Why Priceline Is a Better Deal Than Expedia

Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When a viewer mentioned Priceline.com (NASDAQ: PCLN), CNBC's Jim Cramer described it as a “fine stock,” but he preferred Expedia (NASDAQ: EXPE). I disagree. Priceline is a $600 stock, and might be hard to own. However, overall, I think it is more attractive compared to Expedia. Both companies offer online travel services, including booking services for hotel rooms, airline tickets, rental cars, cruises, and several package tours. Expedia is Priceline's largest, more domestically focused rival.

Throughout 2012, Priceline performed nicely and returned about 30% this year. On the other hand, Expedia's year-to-date stock returns are impressive and stand at over 100%. In terms of valuation, Priceline is comparably expensive. Nonetheless, it exceeds Expedia, in terms of growth, profitability, management efficiency, as well as, financial discipline:

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>Priceline.com, Inc.</strong></p> </td> <td> <p><strong>Expedia, Inc.</strong></p> </td> </tr> <tr> <td> <p>Market Cap</p> </td> <td> <p>$31.55 billion</p> </td> <td> <p>$8.13 billion</p> </td> </tr> <tr> <td> <p>P/E</p> </td> <td> <p>23.89</p> </td> <td> <p>23.69</p> </td> </tr> <tr> <td> <p>Forward P/E</p> </td> <td> <p>16.90</p> </td> <td> <p>16.43</p> </td> </tr> <tr> <td> <p>P/S</p> </td> <td> <p>6.23</p> </td> <td> <p>2.12</p> </td> </tr> <tr> <td> <p>P/B</p> </td> <td> <p>8.82</p> </td> <td> <p>3.45</p> </td> </tr> <tr> <td> <p>EPS growth this year</p> </td> <td> <p>99.37%</p> </td> <td> <p>11.59%</p> </td> </tr> <tr> <td> <p>EPS growth next five years</p> </td> <td> <p>20.31%</p> </td> <td> <p>14.59%</p> </td> </tr> <tr> <td> <p>Sales growth past five years</p> </td> <td> <p>31.14%</p> </td> <td> <p>9.04%</p> </td> </tr> <tr> <td> <p>ROA</p> </td> <td> <p>27.12%</p> </td> <td> <p>4.69%</p> </td> </tr> <tr> <td> <p>ROE</p> </td> <td> <p>45.46%</p> </td> <td> <p>13.51%</p> </td> </tr> <tr> <td> <p>ROI</p> </td> <td> <p>37.96%</p> </td> <td> <p>7.90%</p> </td> </tr> <tr> <td> <p>Gross Margin</p> </td> <td> <p>76.38%</p> </td> <td> <p>77.70%</p> </td> </tr> <tr> <td> <p>Profit Margin</p> </td> <td> <p>26.88%</p> </td> <td> <p>9.27%</p> </td> </tr> <tr> <td> <p>Current Ratio</p> </td> <td> <p>3.64</p> </td> <td> <p>0.94</p> </td> </tr> <tr> <td> <p>Debt/Equity</p> </td> <td> <p>0.41</p> </td> <td> <p>0.53</p> </td> </tr> </tbody> </table>

 Data is derived from finviz.com

For the third quarter of 2012, Priceline achieved gross travel bookings of $7.8 billion, up by 25.2% over a year ago. Total revenues marked an increase of over 17% on a year-to-date basis. The company's strategic focus on the European and Asian travel markets gave it a strong foothold internationally. For 2011, the firm posted $16.9 billion in international bookings. Expedia's international bookings amounted to $11 billion. For the most recent quarter, Priceline's international operations contributed total revenues of approximately $1.2 billion, a 30.6% acceleration compared to last year. Priceline has been paving its way towards increased market penetration through aggressive acquisition deals. Its latest deal was with KAYAK Software Corporation, a leading travel research site with over 100 million user queries each month, in which Priceline agreed to buy it for $1.8 billion.

Overall, Kayak could serve as a profitable source of customers for Priceline. According to EMarketer, Priceline's online travel sales may reach almost $152 billion by 2016. This translates into a 40% increase compared to total online sales of $107.4 billion achieved in 2011. Based on analysts' average target price, the stock has about 18% upside potential. Moreover, fifteen out of twenty six analysts tracked by Wall Street Journal suggest it is worth buying. However, the majority of analysts gave Expedia a “hold” rating.

Foolish Summary

Both Priceline and Expedia are among the pioneers in the revolutionary online booking industry. These companies became so popular, that their market caps have surpassed almost all major service providers as well as airline companies. The sector is highly dynamic in nature. The recent acquisition of Kayak by Priceline was not welcome by the market. However, I think there will be a synergy between these two companies, which can turn into higher profits. Priceline is also more international than Expedia, and also more hotel-focused where the return on capital is higher. The company also offers “name-your-price” services which aims to capture more consumers. Combined with Kayak’s “Airfare tracking” feature, Priceline is likely to lead the industry for many years. 

ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of Priceline.com. Motley Fool newsletter services recommend 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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