By Neal Rau
After beating second-quarter expectations, shares of Priceline.com Inc (PCLN) have continued to surge higher. The company posted $9.70 a share, topping the $9.36 estimates that Wall Street was expecting. Priceline has enjoyed a boost in revenue from hotel bookings and car rentals, and overall strength in Europe, which pushed revenue up over 38% from a year ago. Priceline is trading near 52-week highs, while rival Expedia Inc (EXPE) is down 18% YTD, after the company missed second-quarter estimates on both EPS and revenue. Should investors be buying or selling PCLN shares?
Shares of Priceline are currently trading above $1,000, making it just one of only nine U.S. companies above that level and the only one in the Standard & Poor's 500-stock index. Shares surpassed the $970 mark achieved on April 30, 1999, prior to the dot.com crash, and before PCLN ended up losing 97% of its value as a result. Today, only five companies in the S&P 500 have fewer shares outstanding, including another momentum stock, Chipotle Mexican Grill, Inc. (CMG). Priceline.com traded in the low $600 dollar range a year ago, but the company has been beating Wall Street expectations, as it continues to see strength out of Europe. According to the Stock Traders Daily real-time trading report, PCLN shares are currently close to testing long-term resistance, and although all the recent news seems good, to investors interested in making money, the stock price is all that matters, and the action from resistance will be key
Priceline reported second-quarter sales last month, which were highlighted by the company's international growth. International bookings were up 44% year-over-year in the second quarter, accounting for 85% of total bookings for the company. When competitor Expedia reported second-quarter profit and revenue in July that missed analysts' estimates, the company cited weakness in Southern Europe and reduced traffic from Tripadvisor Inc (TRIP).
Priceline is the leader in global online hotel reservations, and composed of five primary brands Booking.com, priceline.com, Agoda.com, KAYAK and rentalcars.com. The Priceline Group provides online travel services in over 180 countries and territories in Europe, North America, South America, the Asia-Pacific region, the Middle East and Africa. Booking.com is the number one online hotel reservation service in the world, offering over 330,000 hotels and accommodations, and is available in 41 languages. European markets continue to surge, as the European market is a fragmented landscape with fewer chains-hotels, and more hotels that do not have the capability to attract clients to their own websites.
Priceline has improved and simplified its advertising tools with Sponsored Listings, which allow you to highlight your hotel in front of millions of in-market shoppers at the point of purchase and shows participating hotels exactly what it costs to fill each room. Sponsored Listing program is an auction based pay-per-click program designed to drive incremental bookings. This simple tool allows hotels to bid for prime positioning in destination searches to increase exposure to key customers in hotel search results. Users can use multiple filtering options including demographics, dates, length of stay and advance purchase windows. The system allows users to access real time reporting metrics to adjust bid strategy mid-campaign and actively manage spend by setting daily, weekly or monthly budgets within the platform.
Booking.com accounts for 47% of European online bookings while Expedia only accounts for 21%. Part of the success in Europe is due to Booking.com's use of the agency model, which works directly with independent hotels as a travel agent, while Expedia works more with the chains as more of a vendor. This model has proved to be more effective, as chains can easily create their own demand and traffic on their own websites. Recently, Expedia acquired a 61.6% equity stake in hotel search website, Trivago, to expand into the European online travel market and gain market share.
Priceline has benefited from the edge it has over competitors in Europe, however the competition will be looking to take a similar approach based on what has worked for Priceline. Shares of Priceline have almost doubled in the last two years, and are up an astonishing 1600% over the last 5 years. Even if Priceline is able to maintain its edge over competitors, it does not mean the stock will continue to rise, as stock price matters. The stock is trading near yearly highs and it is close to testing long-term resistance. If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support. That would make PCLN a sell/short at resistance, with risk controls in place if resistance breaks higher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companes listed herein for writing this article.