Priceline Tops Analyst Estimates In The Fourth Quarter And Is Gearing Up For Further Growth
Priceline (NASDAQ:PCLN) released its Q4 2015 earnings on February 17th. The company’s performance topped the expectation of Wall Street analysts. Post Expedia’s impressive performance in Q4 2015, we were curious to find how Priceline had fared, and it turns out that Priceline did not disappoint! What is significant is that Priceline is much more vulnerable to international currency headwinds given that almost 90% of its gross bookings come from outside the U.S. For fiscal year 2015, Priceline’s customers reserved 432 million room nights through its platform, over double the number of that booked through its closest rival, Expedia, (203 million) in the same period. According to Priceline’s management, the business was organically grown by 25%, around 3 percentage points short of the growth rate of 2014. [1] Also, Priceline was the more profitable company between the two in the fourth quarter. While Priceline and Expedia earned revenues to the tune of $2 billion and $1.7 billion respectively, there was a big difference in their adjusted EBITDA where Priceline delivered $790 million as compared to Expedia’s $280 million (Expedia’s adjusted EBITDA got dampened to the tune of $39 million on account of its huge number of investments in Q4). [2] In this article we discuss the main drivers of Priceline’s growth in the fourth quarter which is going to steer the company ahead in the long term.
Priceline posted a profit per share of $10 and its adjusted earnings (adjusted for stock option expense and amortization costs) per share stood at $12.63. The average analyst estimate, as per a survey by Zacks Investment Research was $11.83 per share. [3] Priceline’s fourth quarter revenues stood at $2 billion reflecting around 9% year-on-year growth. Its gross booking for the same period grew by 13% year-on-year to $12 billion. Priceline’s total room nights booked for Q4 2015 was 99 million, a rise of 27% from the same period last year. The company’s adjusted EBITDA stood at $790 million, up by 11% year-on-year.
We will shortly update our price estimate of $1,223 for Priceline’s stock.
See Our Complete Analysis for Priceline Here
Booking.com Is Expanding And How!
Booking.com boasts of 850,000 accommodation properties (34% growth over 2014) on its platform currently, spanning across 220 countries, out of which 200,000 properties were added in 2015. Priceline has around 22.6 million bookable rooms on its site with 6.9 million in vacation rental and non-hotel accommodations. Booking.com is presently looking into more aggressive penetration into the single-owner, single-room market. Some of the reasons for booking.com’s widespread popularity are its wide range of accommodation offerings, 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. The website crossed 100 million customer accounts in 2015 and witnessed its one billionth guest stay. [1]
Priceline is not resting on its laurels and is keenly aware of the stiff competition in the online travel domain. Expedia recently acquired HomeAway and added a total of 1,508,000 properties on its platform. Also for 2015, the gross bookings for Priceline stood at around $55.5 billion while that of Expedia stood at $60.8 billion. Also, along with metasearch engines like TripAdvisor and Google entering the OTA arena, newer threats like Airbnb are on the rise. Priceline spent around $3 billion in marketing in 2015 to strengthen its brands. In 2016, the company wants to maintain the same trend in marketing and its investment areas might include the business booking side for booking.com and OpenTable’s global expansion. Priceline’s eye is not only on strengthening its various platforms, but also on improving its bottom line.
Room Diversity Strengthens Priceline’s Accommodation Platform
In Europe, which is booking.com’s largest market, the maturity of the market is resulting in smaller additional properties to be added on the booking.com platform. However, those add diversity to the accommodation offerings and hence are significant to Priceline. In the emerging economies such as India and China, there is scope for larger growth and hence addition of larger properties is predominant. In China, Priceline ended 2015 with 35,000 properties reflecting almost 350% year-on-year growth and a significant part of the growth was organic. However, the challenge in China is that domestic demand is required to justify the return on investment, as the inbound China market is not as big as the domestic market. Herein, Priceline’s repeated investments in Ctrip becomes significant, as it gives the former the capacity to generate domestic traffic on its platforms. Since 2014, Priceline has invested almost $2 billion in Ctrip and can own up to a 15% stake in the Chinese OTA leader post the completion of its investments. [1]
OpenTable Is Progressing Well
OpenTable is being gradually expanded as planned by the company. The online restaurant booking site performed as per expectation in Q4 2015. Though the brand is primarily based out of the United States (where it has an over 50% market share), it also has a presence in Japan, the U.K., Germany, and post its acquisition of AS Digital in 2015 (an Australia based restaurant booking site) it has also entered Australia. Additionally, the OpenTable software is used by many hotels across the world where the brand might still not have customer facing operations. The platform is making several developments, such as the mobile application in America, which can support restaurant bookings in London, also it can provide a translated menu from German to English to someone who is traveling in Germany. The cross product promotion from OpenTable has started with booking.com. [1]
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Notes:- The Priceline Group (PCLN) Darren Richard Huston on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, Feb 17, 2016 [↩] [↩] [↩] [↩]
- Priceline Group CEO: We Have Double the Hotel Bookings of Expedia, Skift, Feb 17, 2016 [↩]
- Priceline Earnings Results Beat Wall Street Expectations, Skift, Feb 17, 2016 [↩]