Profiting with the Online Ticket Agencies
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When people around the globe have disposable income, they spend it on recreation. People tend to travel, and that is how Online Ticket Agencies make money. Problems in Europe have forced investors to abandon positions in these companies due potential loss of revenue from European operations, which many believe was overhyped.
Priceline (NASDAQ: PCLN) is one of the leading OTA companies that provides users the opportunity of obtaining discounted rates on air travel, hotels and rentals. The stock recently took a beating on its earnings release primarily due to its top-line miss. The top-line miss was seen by investors as a sign of worsening European operations. It’s not hard to conclude that; any improvement in the macroeconomic conditions would directly impact the stock’s price positively.
In the earnings release, the data displayed a 37% surge in earnings. The company despite the top-line miss reported a 5% growth in domestic business operations. Expedia (NASDAQ: EXPE) which is a direct competitor of the company posted a higher domestic operations growth rate of 13%. Priceline beat Expedia when it reported at whopping 33% increase in international bookings compared to 12% increase reported by Expedia.
It was reported that the hotel bookings were up 39%. The rental business grew by 29% and the gross profit shot up to 40.2%. Priceline’s revenues shot up 20.3% and the company was able to beat the market expectations by posting an EPS of $7.85 against an expected $7.37. The numbers tell only one story, the bookings by Priceline and Expedia increased, and so did the international travel. Looking at the numbers, the top line looks to be overhyped as people are traveling more than they used to. Amid the gloomy period in Europe, Priceline was able to post decent increments in growth rates along with a surge in earnings which is a big positive for the company.
The hotel exposure of Bookings.com to the UK stands at only 10%, and the website has still not been able to unlock the full potential that online market is offering. Benchmark analysts expect the top-line miss to be just a short term pressure, and the stock could see an upside.
Additionally Priceline was able to record a 30% increase in the bookings in Europe and a 50% increase in the rest of the world. The company has just expanded in South America and has signed an agreement with its competitor Ctrip.com (NASDAQ: CTRP), which would help Priceline to expand in countries like China. According to the agreement, Ctrip.com would be hosting the hotels covered by Booking.com along with its own hotel reservation service. This would give Priceline the opportunity to expand and consolidate its operations in Asia-Pacific, helping the company to diversify.
Also when we talk about competitors in the market, one should be aware that Ctrip.com is expected to grow at 13% next year. Expedia is also expected to grow nearly that fast, with a 12.3% expectation. Priceline, beating the peers, is expected to grow 21% over the next year, which clearly puts Priceline on the podium. We think that the recent drop in the stock price gives the investors a chance to enter the stock, for the mid to longer term. Keeping all the compelling reasons in mind, the stock has a Foolish buy rating.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Ctrip.com International and Priceline.com. Motley Fool newsletter services recommend Ctrip.com International and 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.If you have questions about this post or the Fool’s blog network, click here for information.