Other Than Currency Headwinds, Priceline’s Fourth Quarter Is Expected To Be Healthy

February 16th, 2016 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Priceline (NASDAQ: PCLN) is slated to release its Q4 2015 earnings results on February 17th. The year 2015 was rich with investments and strategic alliances, wherein Priceline tried expanding its reach through platforms such as  accommodation, restaurant booking, and vacation rental. Over the last few years, Priceline’s important acquisitions include: Agoda.com, Kayak, Rentalcars.com, and OpenTable. In 2015, Priceline tried strengthening booking.com’s reach even further with the help of TripAdvisor‘s Instant Booking, it acquired AS Digital to further the expansion of its North America based restaurant booking site, OpenTable, and also Priceline made a series of investments in Ctrip and could own up to a 15% stake in the company post the completion of investments. The company also tried strengthening its vacation rental presence through a  partnership with HomeAway, the biggest vacation rental provider in the world.

For the first nine months, the company’s gross bookings rose by 10% year-on-year to around $44 billion and Priceline’s gross profit for the given period was ~$7 billion reflecting 14% year-on-year growth. On the back of investments and technological advancements, and its accommodation platform, booking.com–the world’s most popular online travel booking platform–the company seems to be well poised to deliver a healthy fourth quarter. The only hurdle to its growth could be the currency headwinds as Priceline derives almost 90% of its gross bookings from the international markets.

We will update our price estimate of $1,223 for Priceline’s stock post the earnings results.

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See Our Complete Analysis for Priceline Here

Priceline’s Booking.com Charges Ahead And TripAdvisor Might Help It Go Even Further

Priceline’s biggest growth driver so far has been booking.com, one of the global online accommodation market leaders. The site has an inventory of 21 million bookable rooms across 855,000 unique properties [1]. In 2015, all its unique properties (except hotel and vacation rentals) grew by 32% and accommodated 137 million guests. [2] Some of its competitive advantages that make booking.com a cut above the rest are: offering the widest number of options to travelers, not charging a booking fee (most OTAs charge a 5% to 15% booking fee), and instantly confirming reservations as opposed to a 24 hour confirmation time taken by other websites.

In October 2015, booking.com collaborated with TripAdvisor to display its properties on the latter’s Instant Booking platform. The agreement was reached after Priceline was offered exclusive privileges and branding opportunities. In the future, Priceline’s other websites might also participate on Instant Booking.

 

Priceline’s Plans On Making OpenTable International

In September 2015, Priceline acquired AS Digital, an Australia based restaurant booking site, to aid OpenTable, its North America based restaurant booking website, in its international ventures. Priceline currently plans on expanding to Australia, Japan, and across the Asia Pacific region. [3] Currently, TripAdvisor holds the leading position in restaurant booking outside North America. TripAdvisor’s TheFork spans over 12 countries in over 33,000 restaurants. AS Digital might strengthen OpenTable’s international expansion and provide competition to TripAdvisor.

 

Ctrip And China Are Both Important For Priceline

Priceline invested $500 million into the Chinese OTA leader, Ctrip, in December 2015.  This last round of investment resulted in Priceline’s total investment in Ctrip since 2014 to around $2 billion. Post the issuance of new bonds, Priceline can own roughly a ~15% stake in Ctrip. Priceline 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. Additionally, Ctrip promotes Priceline’s other products like rentalcars.com and OpenTable to its own users. Priceline is Ctrip’s primary non-China hotel partner. In its Q3 2015 call, Priceline’s management mentioned that currently, Chinese travelers are the most important globally. They are also the primary inbounds in most of Priceline’s important destinations. [4]

In Q1 2015, China’s total online travel market transactions  grew by over 50% year-over-year to reach around $15 billion. [5] China’s online travel market is expected to continue its double-digit growth and cross $75 billion by 2017. [6]

China is so important to Priceline’s travel audience that besides its continuous investment in Ctrip, Priceline also uses other sources to expand its presence in the country. A case in point is last year Booking.com increased its properties by over 200%, from 8,000 to 25,000, in China.

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Notes:
  1. Booking.com Hits Record 1 Billion Guests Since Inception, Priceline Press Release, Nov 9, 2015 [↩]
  2. The Untold Story of Booking.com’s Growth in 21 Million Rooms, Skift, Nov 9, 2015 [↩]
  3. The Priceline Group Announces the Acquisition of AS Digital, Priceline Press Release, September 3, 2015 [↩]
  4. Priceline Q3 2015 Earnings Call Transcript, Seeking Alpha, Nov 9, 2015 [↩]
  5. China Online Travel Market Exceeded US $15 billion in Q1 2015, China Internet Watch, May 21, 2015 [↩]
  6. Chinese Travel Platform Qunar Raises $500M, Turns Down Ctrip Acquisition Offer, Tech Crunch, June 1, 2015 [↩]