Priceline's (NASDAQ:PCLN) Q4 earnings were solid across the board with gross profit and EBITDA above guidance. EPS of $12.63 handily beat consensus of $11.73. Management guided Q1 total booking growth of +18%-25% on a FX-neutral basis and sees revenue growth of ~9%-16% versus consensus +12%.
Commentary was generally positive with Q1 off to a great start with December travel picking up, momentum from the Chinese New Year in February, Carnival and an earlier Easter. The broader macro trend is generally healthy. Although there was a slight decline in bookings after the Paris attacks, trends are improving and >100m customer accounts in 2015 points to a constructive outlook to the stock. I remain bullish on PCLN.
Several key takeaways from the quarter and beyond:
First, room nights re-accelerated to +27% y/y vs. +22% last quarter, which is quite impressive given PCLN was about to counter the broader macro and terrorism concerns. After the 10% decline in consolidated unit growth right after the Paris attack, organic rebound was evident in December, leading to an impressive rebound in Q4. Also worth mentioning, strength in both Asia and Latin America played a role, but net-net I think it is safe to say that PCLN remains one of the best-in-class online travel names globally.
Second, take-rate remains stable. This is important in that it gives comfort to the investor base of a more rationalized market. Agency take-rate was 13.5% in the quarter, which was a 20bps y/y decline.
Third, vacation rentals remain a growth area, but economics will materialize at a later time. PCLN highlighted its 390k vacation rental properties that are mostly urban and located in Europe as well as its commitment to developing an "instantly bookable" experience with no consumer booking fee. The lack of a booking fee differentiates PCLN from Airbnb (Private:AIRB) or HomeAway (NASDAQ:AWAY) and will win the larger share of the market over time. Although I am generally positive on this area's growth outlook, the economics will be challenged in the near-term.
Finally, international expansion will be a key focus for OpenTable, BookingSuite and corporate travel.
Looking ahead, I am quite bullish on PCLN's outlook. With 22.6mn bookable rooms and a 65% occupancy rate, this implies only 8-9% share in the total hotel booking space and significant runway for growth ahead. The near-term travel demand and stable macro environment supports this outlook.
More important, the rising outbound tourism from China will be particularly beneficial to PCLN through its investment in Ctrip (NASDAQ:CTRP). In my view, the V-shaped demographics gradually taking shape in China are highly supportive of the travel and leisure industry as empty-nesters gradually unleash their decades of saving on affordable luxury (i.e., entry-level luxury vehicles) and tourism. This trend positions companies such as PCLN and CTRP favorably given their global partnership and scale.
A few areas where I think the PCLN-CTRP partnership could potentially benefit from the outbound tourism trend. First, a majority of China's existing outbound tourism focuses on Hong Kong, Macau, Taiwan and Korea. This makes PCLN an attractive partner as tourism pattern shifts to Europe where PCLN's presence is the strongest. Second, growing convenience in payment platforms, such as Unionpay and Alipay, could facilitate overseas travel as hotels and retailers gradually incorporate these payment services into their system. In light of these trends, I remain bullish on PCLN.
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