What To Watch For In Priceline’s Q4 2016 Earnings

by Trefis Team
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Priceline is slated to release its Q4 2016 earnings on February 27th. For the first three quarters of last year, Priceline has grown steadily, overcoming macroeconomic challenges such as the weak foreign exchange rates relative to US dollars and the slowdown in travel in certain international markets due to terrorism related activities and economic slowdown.

Priceline’s Booking.com is the market leader in the online accommodation booking arena with over a million accommodations on its platform across 93,000 destinations. The brand’s focus on understanding the pulse of the dynamic travel market, investing in offline advertisements, along with a strong social media presence are some of the factors that might  help it in maintaining its current dominance in the near future as well. Priceline’s other brand, Priceline.com, underwent some improvements in the last year to reposition itself and announced Brett Keller as its new CEO. Priceline’s metasearch arm, Kayak, continued with its healthy growth along with expansions in emerging markets like Asia and Latin America. This month, Priceline acquired the UK and Denmark based metasearch website, Momondo Group with the expectation that it will aid Kayak in building its presence in geographies where it lags behind. However, Priceline’s online restaurant booking platform, OpenTable, seems to be lagging behind and in Q3 2016 it incurred a $941 million non-cash impairment charge against its goodwill and dampened Priceline’s net income. Finally, the Priceline Group had chosen a new CEO effective January 1st, 2017. Glenn Fogel, Priceline Group’s former Executive Vice President and head of worldwide strategy and planning, has assumed the new role.

We expect Priceline’s healthy performance to continue over the fourth quarter as well. However, the bottom line might remain dampened due to its investment expenses and impairment related charges.

Booking.com’s Prudent Growth Strategies Might Continue Driving Growth

Priceline’s Booking.com’s growth story is expected to continue in the fourth quarter and also beyond. The property count in the platform has surpassed one million in the third quarter and its y-o-y growth was close to 30%. The reason behind this success is the brand’s understanding of the ever changing market demands. In a recent podcast, Booking.com’s CEO Gillian Tans expressed the same along with emphasizing the constant offline and online advertising strategies across the globe and the investments on the mobile platform as some of the important factors beyond the brand’s success.

The Momondo Group Might Help Kayak With Its Global Expansions

Kayak is one of the most important drivers for Priceline’s fastest growing segment, advertising and media (whose revenue has been growing at a CAGR of 60% over the three-year period ending 2016). To put it into perspective, the overall revenue of the company is estimated to have grown at a CAGR of 16% during the same time period. Though Kayak is growing well, Priceline wants to make it stronger and hence it acquired The Momondo Group for a cash sum of $550 million. This was the biggest acquisition for the company since its OpenTable acquisition for $2.6 billion in 2014. Momondo Group’s net revenue reached $102 million in 2016 and its top line is expected to grow at 30% to 40% y-o-y in 2017. It is being said that Priceline’s main reason to acquire The Momondo Group was to help Kayak’s market expansion. Kayak has long struggled in the UK and doesn’t have a significant presence in the Nordics, while Momondo and Cheapflights – the two brands belonging to Momondo Group – have a strong presence in these markets.

OpenTable Might Slow Down Priceline’s Q4 Performance

The only troubles in the company’s performance seem to be currently coming from its restaurant reservation site, OpenTable. Though OpenTable has over a 50% market share in North America, the expansion to international markets is most probably causing it pains. There might be a possibility of the platform facing tough competition in Europe from entities such as TheFork, TripAdvisor’s online restaurant reservation platform, which is the market leader in the region. In its Q3 2016 earnings call, Priceline’s management announced that OpenTable will pursue its growth opportunities at a slower pace than before, however, it will still continue with the building of inventories, cloud-based services for restaurants, and even a new product catering to casual dining.

 

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Priceline

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