Aided By Successful Investments, Priceline Braves Currency Headwinds To Deliver A Strong Fourth Quarter

February 20th, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Priceline Group (NASDAQ:PCLN), the online travel giant and the owner of Booking.com, Kayak and OpenTable, reported strong Q4 2014 earnings, on February 19th . Despite currency headwinds, the company performed above the management guidance of Q3 2014. The Group reported gross profit of $1.7  billion, reflecting 6% year-on-year growth. This was aided by a 17% increase in the gross bookings (which refers to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by its customers), to $10.7 billion. The growth was broad-based, with increases of 24% in hotel room nights to $78.2 million, 16% in rental car days to 11 million, and 4% in airline ticket volumes to 1.7 million. The effects of the revenue growth also boosted the bottom line. The company’s non-GAAP net income for the quarter stood at $577 million, 22% higher compared to the year ago period.

The fourth quarter growth was primarily fueled by its strategic investments in recent times. Priceline witnessed robust hotels booking growth (on its Booking.com and Agoda platform) in the rapidly growing Asia Pacific market as a result of its expanded partnership with Ctrip. Rentalcars (acquired in June 2014) witnessed accelerated growth in the fourth quarter. OpenTable (which was acquired in mid 2014), also contributed to meaningful growth. On January 15, Priceline’s accommodation site, Booking.com announced the launch of Booking Now — a mobile application that aims at providing a customized booking experience to its users, by utilizing user behavior data and GPS technology.

Priceline has guided to a slow to moderate pace of growth in Q1 2015, primarily because of the scenarios affecting its operation in recent times. During 2014 , Priceline’s international business represented approximately 87% of its total gross bookings  and approximately 94% of its consolidated operating income.The weak Euro exchange rate continues to dampen its performance in the European regions. Also  weak domestic currencies are thwarting international travels in many countries where Priceline operates. The company’s guidance for the Q1 2015 include a 2% to 9% year-on-year increase in total gross travel bookings, a 4% to 11% increase in revenues, adjusted EBITDA of approximately $475 million to $510 million, and non-GAAP net income per diluted share between $7.20 and $7.75. [1]

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We are in the process of updating our price estimate of $1108 for Priceline’s stock.

See Our Complete Analysis for Priceline Here

Priceline Has Chalked Out The Growth Path For Its Strategic Acquisitions And Partnerships

  • OpenTable’s Transition Into A Cloud-Based Platform Is Expected To Expedite Growth In The Restaurant Segment

Priceline’s OpenTable helps restaurants fill tables by offering online reservation services to diners. The acquisition marked Priceline’s entry into the online restaurant reservation business, a category in which OpenTable is a leader in North America, with over 50% market share. [2] Priceline has made significant investments towards shifting the OpenTable B2B software into a modern, cloud-based platform. Priceline expects OpenTable to rapidly grow post the transition. The company has envisioned international expansion plans for OpenTable in 2015. [3]

  • Priceline’s Partnering Hotels Should Experience Enhanced Service Through Booking Suite

Priceline’s acquired brands Buuteeq and Hotel Ninjas were brought under the Booking.com’s umbrella. The companies been rebranded as the Booking Suite. The products are mostly website related. Priceline is growing a SaaS-based business with these brands. This is expanding the range of services offered to hotel partners starting from marketing services to provision of software related services.

  • Priceline Plans On Expanding Hotel Inventory On Ctrip To Boost Further Growth

In August 2014, Priceline strengthened its commercial partnership (initiated in 2012) with Ctrip (NASDAQ:CTRP), the biggest Chinese online travel agency (OTA),  by investing $500 million in the company. Priceline now has access to Ctrip’s 100,000 accommodations in the Greater China region while Ctrip has access to Priceline’s global portfolio of over 500,000 accommodations. [4] Additionally, Ctrip agreed to promote Priceline Group’s other services, like rentalcars.com and OpenTable, to its customer base. The expanded partnership with Ctrip has reaped substantial benefits in 2014. Priceline’s outbound business witnessed significant growth after Agoda and booking.com were featured on Ctrip. The main reason for that was the growing Chinese outbound market, (which is  the largest in the world). Ctrip’s properties on Priceline’s platform are also gaining traction. Priceline plans to accelerate the rollout of its properties in China in the coming months. [3]

 

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Notes:
  1. The Priceline Group Reports Financial Results for 4th Quarter and Full-Year 2014, Priceline Press Release, February 19, 2015 [↩]
  2. The Priceline Group Agrees to Acquire OpenTable, Inc., Priceline Investor Relations, June 13, 2014 [↩]
  3. Priceline Group Inc. (PCLN) CEO Darren Huston on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 20, 2015 [↩] [↩]
  4. The Priceline Group and Ctrip Expand Partnership, Ctrip Investor Relations, August 6, 2014 [↩]