The Priceline Group (NASDAQ:PCLN) is a leader in global online hotel reservations with over 270,000 participating hotels worldwide. The group is composed of four primary brands, Booking.com, priceline.com, Agoda.com and rentalcars.com. The Priceline Group provides online travel services in over 180 countries in Europe, North America, South America, the Asia-Pacific region, the Middle East and Africa. www.priceline.com
The Priceline Group's business was launched in 1998 in the U.S. under the priceline.com brand. Since then, the operations have expanded to include other strong brands, including Booking.com, Agoda.com and rentalcars.com. Booking.com is the largest and most profitable online hotel reservation service in the world and is available in 41 languages, while Agoda.com is a growing Asian online hotel reservation service. Priceline.com offers leisure travelers multiple ways to save on airline tickets, hotel rooms, car rentals, vacation packages and cruises. In addition to obtaining compelling published prices, travelers can take advantage of priceline.com's famous Name Your Own Price service, which can deliver the lowest prices available. Rentalcars.com is a multinational car hire service, offering its reservation services in over 6,000 locations. Priceline's business is now driven by international results, which comprised nearly 80% of gross bookings in 2011.
Priceline recently announced plans to acquire KAYAK, a leading travel research site. KAYAK allows people to easily compare hundreds of travel sites at once when searching for flights, hotels and rental cars. The transaction is valued at $1.8 billion to be paid $500 million in cash and $1.3 billion in Priceline stock.
STRONG CASH FLOW
Priceline's business is not capital intensive and thus generates strong free cash flows, which have steadily and rapidly grown from $140 million in 2007 to $1.3 billion in 2011. Through the first nine months of 2012, free cash flow increased an additional 21%.
Thanks to the strong cash flows, the company ended the 9-30-12 quarter with more than $4.7 billion in cash on the balance sheet, representing about $94 per share in cash. During the first nine months, Priceline repurchased $255 million of its common stock with approximately $200 million remaining authorized for future share repurchases.
Even with substantial cash holdings, Priceline generates high returns on shareholders' equity which topped 41% last year. This demonstrates the superior profitability of the company's business model. Profit margins have more than doubled over the last five years from 10% to 24% with further profit margin expansion expected in 2012.
Due to expanding profit margins, Priceline's net income has compounded at a jet-setting 66% annual rate over the last five years with sales growing at a 33% annual rate. Despite a weak global economy, Priceline has benefited from a strong leisure travel environment, expanding hotel availability, a continued shift to the Internet by people making travel reservations and geographic expansion.
Strong growth continued through the first nine months of 2012 with total revenues up 21% to $4.1 billion and net income flying 36% higher to $1.1 billion. Globally, the hotel business grew room nights by 36% in the third quarter with rental car days up 35%. Strong double-digit growth is expected in the fourth quarter as the company continues to offer a broad spectrum of comfy choices for travelers. Long-term investors should book a reservation with Priceline, a high-quality company with strong brands, strong cash flows and strong growth. Buy.
Disclosure: I am long PCLN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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