This Travel Service Provider Is The Best, Hands Down

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

There is no question that (NASDAQ: PCLN) is a success story.  Offering hotel reservations in 99 countries in 41 different languages, plus flights, rental cars, cruises, and entire vacation packages, Priceline has done incredibly well.  As a result, its shareholders have prospered.  I wonder if any of my readers remember the news stories after the .com crash of the early 2000’s in which William Shatner expressed his outrage and regret over being paid primarily in Priceline stock.

Fast forward a decade or so, and those who bought Priceline after the crash did better than those who bought Apple at its lows.  After hitting its all-time low of $6.30 in 2002, the stock has flourished since, recently trading around $700 for a gain of 11,000%!  As for Mr. Shatner, the exact amount of Priceline stock he received is a mystery, the figure of $600 million seems to be mentioned a lot.  Not bad for being a spokesperson!

My general concern is whether or not Priceline still has room to grow.   The company has certainly experienced rapid revenue growth over the past 10 years (see chart below).  At a market cap of over $34 billion, how big could this thing get?  Is it still a growth story?  We’ll get a better idea of how the company is growing when it reports its 2012 results on Feb. 25, but for now let’s see what the company has planned.

Priceline has grown into a truly international company, operating under the and Agoda brands outside of the United States, and earning 82% of its income overseas (mostly in Europe).  Priceline began primarily with its “Name Your Own Price” offerings, and began offering retail products in 2003, which as the chart below will tell you, that’s when revenues really began to take off.

Priceline’s general strategy includes becoming the number one travel website by improving functionality, pricing, and content, and maximizing its cross-selling opportunities, such as selling a rental car to purchasers of airline tickets.  Since the company has successfully entered the European market, Priceline is hoping to replicate its European success in its next frontier: Asia.  Having purchased Agoda, an Asian hotel-booking site, in 2007 and Priceline’s recently announced alliance with CTrip, a Chinese travel service provider; it plans to do just that.

One move that should do wonders for Priceline’s domination is its recently announced deal to purchase Kayak Software (NASDAQ: KYAK) for $1.8 billion.  Kayak is well-known for enabling travelers to compare pricing information from dozens of travel sites at once, like a search engine for travelers. 

Priceline’s main competition is in the form of Expedia (NASDAQ: EXPE) and Orbitz Worldwide (NYSE: OWW).  Expedia (which includes Hotwire and actually leads Priceline as the most visited travel website in the U.S. with 14.23% of all traffic to Priceline’s 11.62%.  Orbitz only gets 5.84%, and both of these competitors lag Priceline in both international exposure and revenue growth (see charts below).

<img src="/media/images/user_14267/travel-site-revenue_large.png" />

Expedia currently trades at 20.9 times 2012’s earnings, with a forward earnings growth rate of 15% projected for the next three years.  Orbitz, by far the smallest of the three companies market-cap wise, trades at 14.5 times earnings, and growth estimates vary wildly, from a 75% year-over-year decline to a 100% annual gain.  When you combine that uncertainty with the fact that the company has over $300 million in net debt (more than their market cap!), and Orbitz looks like a spec play at best.

Priceline trades at the highest multiple of the three at 22.5 times 2012’s earnings of $30.91 per share, but for good reason.  The company is expected to produce earnings of $37.45 and $44.23 in 2013 and 2014, respectively, for annual growth of 21.2% and 18.1%.  Not only is this an incredible growth rate for the valuation, but the company also has the most attractive balance sheet of the three with almost $5 billion in cash and equivalents with no debt.  The company also recently announced a $200 million share buyback plan, which should add even more value to the shares.

The bottom line is that Priceline is clearly the best-in-breed in the travel sector.  If they have even half of the success in Asia as they have in Europe, the earnings projections mentioned above will prove to be very conservative indeed! 

KWMatt82 has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of 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!

blog comments powered by Disqus