Priceline Earnings Preview: Inorganic Growth Expected, Though Currency Headwinds Might Dampen Growth

Priceline Group (NASDAQ:PCLN), the online travel giant and the owner of Booking.com, Kayak and OpenTable, is set to release its first quarter earnings on May 7th. Priceline experienced healthy growth in 2014. The company reported revenue of $8.4 billion, reflecting 24% year-on-year growth. This was aided by a 28% increase in the gross bookings to $50.3 billion. (Gross bookings refers to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by its customers.)  The growth was broad-based, with increases in hotel room nights, rental car days and airline ticket volumes. The effects of this revenue growth also boosted the bottom line. The company’s net income stood at $2.4 billion, 28% higher compared to 2013. ^[1]

Priceline’s Q4 2014 growth was fueled by its strategic investments in recent times. Priceline witnessed robust hotels booking growth (on its Booking.com and Agoda platform) in the rapidly growing Asia-Pacific market as a result of its expanded partnership with Ctrip. Rentalcars (acquired in June 2014) witnessed an accelerated growth in the fourth quarter. OpenTable (which was acquired in mid-2014), also contributed to meaningful growth. We expect that  the fourth quarter growth continued into Q1 2015. However, unfavorable currency exchange rates may have provided some headwinds to Priceline’s revenues in the first quarter of 2015.

In its Q4 2014 earnings call, Priceline guided to a slow to moderate growth in Q1 2015, primarily because of the scenarios affecting its international operations in recent quarters. During 2014, Priceline’s international business represented approximately 87% of its total gross bookings and approximately 94% of its consolidated operating income.The weak Euro exchange rate continues to dampen its performance in the European regions. Also, weak domestic currencies are thwarting international travels in many countries where Priceline operates. The company’s guidance for the Q1 2015 include a 2% to 9% year-on-year increase in total gross travel bookings, a 4% to 11% increase in revenues, adjusted EBITDA of approximately $475 million to $510 million, and non-GAAP net income per diluted share between $7.20 and $7.75. ^[2]

We will update our price estimate of $1036 for Priceline’s stock post the Q1 2015 earnings.

See Our Complete Analysis for Priceline Here

2015 Is Expected To Be Yet Another Story Of Acquisitions For Priceline

In February 2015, Priceline expressed the intent to purchase hotel-booking start-up, Rocketmiles. The deal will enhance user experience on the Priceline platform by allowing them to book lodgings via Priceline’s network, as against booking directly with hotels. Rocketmiles aids customers in gaining frequent flier miles by booking through its mobile application or website. These miles in turn can be redeemed for bookings for an array of around 12 airlines. The online travel agency leaders seem to be stressing on loyalty programs for expanding their customer base. Earlier on February 12, Expedia announced its intention to acquire Orbitz Worldwide. One of the advantages which Expedia would gain from Orbitz is the Orbucks loyalty programme. The rewards programs would allow the OTAs to gain a competitive advantage against airlines and hotels who in turn try attracting customers to their own websites. ^[3]

In February 2015, Priceline decided to raise $1.13 billion  through a public offering of senior notes. In March 2015, announced a second set of senior notes offerings, subject to market conditions. It intends to use the fund for general corporate purposes, including share repurchases, paying down debt and making acquisitions. Priceline spent around $2.5 billion net of cash acquired, on acquisitions in 2014. Priceline had around $8 billion cash on hand in the end of 2014, and the senior notes will add on to that reserve. ^[4]

Priceline Looking Forward To International Growth

• Priceline Plans To Expand OpenTable Internationally

Priceline’s OpenTable helps restaurants fill tables by offering online reservation services to diners. The acquisition marked Priceline’s entry into the online restaurant reservation business, a category in which OpenTable is a leader in North America, with over 50% market share. ^[5] Priceline has made significant investments towards shifting the OpenTable B2B software into a modern, cloud-based platform. The company has envisioned international expansion plans for OpenTable in 2015. ^[6]

• Priceline’s Partnership With Ctrip Will Boost International Expansion

In August 2014, Priceline strengthened its commercial partnership (initiated in 2012) with Ctrip (NASDAQ:CTRP), the biggest Chinese online travel agency (OTA),  by investing $500 million in the company. Priceline now has access to Ctrip’s 100,000 accommodations in the Greater China region while Ctrip has access to Priceline’s global portfolio of over 500,000 accommodations. ^[7] Additionally, Ctrip agreed to promote Priceline Group’s other services, like rentalcars.com and OpenTable, to its customer base. The expanded partnership with Ctrip has reaped substantial benefits in 2014. Priceline’s outbound business witnessed significant growth after Agoda and booking.com were featured on Ctrip. The main reason for that was the growing Chinese outbound market, (which is  the largest in the world). Ctrip’s properties on Priceline’s platform are also gaining traction. Priceline plans to accelerate the rollout of its properties in China in 2015. ^[6]

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1. Priceline’s Form 10-k for the Period Ending Dec 31, 2014 [↩]
2. The Priceline Group Reports Financial Results for 4^th Quarter and Full-Year 2014, Priceline Press Release, February 19, 2015 [↩]
3. Priceline to Buy Rocketmiles for About $20 Million, Wall Street Journal, February 18, 2015 [↩]
4. Priceline Positions Itself for 2015 Acquisition Spree With $1.13 Billion Note Offering, Skift, February 24, 2015 [↩]
5. The Priceline Group Agrees to Acquire OpenTable, Inc., Priceline Investor Relations, June 13, 2014 [↩]
6. Priceline Group Inc. (PCLN) CEO Darren Huston on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 20, 2015 [↩] [↩]
7. The Priceline Group and Ctrip Expand Partnership, Ctrip Investor Relations, August 6, 2014 [↩]