Priceline: Good Long and Short Term Prospects Buy
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Strong revenue growth combined with high operating income margins makes Priceline (NASDAQ: PCLN) a dream stock for investors. As Priceline looks to continue its foray into international markets, we expect the stock to perform even better given lower competition and higher margins in the international markets. Priceline reported strong 1Q2012 earnings revenues, up 28% Y/Y. We believe that this growth will continue in the coming months, keeping in view Priceline’s strong positioning in the growing OTA market.
Expansion into new international markets- Asia Pacific and South America: Priceline has a strong presence in international markets through its online hotel booking service Booking.com, Asian hotel booking service Agoda.com, and UK car rental service Rentalcars.com. Currently, international bookings represent around 81% of total booking revenues. Past trends show us that the international bookings revenue growth rate has been considerably higher than that of domestic markets. The five-year international CAGR of around 66% could be attributed to less competition and higher margins from hotel and rental businesses in the international markets. Priceline has continuously adapted itself to the international market by launching new mobile apps and offering content in over 41 languages. The international share of gross bookings has been increasing for the past six years, and this trend may continue in the coming years. With Priceline foraying into new markets in Asia Pacific and South America, we expect international bookings to increase further.
*Source: Investor’s Presentation
Strong hotel room night growth: Hotel night growth has been a key metric for Priceline for the last several years, increasing dramatically over the last few quarters. Priceline posted a strong 47% growth Y/Y in hotel room nights, which now stand at 45.9 million, up 12.3 million from the last quarter. The company continued gaining material share for hotel reservations in 1Q2012 and is expected to be the main beneficiary of the improving OTA market. Looking at past trends, we notice peak seasonality in hotel room nights around Q3; we expect that the trend may continue and that Priceline may book more volume in Q3.
*Source: Earnings Result Q12012
Better gross margins and revenue growth than its peers: Priceline has a rare combination of solid margins and strong top-line growth. Priceline has performed much better than its closest competitor, Expedia (NASDAQ: EXPE), in terms of revenue growth (quarterly Y/Y growth of 28% vs. 12.2%) and profit margins (24.7% vs. 11.8%).
We believe Priceline has an excellent position in the online travel space, possessing a 210 K hotel footprint that presents a high barrier to entry. With its new growth drivers in the international markets of Asia Pacific and South America, Priceline can bring in even higher international bookings in the long term. Based on the future growth prospects and its current leadership position in the OTA market, we would rate this stock a buy.
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