Priceline Increasing Hotel Market Share, Int’l Expansion Support $588 Value

Priceline.com (NASDAQ:PCLN) has largely managed to sustain the stellar gross bookings growth witnessed in the previous quarters in Q3, aided by solid performance of international businesses and steady domestic growth. International growth rates are being driven by increasing internet adoption rates and a relatively fragmented hotel industry as compared to a market dominated by large hotel chains in the United States. As per our estimates, Hotel Bookings contribute to 90% of the value for Priceline’s stock while accounting for a much lower 55% of the value for competitor, Expedia (NASDAQ:EXPE).

As Priceline continues to strengthen its foothold in the hotel bookings space with expansion into new markets and robust growth in existing geographies, we expect its occupied hotel rooms market share to rise from the current 3% to 4.5% by the end of the Trefis forecast period. Priceline’s winning run with the hotel bookings market share supports our revised price estimate of $588 for the stock, which represents about a 10% premium to the market price on the last close.

See our full analysis for Priceline here

Healthy Hotel Bookings Hold International Growth Strong

International gross bookings reflect gross bookings on Booking.com, Agoda and TravelJigsaw, regardless of the location of the traveler or the destination booked. Domestic gross bookings reflect gross bookings generated by the U.S. priceline.com business, again irrespective of the location. The past quarter, international brands constituted about 80% of the total gross bookings for Priceline and grew a whopping 73% y-o-y. Most growth for the group is concentrated at the hotel bookings business, which is set to register at least 50% y-o-y growth in hotel reservations in 2011. Improving hotel average daily rates are also supporting revenues.

Booking.com continues to build inventory and sales in high-growth markets such as Asia Pacific and South America, delivering growth in reservations to new destinations while the core markets of Western Europe and Southern Europe continue to post very strong results. Other international brands such as the hotel reservation business, Agoda reported strong year-over-year growth in gross bookings this quarter. The car rental brand, TravelJigsaw also delivered robust growth in rental car unit sales in the quarter through solid execution in acquiring stock for the high season supporting the impressive 36% y-o-y growth in rental car days booked in Q3.

South America And Asia Dynamics Draw International Expansion Efforts

The demand-supply economics at South America make it very lucrative for Priceline. The strong international travel between South America and Europe on one hand, and the United States on the other complement Priceline’s network. This enables the company to build the business more quickly with demand for the destination coming out of the gate, and a hotel inventory that is attractive for South American people to book in Europe and in the United States. While Asia is particularly promising due to its bigger base of population as well as a much bigger and more diverse economic base.

Understand How a Company’s Products Impact its Stock Price at Trefis