Upside & Downside Risks for Priceline
With Priceline’s (NASDAQ:PCLN) stock gaining over 150% (from ~$190 in May 2010 to ~$500 in May 2011) over the last year and a staggering 1,800% (from $23 in Jan 2006) over the last 5 years, Priceline has been recognized as the single best performing stock in S&P 500 over the past five years. However the stock of the leading online travel agency, after Expedia (NASDAQ:EXPE) doesn’t come without its fair share of risks.
Here we take a closer look at the potential upside and downside to our current $506 Trefis price estimate of Priceline’s stock caused by unexpected fluctuations in hotel room bookings, which make up over 91% of its stock.
4% Upside: $526 Trefis Price estimate for Priceline stock
Priceline’s share of occupied hotel rooms (+4%):
We currently forecast Priceline’s share of occupied hotel rooms to grow 2.13% in 2010 to 3% by the end of our forecast period. However, Priceline recently announced a partnership with Delta Airlines wherein members of Delta’s SkyMiles Frequent Flyer Program can earn SkyMiles whenever they book hotels through Agoda.com, Priceline’s popular hotel booking site in Asia. The resulting 0.12% incremental market share could lead to a 4% potential upside to Trefis price estimate of Priceline’s stock.
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6% Downside: $476 Trefis Price estimate for Priceline’s stock
Priceline’s share of occupied hotel rooms (-6%):
Priceline’s biggest competitor and the world leading online travel agency, Expedia has recently struck partnerships with South African Airlines. See After AirAsia, Expedia Now Partners With South African Airways.
It also entered into a joint venture with the leading low cost carrier in Asia, AirAsia. See Evaluating Expedia’s Upside from AirAsia Partnership. These and similar partnerships with airlines would help Expedia strengthen its share of hotel bookings outside US, which could severely hinder Priceline’s growth prospects that essentially depend on hotel bookings’ market share gains outside US in Asia and Europe.
We can reasonably expect Expedia’s and other travel agencies’ private-label partnerships with airlines to cause Priceline’s share to be limited to 2.75% by the end of our forecast period leading to a 6% potential downside to our Trefis price estimate of Priceline’s stock.