How Is Priceline Shaping Up For The Future? A View Into The Most Significant Strategic Decisions By The Company In 2015

December 14th, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Priceline (NASDAQ: PCLN) delivered a robust performance for the first nine months of 2015, despite currency headwinds dampening a part of its earnings. For the given period, the company’s gross bookings of around $44 billion increased by 10% on a year-on-year basis. Gross profit for the same period was around $7 billion reflecting a 14% year-over-year growth. [1] On the back of strategic investments, technological developments, and its accommodation booking engine, Booking.com’s unprecedented success, the company had been delivering impressive performance every quarter. We expect Priceline’s fourth quarter also to follow this trend. We discuss below the most important developments in 2015 that can shape Priceline’s growth path in the near future as well as in the long term.

Priceline’s Primary Growth Driver Is Booking.com – The Market Leader In Accommodation 

So far in the company’s history, Booking.com has been the biggest driver for its growth. Booking.com – the online accommodation market leader – has an inventory of 21 million bookable rooms across 820,000 unique properties [2] and all its unique properties (except hotel and vacation rentals) grew by 32% and accommodated 137 million guests over the last 12 months. [3] Its leadership position is a result of offering the widest number of options to travelers, as well as differentiating factors such as not charging a booking fee (most OTAs charge a 5% to 15% booking fee) and instantly confirming reservations as opposed to a 24 hour confirmation time taken by other websites.

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Booking.com Gained Exclusive Privileges To Participate On TripAdvisor’s Instant Booking Platform 

In October, Booking.com entered into an agreement to display some of its accommodation properties on TripAdvisor‘s Instant Booking platform. Priceline finally agreed to participate on the Instant Booking platform because it received exclusive privileges and branding opportunities. In its recent earnings call, TripAdvisor’s CEO also mentioned that the Instant Booking consumers, booking Priceline properties, will clearly know that the booking is being handled by Priceline. [4] In the future, Priceline’s other websites might also participate on Instant Booking. (Read Press Release.)

 trip pcln(Source: Skift)

Priceline’s Focus On China Is Evident From Repeated Investments In Ctrip

On December 10th, Priceline declared fresh investments of $500 million into the Chinese OTA leader, Ctrip.  After this decision, Priceline’s total investment in Ctrip since 2014 amounts to around $2 billion. Post the issuance of the new bonds, Priceline will own almost 45.5 million American Depository Shares of Ctrip on a fully diluted basis, roughly translating to a ~15% stake in Ctrip. (Read Press Release) Priceline’s partnership with Ctrip dates back to 2012 and the global OTA leader has recently shown a lot of interest in its Chinese counterpart. In August 2014, Priceline invested $500 million in Ctrip and in May 2015, (shortly after Expedia’s partnership with Ctrip), Priceline invested an additional $250 million in the Chinese OTA.

Currently, Priceline 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. [5] Additionally, Ctrip promotes Priceline’s other products like rentalcars.com and OpenTable to its own users.

China is the world’s largest outbound tourist market, currently.  In 2014, China’s outbound tourist count was approximately 110 million (reflecting an 11% year-on-year growth) and the total Chinese outbound tourism spend reached $165 billion, an increase of 28% year-on year. [6] Priceline is Ctrip’s primary non-China hotel partner. In its Q3 2015 call, Priceline’s management mentioned that  Chinese travelers are globally the most significant right now, and are primary inbounds in most of Priceline’s important destinations. [7]

An important thing to note here is that despite its continuous investment in Ctrip, Priceline does not solely depend on Ctrip for its expansion plans in the country. In 2015, Booking.com increased its properties by over 200% from 8,000 to 25,000 in China.

