After Strong Earnings, Priceline Might Still Go Higher

| About: The Priceline (PCLN)


Despite having high expectations, Priceline reported strong revenue and earnings growth for the quarter, sending shares up slightly even in light of a slight revenue shortfall.

This growth further propels Priceline ahead of rival Expedia.

Moving forward, Priceline looks pricey, but not so pricey that Expedia is necessarily a grand bargain in comparison.

After news broke that Priceline Group (NASDAQ:PCLN) reported adjusted earnings per share that exceeded expectations but revenue that fell slightly short of what analysts anticipated, shares of the online travel site popped up nearly 4% to as high as $1,328.50 before receding somewhat. In light of these developments, is Priceline still an attractive buy or, with shares trading 43% above their 52-week low of $928.80, should investors consider a stake in Expedia (NASDAQ:EXPE) instead?

Mixed results were received well by Mr. Market

For the quarter, Priceline reported revenue of $2.12 billion. Although this represents a hefty 26% gain compared to the $1.68 billion management reported the same quarter a year earlier, it fell just shy of the $2.15 billion Mr. Market hoped to see. According to the company's press release, this rise in sales came mostly from its International operations, which grew by 36% from $8.6 billion to $11.7 billion, which helped to push gross bookings up 34% from $10.1 billion to $13.5 billion.

Earnings Overview
Last Year's Forecasted Actual
Revenue (billions) $1.68 $2.15 $2.12
Earnings per Share (adjusted) $9.70 $12.04 $12.51

From a profit standpoint, results were slightly more difficult to decipher. For the quarter, Priceline saw its adjusted earnings per share come in at $12.51, 29% above last year's $9.70 and about 4% greater than the $12.04 expected. It should be mentioned, however, that these aren't the actual earnings posted by the company but are, instead, non-GAAP metrics that management believes gives a more fair representation of Priceline's results. For the quarter, Priceline's actual earnings came in at $10.89, 30% above the $8.39 seen a year earlier.

The biggest driver behind Priceline's growing profits appears to be its high jump in sales, but investors should also look at the company's cost structure. Despite the fact that most of its core costs rose in relation to sales, such as its online advertising, which shot up from 27.6% of revenue to 30.1%, the company's cost of revenue declined from 17.6% of sales to 11.3%

But is Expedia better?

Over the past few years, Priceline has been a true engine for growth. Between 2009 and 2013, sales of the online travel site soared 191% from $2.34 billion to $6.79 billion as gross bookings skyrocketed 321% from $9.31 billion to $39.17 billion. This was, however, slightly offset by lower revenue from each dollar in bookings, which declined from $0.25 to $0.17.

PCLN Revenue (Annual) Chart

PCLN Revenue (Annual) data by YCharts

Of course, Priceline wasn't the only fast growing travel site over this period. Over the past five years, sales at Expedia grew by 61% from $2.96 billion to $4.77 billion. Like Priceline, Expedia also benefited from higher gross bookings, which rose 81% from $21.81 billion to $39.44 billion. Interestingly, Expedia saw a drop in sales for every dollar in gross bookings, but with this metric inching down from $0.14 to $0.12, the change wasn't nearly as drastic as its rival's.

Gross Bookings Comparison
(Bookings in Billions) 2013 2012 2011 2010 2009 Change
PCLN Gross Bookings $39.17 $28.46 $21.66 $13.65 $9.31 320.7%
Gross Bookings/Rev. $0.17 $0.18 $0.20 $0.23 $0.25
EXPE Gross Bookings $39.44 $33.96 $29.18 $25.97 $21.81 80.8%
Gross Bookings/Rev. $0.12 $0.12 $0.12 $0.12 $0.14 -14.3%

Looking at profits, we can see that the difference in growth between both entities is even more severe. Between 2009 and 2013, Priceline's net income shot up 287% from $489.5 million to $1.89 billion as it managed to decrease its cost of revenue from 46.1% of sales to 15.9%. Expedia, on the other hand, saw its bottom line fall 22% from $299.5 million to $232.9 million as its selling, general and administrative expenses soared from 44.6% of sales to 66%.


Right now, Mr. Market is rewarding Priceline's shareholders and for good reason. Yes, management did report slightly lower revenue than expected, but with such fast growth regardless, it would be a mistake not to be impressed with the business's results. On an earnings front, the picture looks even better, with management efficiently reducing the company's cost structure while still maintaining growth. To make things even better, the 25.2 times forward earnings the company is trading for is only marginally higher than the 21.4 times investors can get Expedia for, which makes it an attractive, albeit pricey, opportunity for the long-term investor.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Tagged: , General Entertainment, Earnings
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