Tuesday, February 23, 2010

IBD: Could Priceline (PCLN), Expedia (EXPE) Hit Headwinds?

IBD reports on one of the hottest stocks on the planet - Priceline.com (PCLN) along with lagging peer Expedia (EXPE).  Usually multiples are based on growth rates, and Priceline warned in their latest earnings report [Feb 18, 2010: Priceline.com - Another Stellar Earnings Report] not to expect the same growth rates go forward as comparisons get tougher from here.  The question now is what expectations of the future are already in Priceline's stock and is this one of those times buying a weaker peer might actually offer more upside.


Via IBD:
  • Online travel agency Priceline (PCLN) has been sailing with the wind for more than a year and demand is billowing, especially in Europe.  Priceline said Wednesday that its gross international bookings, mainly in Europe, soared 81% in the fourth quarter vs. the year-earlier quarter. Its hotel room nights booked jumped 60% worldwide. Its per-share profit has beaten analyst views by at least 18 cents in each of the last six quarters.
  • Other online travel firms also have been lifted. Expedia (EXPE) said on Feb. 11 that its fourth-quarter earnings rose 36% on a 26% rise in bookings. But some analysts — and Priceline itself — note the weather pattern might be shifting. Visitor growth to online travel sites is slowing, and recent economic turmoil in Europe might hurt the travel business.
  • At the same time, sales and marketing expenses are creeping up as the global economy recovers, driving up costs for companies like Priceline and Expedia. And as the economy rebounds, some airlines and hotels might opt to sell plane seats and rooms on their own Web sites rather than offer them to online travel agents.
  • "There's some potential for disappointment in online travel" later this year, said Standard & Poor's equity analyst Scott Kessler. He says a shifting market might hit Priceline the hardest, since it's been doing so well. He says Priceline will face especially tough quarterly comparisons, given its stellar 2009.
  • "The recurring theme and issue for Priceline is the fact that expectations have gotten so high, a lot of the investing public expects them to exceed their guidance," Kessler said.  With Priceline trouncing analyst views routinely, Kessler says a quarter that misses views or only mildly beats might unnerve investors.

  • U.S. visitor traffic to Priceline cooled late in 2009, after surging earlier in the year. One possible explanation is that consumers aren't as passionate about scouring Priceline for travel deals as the economy recovers.   Tracker ComScore Media Metrix says that visitor traffic to Priceline rose 28% in December compared with December 2008, to about 8.8 million unique visitors. But the site's traffic jumped 50% in August and 52% in September.
  • On the plus side, Priceline's Booking.com hotel reservation service in Europe saw traffic soar 83% in November and 72% in December.
  • To be sure, Priceline provided strong guidance for the current quarter. It expects total gross bookings to jump 42% to 48%. It sees international bookings soaring 65% to 73%, with U.S. bookings rising 10% to 15%. It expects revenue to rise 23% to 27%. That would be up from 15% in first-quarter 2009 vs. first-quarter 2008.
  • But Kessler says it's still unclear how the government financing problems facing European nations like Greece will impact travel spending.
  • ... the euro has been weakening against the dollar. Priceline's Boyd noted on his conference call that it's difficult to predict how future currency moves will affect the company's foreign-denominated sales.
  • As the global economy in general picks up, though, so will ad prices of advertisers such as Priceline, says S&P's Kessler.
  • He also notes that while travel suppliers are eager to sell unsold plane seats and rooms on travel sites when the economy's bad, they lose some incentive when the economy improves. Kessler says Priceline and other Web travel firms will be hurt if airlines and hotels get stingy about offering deals on their inventories.
  • He points out that Expedia has a much stronger corporate travel arm than Priceline, a plus as the global economy recovers. Expedia has also been making efforts to crack the Chinese market through its Egencia corporate travel unit. Aside from Agoda, an online hotel reservation service based in Singapore that books rooms in Southeast Asia and China, Priceline has little presence in the Chinese online travel market.  "Expedia's starting to get back on the ball again and their international expansion efforts are paying off," said Morningstar's Miller.
  • Expedia said domestic bookings rose 19% last quarter, while international bookings soared 38%. Global hotel revenue surged 16%.  Kessler says Expedia's TripAdvisor unit, which reviews hotels, restaurants and other travel-related services, is doing well. The service makes money from online ads, so it will gain as ad rates rise. "It's a natural hedge for Expedia," he said.

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