Hotel Urbano Will Aid Priceline’s Growth In Another Rising Tourism Market, Latin America

In July, Priceline acquired a minority stake in Brazil’s top OTA, Hotel Urbano. Consequently, Hotel Urbano will use Booking.com’s inventories to help its users book hotels outside Latin America (LATAM). Priceline’s management had stated that this investment is similar to its earlier investment in Ctrip in China. Priceline maintains a symbiotic relationship with these regional online travel leaders. It aids the commercialization and global expansion of the local brands in these emerging economies and, in turn, benefits from the upside. Hotel Urbano’s knowledge on the local trends and understanding of the demand-supply dynamics will help Priceline gain a substantial share of the Latin American market, which is touted as one of the fastest growing markets in the online travel sales domain.((Interview: Hotel Urban CEO on Using Big Data to Battle Booking Rivals, Skift, October 17, 2014)) LATAM is currently growing at an average of 15% year-on-year growth rate. According to PhoCusWright, the LATAM travel market size will reach almost $100 billion by 2016. [8]

HomeAway Will Aid In The Diversification Of The Accommodation Portfolio

In June, Priceline’s travel search engine, Kayak, entered into an agreement to list HomeAway’s vacation rental properties on its website. [9] HomeAway, the world’s largest vacation rental marketplace, lists over 1 million live listings in close to 200 countries. The vacation rental market is significantly growing with the share of online sales in vacation rentals doubling from 12% in 2007 to 24% in 2012, and this is estimated to have increased by 30% in 2014. [10] Priceline sees a huge potential for growth in this space with its vacation rental room night bookings over the twelve months leading up to mid-2015 demonstrating 39% year-over-year growth with 50 million bookings. ((Priceline’s Q2 2015 Earnings Call Transcript, Seeking Alpha, August 5, 2015))

Priceline’s Acquired Rocketmiles To Strengthen Its Loyalty Programs

In the first quarter of 2015, Priceline took over hotel-booking start-up Rocketmiles, a company that helps customers in the collection of frequent flier miles (which can be redeemed for bookings in around 12 airlines), if they book through its mobile application or website. Priceline and Expedia are stressing loyalty programs to lure customers to their platforms. In September, Expedia acquired Orbitz Worldwide, a global online travel company, that was famous for its loyalty programs.

OpenTable’s North America Dominance Might Expand Further With Priceline’s Acquisition Of AS Digital

Priceline acquired AS Digital, an Australia based restaurant booking site, in September. AS Digital will aid OpenTable, Priceline’s North America based restaurant booking site (with a ~50% share in the region) to expand its international footprints. Priceline is currently planning expansions in Australia, Japan, and across the Asia Pacific region. [11] The acquisition might gear up the company to provide stiff competition to TripAdvisor, which currently holds the leading position in restaurant booking websites outside the U.S.  TripAdvisor’s rebranded restaurant platform, TheFork, spans across 12 countries and caters to reservations in over 28,000 restaurants. [12]

 

 

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Notes:
  1. The Priceline Group Reports Financial Results for 3rd Quarter 2015, Priceline Press Release, Nov 9, 2015 [↩]
  2. Booking.com Hits Record 1 Billion Guests Since Inception, Priceline Press Release, Nov 9, 2015 [↩]
  3. The Untold Story of Booking.com’s Growth in 21 Million Rooms, Skift, Nov 9, 2015 [↩]
  4. TripAdvisor Q3 2015 Earnings Transcript, Seeking Alpha, Nov. 5, 2015 [↩]
  5. The Priceline Group and Ctrip Expand Partnership, Ctrip Investor Relations, August 6, 2014 [↩]
  6. Chinese Outbound Tourism Insight in 2014, China Internet Watch, Sep 28, 2015 [↩]
  7. Priceline Q3 2015 Earnings Call Transcript, Seeking Alpha, Nov 9, 2015 [↩]
  8. Online travel in Latin America: A big, complicated opportunity, tnooz, December 11, 2014 [↩]
  9. Kayak Partners With Booking.com Competitor HomeAway on Vacation Rentals, Skift, June 1, 2015 [↩]
  10. Vacation Rentals in the U.S. Are Now a $23 Billion Industry, Skift, October 25, 2013 [↩]
  11. The Priceline Group Announces the Acquisition of AS Digital, Priceline Press Release, September 3, 2015 [↩]
  12. TripAdvisor’s Q2 2015 earnings Call Transcript, Seeking Alpha, July 23, 2015 [↩]