Priceline’s Strong Earnings Growth Tops Expectations

By Xuanyan Ouyang

Priceline’s fourth quarter earnings on Wednesday substantially beat analyst expectations, as the company continued its global expansion in the online travel industry it helped pioneer.

The Connecticut-based travel giant reported net income of $504.3 million, or $10.00 per share, up from $451.8 million, or $8.56 per share in the year-ago period. Its revenue climbed 8.7 percent to $2.0 billion, above the $1.96 billion analysts polled by Bloomberg were expecting.

Priceline said that excluding one-time items, non-GAAP earnings were $12.63 per diluted share, up from $10.85 a share in the year-ago quarter. The $12.63 a share performance was much higher than the $11.80 a share expected by analysts surveyed by Yahoo Finance.

“It remains to be a high-quality company in our view, that is highly profitable,” said Dan Wasiolek, an analyst at Morningstar Investment Services Inc., in an interview. “We continue to like the name, and you know this is just another data point over the last month or so that supports travel demand remains healthy,” he added.

Priceline Fourth Quarter Earnings Report Results

Priceline's fourth quarter earnings beat analysts' estimates.
Priceline’s fourth quarter earnings beat analysts’ estimates. Source: Priceline Group Inc. 4Q Earnings Report (Xuanyan Ouyang/MEDILL)

Investors cheered the earnings news. In Nasdaq trading, Priceline’s stock price soared by 14.74 percent, to close $1,235.56. one of the highest growth rates in the market since Wednesday.

Priceline enjoyed a wide profit margin. Its gross profit reached $1.88 billion, 12.2 percent up from $1.67 billion in the same period a year ago.

But both the revenue growth rate and the gross profit growth rate slowed down. Revenue growth rate was 8.7 percent in the fourth quarter last year, down from 29.4 percent in 2013. And the gross profit increased by 12.2 percent, compared to the growth rate of 41.9 percent in the same period in 2013.

Slowing Growth Rate of Revenue and Gross Profit

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Priceline’s revenue and gross profit is growling more slowly. Source: Priceline Group Inc. 4Q Earnings Report (Xuanyan Ouyang/MEDILL)

“This company has been growing up on a strong base, it slows but I still think the growth is good,” said analyst Ivan Feinseth at Tigress Financial Partners LLC. He added that its growth in revenue and gross margins “should be sustainable”.

And its solid growth is largely driven by its high gross international bookings number, which grew by 15.9 percent to 10.70 billion in the latest quarter. International bookings comprised 84.9 percent of Priceline’s total gross bookings.

The Paris terrorist attacks did not impact Priceline to the extent as worried by some investors. The Paris attacks caused about a 10% drop-off in Priceline’s global room night growth rate for two to three weeks after the attacks. Since December, demand has rebounded, that’s witnessed by the international constant currency growth at 25 percent.

“Had not been those attacks, the 29 percent growth for the international bookings probably would have been close to 31 percent,” said Wasiolek. “It seems that we’ve been passed that issue. It shouldn’t have been a headwind at all.”

The company is also experiencing a less favorable U.S. performance, accompanied by the declining bookings of 12.01 billion, down 18.70 percent from last quarter of $14.78 billion, or a 7.6 percent drop in the year growth of the U.S. bookings.

Search engines and sharing sites such as Airbnb and HomeAway under Expedia may not be such a big threat for Priceline. Analysts said the brand equity (brand awareness), the dominant market position and advanced technology are the strengths of Priceline and will maintain its pioneer position in the online travel sector.

Like other companies in the global market, Priceline is being hurt by a strong U.S. dollar. The company lost $14.0 million in the fourth quarter, up from 5.0 million compared with the same period in 2014.

Priceline has high prediction guidance for the first quarter 2016. The company expects a 20 percent to 27 percent of year-over-year increase in room nights booked, and 12 percent to 19 percent growth in gross travel bookings. Its revenue is estimated to grow by 9 percent to 16 percent and profit growth rate to be 14 percent to 21 percent.

“If there’s another terror attack, if there’s a major of some pandemic health virus issue, if there’s a global slowdown, I mean, that’s going to impact the share price, ” said Wasiolek of his prediction of Priceline’s stock. “But to the degree that I can be confident that what this company is doing is within its control. I’m very confident in this management team and their marketing position, and the value of the stock price. ”

Photo at top: Priceline’s Q4 earnings report beat expectation of the Street easily. (Xuanyan Ouyang/MEDILL)