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By Todd McDonald, Analyst

Priceline.com (NASDAQ:PCLN) is scheduled to report Q2 2013 earnings after the close of trading on Thursday, Aug. 8, with a conference call to follow at 4:30 p.m. ET. Priceline shares are near all-time highs headed into the report, benefiting from stabilization in Europe, expansion in Asia, and growth in the North American market. With the shares recently hurdling back above the $900 level, the market is pricing in a solid quarter. Anything less could be seen as a major disappointment.

Outliers and Strategy

  • Non-GAAP Earnings Per Share (EPS): Priceline previously indicated it sees non-GAAP EPS in the range of $8.87 to $9.45 per share for the Q2 2013 period. The current consensus is near the high end of that range at $9.37 (high estimate on the Street is $10.06) (source: Yahoo Finance).
  • Revenues: Priceline also indicated it expects Q2 2013 revenue to increase 15% to 22% year over year (Q2 2012 of $1.3 billion). That would equate to about $1.495 billion to $1.586 billion. The Street estimate is above that range, at $1.66 billion.
  • Adjusted EPS Guidance (Q3 2013): The forward outlook is critical for Priceline. The consensus is $15.86, with a range of $14.41 to $16.88.
  • Revenues Guidance (Q3 2013): Priceline typically reports revenues guidance in a percentage form. Current estimates for Q3 2013 range from $2.12 billion to $2.32 billion.
  • Apart from the traditional financial measures, keep an eye on Gross Travel Bookings. The estimate is $9.953 billion (source: Zacks).
  • Implied Volatility: The options market is pricing in a move of approximately 6% after earnings are disseminated, while the average move over the past eight quarters has been 7.75%.
  • Sympathy Plays: Expedia (NASDAQ:EXPE), Travelzoo (NASDAQ:TZOO), TripAdvisor, Inc. (NASDAQ:TRIP), and Orbitz Worldwide (NYSE:OWW).

Recent News

  • July 25: Expedia reported Q2 EPS and revenues of $0.64 and $1.21 billion, respectively, vs. Street estimates of $0.79 and $1.26 billion, respectively. Expedia shares fell more than 27% in the ensuing trading session. Priceline fell about 1.3% on the news.
  • July 23: According to a post on StreetInsider.com, Evercore Partners reaffirmed its Overweight rating on Priceline, while raising its price target to $975 from $850. The firm cites stronger than expected trends in desktop traffic, indicating increased revenues.
  • July 15: UBS increased the firm's price target on Priceline, to $1,035 from $860, according to a post on StreetInsider.com. The firm believes that Priceline is the leader in an industry that has a lot of room to grow in the coming years.


Technical Review

Priceline has been one of the best performing stocks of the year, rising almost 30% in this quarter alone. The RSI stalled near the overbought 70 level, indicating that the near-term upside may be limited. If earnings results disappoint, initial support can be found near $900, followed by $875, then $850. If results are a positive surprise, new all-time highs are likely, with the options market pricing in a move of about 6%, which would imply an upside target of about $983.

Summary

Priceline.com shares are up more than 50% YTD and fetching about 32x trailing earnings in advance of the Q2 2013 release after the close on Thursday. Bulls are quick to argue that Priceline dominates the online travel market, particularly in the international scene with a dominant foothold in Europe via Booking.com, along with assets in Asia. The recent lift in the share price is also attributable to the underlying pickup in the global economy. Despite this favorable backdrop, however, Priceline is facing increased competition, both domestic and abroad, along with rising marketing and customer acquisition costs. That said, the bar is set pretty high ahead of the Q2 earnings release, leaving Priceline vulnerable to even the slightest missteps.

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Source: Priceline Earnings Preview: Q2 2013