Priceline.com's Price Is Right

Priceline.com (PCLN) can do no wrong these days. Its huge runup continued after it reported great first-quarter earnings and guided higher for the future. Next year's earnings estimates have increased 38 cents to $6.40 per share over the past 90 days. This would represent 29% earnings growth over this year.

Full Analysis

Priceline.com is a travel service that offers leisure airline tickets, hotel rooms, rental cars, vacation packages, and cruises. The company operates as priceline.com, rentalcars.com, breezenet.com, and lowestfares.com. The company's Name Your Own Price service (also called its opaque business) offers customers a unique value proposition by allowing them to name their own price for online products/services.

In these transactions, Priceline.com determines the price it will accept and has discretion in supplier selection. PCLN's value-add to suppliers is that Priceline.com provides a brand preserving sales service that enables them to sell excess inventory without harming their existing retail pricing structure.

European Explosion

Priceline.com will increase its gross bookings 55% in 2008 and 26% in 2009. Driving the strong growth is the company's International business, which had bookings growth of 100% year-over-year in the first quarter. Europe is one of the largest travel markets in the world, and online purchases make up a small portion of total purchases in that region. This low penetration ratio provides Priceline.com a huge opportunity for growth.

First-Quarter Blowout

Its first-quarter results were a thing of beauty. PCLN had GAAP revenues of $403.2 million, a 33.8% increase over a year ago. The company's international operations contributed revenues of $104.2 million, a 117.5% increase versus a year ago.

Priceline.com's GAAP gross profit was $181.1 million, a 51.3% increase from the prior year, and GAAP net income of $18.2 million or $0.37 per diluted share. For full-year 2008, Priceline.com expects $7.5-$7.9 billion in gross travel bookings, pro forma EBITDA of $340-$365 million, and $5.25-$5.65 of pro forma net income per diluted share.

The future is looking bright as well. Next year's earnings estimates have increased 38 cents to $6.40 per share over the past 90 days. This would represent 29% earnings growth over this year. All six covering analysts have raised their numbers in just the past month. The company has posted an average surprise of 16.9% over the past four quarters.

Comments

[outtafavr:]

I was a long time investor in PCLN. I sold recently to pursue other alternatives, and also to reduce my exposure to long investment positions. A longer term issue I currently have with PCLN involves airline carriers. PCLN depends on travel being a volumn business, which is the current unsustainable business model of the carriers. How long can airlines continue to lose billions? Airline business models must be overhauled. The future of air travel (and possibly all travel) is higher prices/less competition, less congestion, and only affordable to aristocrats. Energy prices say the masses can no longer afford air travel.

2008 May 20 02:11 PM

[InvestBaboo:]

Tch! Tch! (With respect to previous comment)

How quickly we become prophets of doom?!

Same statements were made during last recession and are being made now.

Oil prices will fall to $90 a barrel by end of year. Airlines will recover. Air travel will see its peak again. Investment in alternative energy cools. And then the cycle reverses but for now good time are around the corner.

2008 May 29 08:13 PM