Priceline.com (NASDAQ:PCLN) was one of the original Tech Bubble companies. One April 30th, 1999, shares closed at $974.25 when adjusting for its 1:6 reverse split in 2003. After the Tech Bubble crash, shares hovered in the low double digits and even got as low as $7.50 in 2002. Since then, something miraculous has happened. The online travel company became extremely profitable. Since 2006, shares have rebounded and maxed out in April 2012 at just under $775 per share. Trading at $591 at the close of August 22nd, it is important to look at Priceline.com's competitors to see if any of them are a better buy than Priceline.
Priceline looks like a pretty cheap stock when looking at its projected earnings growth over the next few years. Analysts expect Priceline to report earnings per share of $36.26 in 2013, which would lead to a forward P/E ratio of 16.3. Although this doesn't look low, analysts go on to predict a 5 year per annum EPS growth rate of 21.7 percent, which is more than twice the S&P 500 average. There is no doubt that Priceline's share price could grow 15 percent per year if it hits these lofty expectations. However, Priceline would need some serious revenue growth to accomplish this. Could you picture Priceline bringing in $11 billion per year in revenue when the company is expected to make only $5.16 billion in 2012? A lot of Priceline's earnings growth in the past few years has been from improved margins. The company had a 24.3 percent net profit margin in 2011 and I doubt margins could be stretched much further. Priceline has a lot of competition that does the exact same thing that they do. It would be very difficult, but definitely possible, for Priceline to maintain its industry lead and retain its high profitability.
Priceline's biggest competitor is Expedia (NASDAQ:EXPE). Priceline's expected 2012 revenue of $5.16 billion is about 31.6 percent higher than Expedia's expected revenue of $3.92 billion, but Priceline's market cap is 4.2 times higher. The big difference between these companies' market caps stems from a big difference in net profit margins. Expedia's net profit margin in 2011 was 13.7 percent, which was 43.6 percent lower than Priceline's. These differences in margins, however, are fairly typical when comparing an industry leader to second place. Analysts expect Expedia's earnings growth over the next few years to be about half of what Priceline's earnings growth is expected to be and Expedia's 2013 forward P/E ratio is 14.8, which is not much lower than Priceline's. I suggest buying Expedia over Priceline only if you believe that Expedia will take over as the market leader, which is very unlikely at this point.
A newcomer to the market is Kayak Software Corp (NASDAQ:KYAK). The company went public in late July and has had generally bearish performance since then. Unlike many other dot coms that have gone public in the last year and a half, Kayak is profitable, is expected to grow earnings consistently, and has a P/E ratio under 50. Despite the fact that its prospects are better than some other tech darlings, I would still hold off on Kayak for now. The company missed on its first post-IPO earnings report and analysts expect it to have similar growth prospects to Priceline. In addition, Google paid $700 million in 2011 for a travel search engine software company and is expected to release a similar travel search engine within the next year or so.
Priceline's third largest threat is Orbitz Worldwide (NYSE:OWW). The company is much smaller than Priceline and Expedia as it has not cleared $1 billion in revenue and is not expected to do so any time soon. In addition, Orbitz is currently not profitable. Analysts expect earnings to be a positive 27 cents per share in 2013, which would definitely boost its $2.84 stock price. However, I believe this stock is too risky for any individual investor and would suggest staying away from it.
In conclusion, I believe that Priceline.com is a better buy than its competitors and a good buy overall. The company did have a weak earnings report earlier in the month that dropped shares over 15 percent, but I believe that it will probably rebound to around the $640 mark by the end of this year. Its high margins and growth expectations make it a good stock to have in a portfolio, especially when so many dot coms are currently struggling with margins and profitability.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.