total gross bookings
to grow 27-34% year over year (25-32% on local currency basis),
with international growing 32-39% (up 30-37% on local currency
basis) and domestic growing 5-10%. This is expected to yield a
year-over-year revenue increase of 23-30% ($2.16 billion at the
mid-point, slightly lower than the Zacks Consensus of $2.18
Priceline expects gross profit dollars to increase 32-39%,
with the adjusted EBITDA at $990 million to $1.055 billion.
The pro forma EPS is expected to come in at $15-30-$16.30,
based on a 16% tax rate and 53.3 million shares. The GAAP EPS is
expected to be $13.75 to $14.75. Analysts were expecting pro
forma earnings of $15.28 a share when the company reported
earnings, within the guided range.
Priceline reported a very strong quarter, with both revenue
and order growth coming in stronger than competitors'. The
numbers seem to indicate that its aggressive TV ad campaigns are
paying off, yielding possible share gains. Priceline's decision
to significantly increase inventory, especially in the
lower-priced segment in Europe is also likely to have helped.
Priceline has also been steadily building position in 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
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 margins.
Since overall trends appear to be positive and management
guidance is also encouraging, we expect positive revisions to
estimates. Priceline shares currently carry a Zacks Rank #3
(Hold), similar to peer Expedia, but not nearly as good as
), which has a Zacks Rank #2 (Buy).
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