This Stock Is Heading To $1,000 a Share and Higher
Jayson is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Priceline.com (NASDAQ: PCLN) is trading in the low $900 range, and I believe that not only will the stock reach $1,000 a share, but also continue to appreciate from there.
One of highest quality companies in the Internet space
Priceline.com is a low cost operator with a focus on large industry profit pools and a management team with an acquisition strategy focus. That being said, it would not be unreasonable for the company to continue growing EPS in the low 20s over the next few years, and the current 17x 2014 EPS valuation does not reflect the growth potential that is still to be realized.
Booking.com strength in Europe
This acquisition (in 2012) has given the company exposure to the largest European traveler base and an inventory of the largest amount of hotels worldwide with 320,000. A Morgan Stanley survey showed that 47% of European online travel agency bookings were done via Booking.com, followed by Expedia (NASDAQ: EXPE) with a 21% share.
The survey also found that the predominant response on why hotel owners utilize Booking.com more than other online travel agencies is the ease of use and access to the much larger customer base. Booking.com also offers users the convenience of paying for the stay upon arrival as opposed to competitors that charge at the time of booking and a price guarantee should the user find a lower rate for the same property at a later date.
Also revealed in the survey is the fact that 52% of hotels questioned expect bookings to “significantly/ somewhat” increase over the next six months compared to the same period a year ago. This is obviously a huge positive for the market leader in hotel bookings.
Ramping up advertising campaigns
Booking.com launched its first ever U.S. brand market campaign (entitled “Booking.yeah”) to increase market share in the domestic market. Until then, Booking.com relied solely on online advertising, particularly search engine marketing, to build awareness of its product among U.S. travelers.
At the same time, Priceline.com launched an offline marketing campaign revolving around its “Express Deals” as opposed to its “Name Your Own Price.” This campaign is a positive step and as a result, Booking.com should see some acceleration in U.S. bookings during the second half of 2013 and improve its margin profile.
Can’t afford Priceline.com shares?
Priceline’s competitor Expedia.com is a cheaper alternative for investors that want exposure to the online travel agency segment. Even though Priceline.com is substantially larger, Expedia.com shares are up roughly the same 45% that Priceline.com shares have grown year to date.
The Morgan Stanley survey has found that Expedia’s travel Preference Program (ETP) is showing encouraging signs. Under ETP, customers have the option of either paying when the client stays (agency structure) or paying upfront (merchant structure).
Under the agency structure, Expedia.com does not pay the credit card processing fees. Sixty percent of respondents expressed satisfaction with the ETP system which can lead to market share gains in Europe (46% of the hotels using Expedia.com expect to increase their usage of the site in the next 12 months).
What to avoid?
TripAdvisor (NASDAQ: TRIP) is the leader in online travel research and may seem like a logical investment idea that is correlated to an increase in hotel bookings, however, this is not necessarily the case. TripAdvisor has a large audience, however, its monetization story is still in a transition phase from pop-up to a meta model.
The company is transitioning from 3-4 pop up ads per use to 1 meta click per user, which has been characterized by management as an ongoing headwind and will only reach neutrality by the end of the year. With earnings set to be released on July 24, I can’t help but recommend shareholders to stay on the sidelines in this case.
There is a long way to go for Priceline.com shares as the European economy improves and the company is able to leverage its scale to accelerate further growth. At a 20x 2014 estimated EPS, the shares can trade at over $1,000 a share. As a best case scenario, if the company were to trade at a higher valuation (say 22x), we can see share prices as high as $1,250, which implies a further continued upside from where we are today. Needless to say, shares are likely to breach the $1,000 a share mark, especially on strong Q2 results.
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Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends Priceline.com and TripAdvisor. The Motley Fool owns shares of Priceline.com and TripAdvisor. 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!