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Online travel service and hotel reservations firm Priceline (NASDAQ:PCLN) reported fantastic third-quarter results Thursday that showed solid gross travel bookings expansion and better-than-expected performance in Europe. For a read on how we calculate the intrinsic value of the company, please click here.

The company's revenue advanced 17.4% from the year-ago period thanks to solid performance in its international operations, where sales grew 42% on a local currency basis. Third-quarter travel bookings increased 25.2% and 33.8% on a local currency basis from the same period a year ago.

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Image Source: Priceline

Priceline's operating income jumped 22.6% and GAAP earnings per share increased over 27% during the period. On a non-GAAP basis, earnings per share increased roughly 25% from last year's quarter, to $12.40, better than consensus expectations of $11.82 per share. Management noted that growth in Europe during the second half of the third quarter picked up, and we think the improvement has continued into the current fourth quarter. Expansion in its rental car business accelerated sequentially and room night growth in its hotel business remained strong.

(click to enlarge)

Image Source: Priceline

Looking forward, Priceline is concerned about global economic weakness, but it still expects year-over-year gross travel bookings growth to be as high as 29% during the fourth quarter (on a local currency basis), with international expansion leading the charge. Revenue for the fourth quarter is expected to advance as much as 22%, while non-GAAP earnings per share could be as high as $6.57 (consensus had been expecting $6.30 per share). Such a strong outlook also bodes well for industry participants: TripAdvisor (NASDAQ:TRIP), Expedia (NASDAQ:EXPE), Travelzoo (NASDAQ:TZOO), Orbitz (NYSE:OWW), and Kayak (NASDAQ:KYAK).

Priceline continues to benefit from secular growth in Internet penetration for travel, and we expect further expansion into new markets in the Asia Pacific and South America. The company's well-recognized brand name has allowed it to maintain a strong presence in the maturing US market, despite growing competition. We're also huge fans of the firm's tremendous cash-flow generation and the minimal capital costs required to run the business. So far through 2012, Priceline has generated $1.29 billion in cash from operations and has only spent $39 million in capital investments, resulting in free cash flow of $1.25 billion (or an impressive 30.7% of sales). Though a changing competitive landscape remains a key risk, we'd consider adding the firm to the portfolio of our Best Ideas Newsletter under $590 per share (the low end of our fair value range).

Source: Priceline Is Back On Track