Priceline (PCLN) will report third quarter fiscal 2017 financial results today after the closing bell. How much runway is left with which the online travel deals specialist can maneuver? That’s the main question Priceline management will be tasked to answer this afternoon.
In the three months that ended September, Wall Street expects the Norwalk, Conn.-based company to earn $34.25 per share on revenue of $4.34 billion. This compares to the year-ago quarter when the company earned $29.69 per share on $3.69 billion in revenue. For the full year, ending in December, earnings are projected to rise 14% year over year to $74.99 per share, while revenue of $12.53 billion would rise 16.7% year over year.
Priceline stock closed Friday at $1,894.45, down about 1%. Connecting consumers wishing to make travel reservations with providers of travel services across the world has been a profitable business for Priceline, which has seen its shares climb 30% year to date. But since the shares, earlier this year, hit a record high of $2,067.99, they’ve declined some 7% in three months, while easing about 1% since April.
For the stock to take off, Wall Street will want to first see that Priceline can its profit margins soaring again. Beating the Street’s earnings-per-share estimates, which Priceline has done in the past fifteen quarters, has not been a problem. But due to intense competition from the likes of Expedia (EXPE), TripAdvisor (TRIP) and, more recently Google (GOOG , GOOGL), Priceline’s margins have declined from the reduced commissions it receives on its bookings.
In the second quarter, Priceline’s total gross bookings grew more than 16% year over year to $20.8 billion. Its Merchant bookings were also strong, rising 14% year over year. At the same time, however, the company’s "spend to bookings" ratio are also rising. This is because Priceline has had to spend more money, boosting its marketing campaigns to bring more customers to its platform.
Third quarter gross booking are expected to be up anywhere from 11% to 16%, while gross profit is expected to increase in a range of 15.5% to 20.5%, which — at the midpoint — would be about one percentage point below consensus estimates. Nevertheless, Priceline, which operates in over 200 countries through six primary brands, including Booking.com, priceline.com, KAYAK, agoda.com, rentalcars.com, and OpenTable, is still regarded as best-in-class in its industry.
On Monday analysts will want to see the extent to which Priceline’s strong international operations can drive growth, particularly with the emergence of new competitors such as Trivago (TRVG). How the company guides for the fiscal year and next will underscore the extent to which the management believes it can overcome competitive threats, given that margin is expected to decline some 50 basis points year over year to 38.0%.
To the extent Priceline can surprise analysts with better guidance, PCLN stock, which is prone to wild moves on earnings beats, could soar back to all-time highs. The shares, which have a Street target of $2,106.55, implies additional premiums of 11% from current levels.