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Shares of Priceline.com (PCLN) are getting hammered in after hours trading tonight. The online travel company released its second quarter earnings report, accompanied by a soft third quarter outlook, after the market close.

Second Quarter Earnings

Priceline reported second quarter revenues of $1.3 billion, which is up 20.3% compared to last year. Gross travel bookings rose 26.8% to $7.3 billion. Excluding adverse currency effects from a rising dollar, gross bookings rose 36%. GAAP net income rose from $256 million to $352 million, or $6.88 per diluted share.

Priceline, which is known for its brands, Booking.com, Agoda.com and Rentalcars.com, furthermore warned that it expects a deterioration of the situation in Europe.

CEO Jeffery Boyd commented on the results:

The Priceline Group achieved solid results for the 2nd quarter despite economic uncertainties across Europe, Asia and the U.S. that intensified as the quarter progressed. We believe the Group delivered market leading growth from both a top line and profitability perspective.

Segmental Information

Gross international bookings rose 33.1% to $5.95 billion. Excluding the adverse impact of the stronger U.S. dollar, growth in local currencies was even more impressive at 44.3%. Domestic gross bookings rose a mere 5.1% to $1.38 billion.

The company sold a record 50.2 million hotel room nights, up 39.1% on the year. It rented out rental cars for a total of 8.6 million days, up 29.4% on the year. The number of airline tickets sold fell 1.8% to 1.7 million.

Outlook

For the third quarter, Priceline anticipates a 10-18% increase in gross travel bookings. This is a notable slowdown from the annual growth rate of 26.8% in the second quarter. On a local currency basis, growth is expected at 19-27%. Revenues are expected to increase by 9-15% on the year. That revenue guidance implies third quarter revenues of $1.58-$1.67 billion, short of analysts' expectations of $1.8 billion.

Non-GAAP net income per share is anticipated at $11.10-$12.10 per share, and compares to non-GAAP earnings of $7.85 in the second quarter. The earnings guidance came as a big disappointment to analysts as well, who on average expected a non-GAAP earnings guidance of $12.79 per share.

Valuation

Priceline.com ended its second quarter with $3.9 billion in cash, equivalents and short term investments. The company operates with $1.4 billion in convertible debt outstanding. If not converted, the company operates with a net cash position of roughly $2.5 billion.

For the first six months of 2012, the company reported total revenues of $2.36 billion, on which it reported net income of $534 million, or $10.41 per diluted share. At this rate, the company is on track to generate annual revenues of around $5 billion and net income of $1.2-$1.5 billion, or $24-$30 per diluted share.

Shares traded about $100 dollar lower in after-hours trading, trading around the $580 mark. At this level, the market values the firm at $29 billion, or roughly $26.5 billion for its operating assets. This values the firm at roughly 5.3 times annual revenues and 18-22 times annual earnings.

This valuation compares to a revenue multiple of 2.3 times for Expedia (EXPE) and 8.5 times for Tripadvisor (TRIP). Both competitors trade at 30 times trailing annual earnings, respectively.

Currently Priceline.com does not pay a dividend.

Investment Thesis

Despite an unprecedented $100 decline in after hours trading, shares of Priceline.com still trade with year to date gains of around 25%. Shares have seen a significant pullback from the highs around $760 per share in April of this year, to around $580 at the moment. Despite the strong online travel growth, investors grow worried about premium valuations for online booking companies, certainly amidst the growth slowdown in Europe.

Long term shareholders have no reason to complain. Shares traded as low as $70 in the beginning of 2009, and have increased almost 10-fold from that level. However, the company faces two serious headwinds at the moment.

The strong U.S. dollar puts pressure on the international revenues and the dollar strengthening accelerated in the second quarter of this year. Furthermore, the company has a strong presence in Europe due to the Booking.com acquisition in 2005. Roughly 60% of all room nights are booked on the "old" continent.

With competition intensifying and growth in the online travel business slowing down, investors are coming back to reality. Expedia recently reported strong earnings, but Priceline.com did not have any chance to surprise the market, given its dollar strength and eurozone weakness.

Investors anticipating a bargain for Priceline at 20 times earnings, with intensifying competition and a troubled eurozone, are going "bargain-hunting" too early.

Source: Priceline.com: No Value Yet, Despite Sell-Off