Priceline Braved Currency Headwinds To Deliver A Successful Third Quarter
Priceline (NASDAQ: PCLN) had a very successful third quarter despite currency headwinds dampening a part of its earnings. The main focus of the earnings call was Priceline’s Booking.com’s growth and how it is helping Priceline maintain its leadership position in the OTA domain. The management also spoke about Priceline’s recent participation on TripAdvisor’s Instant Booking and the kind of returns it expects from the same. Priceline’s focus on China had made it look beyond its partnership with Ctrip to gain an even bigger user base.
In Q3 2015, Priceline’s room nights increased by 22% on a year-over-year basis to ~116 million and was lower than its Q2 2015 growth rate of 26%. Rental cars grew by 13% to 16 million, as against a 20% growth in Q2. The company’s gross bookings of around $15 billion, increased by 22% in constant currency, but only 7% when reported in U.S. dollars. Gross profit for Q3 was around $3 billion reflecting a 29% year-over-year constant currency growth (12% in U.S. dollars). Priceline’s operating margins performed well and exceeded guidance. The Non-GAAP operating margin was around 54% due to the excellent performance of the marketing team and well-rounded growth. [1] [2]
Guidance
For Q4 2015, the management guided to a 1% to 8% year-over -year growth in revenue and a 14% to 21% constant currency growth in gross profits (3% to 10% in U.S. dollars). Priceline’s opaque Name Your Own Price model has been losing traction for several quarters now, and it expects the declining demand to negatively impact revenues. [1]
Booking.com Focus
Currently Number 1 In The Industry And Growing Stronger
Booking.com has been the biggest growth driver for Priceline, so far. For the first time in its history, Booking.com released its bookable room figure– 21 million across 820,000 unique properties. [3] According to Skift, the recent excitement in Silicon Valley regarding Airbnb’s 2 million listings across 60 million guests in 190 countries, might have been a reason for spilling out its numbers. For so long, Priceline only reported the list of properties but not the number of bookable rooms. Booking.com reported that its unique properties (all categories except hotel and vacation rentals) grew by 32% and accommodated 137 million guests over the last 12 months. [4]
The significance of the number of properties on a travel providers platform is manifold. Customers are attracted towards a platform giving the widest variety of rooms to select from, and investors take the number of properties as a sign of expansion and growth of the business. Booking.com also has several competitive advantages over its peers–unlike most OTAs which charge a 5% to 15% booking fee, Booking.com doesn’t charge a booking fee from travelers, also Booking.com’s reservation are instantly confirmed as against a 24 hour confirmation time taken by other sites. Hence, from all aspects combined, Booking.com is indeed the online accommodation market leader, currently. [3]
B2B Launches
After the launch of BookingSuite, which is successfully driving growth in the B2B sphere, Priceline had recently launched Booking.com for Business. Targeting the corporate travelers and travel organizers, the tools in this website allows corporate travel bookers to link travelers to their company accounts, keep track of travel spending through budget filters and travel reports, and other such features which are especially attractive to the business travelers. There are also rewards programs, group discounts, and special benefits over select properties. [1] It is worthwhile to note that recently Expedia (NASDAQ:EXPE) has also increased its focus on business travelers through its corporate travel website, Egencia. Currently, Egencia is looking for expansion options in the Australian market. [5]
China Focus
Mentioning the recent Ctrip-Qunar partnership and Ctrip‘s (NASDAQ:CTRP) purchase of ~40% of eLong’s stake, Priceline’s management mentioned that though the developments are favorable to bring a sustainable business environment in China, yet, Priceline is not solely dependent on Ctrip for its expansion plan in the country. In 2015, Booking.com increased its properties from 8,000 to 25,000 in China. Chinese travelers are globally the most significant right now, and are primary inbounds in most of Priceline’s important destinations. [1]
Instant Booking Dynamics Is Symbiotic In Nature
Priceline Group’s CEO made it clear that Booking.com agreed to participate on TripAdvisor‘s (NASDAQ:TRIP) Instant Booking because it received branding opportunities on the platform and adequate returns on investment. In its recent earnings call, TripAdvisor’s CEO did mention that the Instant Booking consumers, booking Priceline properties, will clearly know that the booking is being handled by Priceline. [6]
Priceline will start testing the new partnership from this week. CEO Huston also mentioned that he would ensure that Booking.com’s content on Instant Booking will help in building Priceline’s own user base, instead of helping its rivals gain users. Based on the returns that Booking.com gains from Instant Booking, Priceline’s other websites might also participate on the platform. [7]
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Notes:- Priceline Q3 2015 Earnings Call Transcript, Seeking Alpha, Nov 9, 2015 [↩] [↩] [↩] [↩]
- The Priceline Group Reports Financial Results for 3rd Quarter 2015, Priceline Press Release, Nov 9, 2015 [↩]
- Booking.com Hits Record 1 Billion Guests Since Inception, Priceline Press Release, Nov 9, 2015 [↩] [↩]
- The Untold Story of Booking.com’s Growth in 21 Million Rooms, Skift, Nov 9, 2015 [↩]
- Expedia targets Australian corporate travel market with Egencia, The Sydney Morning Herald, October 11, 2015 [↩]
- TripAdvisor Q3 2015 Earnings Transcript, Seeking Alpha, Nov 5, 2015 [↩]
- Priceline Group Leaves Door Open for Booking Through Google, Skift, Nov 9, 2015 [↩]