Priceline Results Paint Encouraging Picture of Travel Market

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During an economic downturn, travel plans are generally the first to be scrapped as consumers are left with less money to spend on such luxury pursuits. As such, the industry generally suffers as a result. However, with economic recovery apparently gaining traction, the industry seems to be putting some fairly strong numbers on the board again. An example is Priceline’s (NASDAQ: PCLN) most recent earnings report, which paints a fairly positive picture of travel demand. In extension, the report sends an encouraging signal about the consumer’s willingness to spend money on travel and leisure, supporting the thesis of US economic recovery.

Stock at a Glance

Priceline is an online travel company, operating under the booking.com, priceline.com and Agoda brand names. Aside from airline tickets, the company offers hotel and rental car bookings, as well as travel insurance. The company is furthermore known for its name-your-own-price auction, where consumers can indicate at what price they would like to go on holiday. The stock has a sizable market cap just short of $34 billion and is up about 14.7% in the last year.

Earnings Report

Priceline had a great quarter. On Tuesday, the company announced adjusted EPS of $6.77, soundly beating the analyst consensus of $6.54. Gross bookings were up nearly 33% to $6.6 billion, and revenue was up some 20% to $1.19 billion. Analysts were impressed with the results, with Morningstar analyst Dan Su commenting on the strong execution across all the company’s markets. Despite weak economic conditions in Europe, booking.com’s growth in Europe has held up pretty well. As for Q1 2013 guidance, the firm expects continuing strong top line performance, with YoY revenue growth between 17 and 24%.

Priceline’s huge growth easily blows competitors out of the water. Over the last few years, the company has outpaced the industry growth rate by at least a factor of two. Major competitor Expedia (NASDAQ: EXPE) on the other hand has been lagging the industry growth rate, and missed estimates for most of 2010 and 2011, as well as Q4 2012. Orbitz (NYSE: OWW), another competitor, doesn’t even seem to be in the running, having delivered negative growth for the last few years and a string of disappointing earnings reports in recent quarters. Looking forward, Priceline’s expected 3-5 year EPS growth rate of 55% dwarfs Expedia’s 6% and Orbitz’ pretty ugly -15.7%.

Valuations and Metrics

Priceline currently trades at 25.65x TTM earnings, which may look fairly high compared to some other high market cap stocks, but is in fact quite reasonable for a high-growth internet company. The forward P/E of 15.32x is actually quite compelling. Expedia is quite a bit more expensive with a TTM P/E of around 31.5x although the forward P/E is comparable. Poor Orbitz has a negative TTM P/E. Priceline’s huge 35% operating margin puts Expedia’s 14% and Orbitz’ 8%, and also has a stellar return on equity of 44%. Moreover, they have $4.67 billion in cash, with a total debt to equity ratio of about 39.

Bottom Line

With a great quarter in terms of growth and earnings, Priceline’s results show that the consumer is spending more money on travel again. Soundly beating Wall Street expectations, the company’s upbeat report and guidance are encouraging. Certainly, Priceline is way ahead of the competition in terms of growth, and the stock is trading at quite a reasonable valuation at the moment, which should allow for further upside. 


DUJames has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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