Priceline Is Soaring Now, But What About The Future?

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Priceline seems to be on a roll right now. Over the last year, Priceline’s stock price has grown by around 35% trading currently at above $1,800. The company ended 2016 with a 16% growth in its top line to ~$10.7 billion, while its EBITDA margin for the period stood at an impressive 39%. So, even if the world’s largest OTA seems to be on a growth spurt now, do we see the same trend in the future? Priceline’s focus on organic growth, its ‘measured’ acquisition style, coupled with its huge presence in economies with surging travel demands point to the fact that Priceline’s growth story might continue for a while now.

Priceline’s Overall Performance In 2016

In 2016, Priceline’s gross travel bookings amounted to around $68 billion, reflecting a 23% y-o-y growth. Its gross profit rose by 20% y-o-y to ~$10 billion and its international operations contributed around 90% to this. Priceline’s Booking.com – globally, the most popular online accommodation booking platform – added over 289,000 accommodation properties to its platform in 2016, reflecting a 33% growth, and ended the year with around 1.15 million properties. Priceline’s vacation rental properties grew by 49% to 591,000 properties in 2016. One of the highlights of its Q4 2016 earnings call was that most of the Priceline Group’s growth was organic. The teams behind each of its brands built the supply inventories in their respective platforms, instead of growing through acquiring other brands.

Priceline’s Acquisition Style

It is noteworthy to mention that unlike growth with the help of acquisitions as pursued by some of its close rivals (most notably, Expedia), Priceline’s growth has been organic proving how all its segments are churning out growth and helping the company to maintain its leadership in a vastly competitive industry. In its Q4 2016 earnings call, Priceline Group’s newly appointed CEO, Glenn Fogel, stated that the company considers the addition of the inventory supply on its platform as a part of its growth strategy and pursuing it organically gives it a significant competitive advantage. In fact, Priceline is so selective about acquisitions that in the last year it didn’t undertake a significant one. In February this year, the company completed a deal to take over the Momondo Group in order to aid its metasearch engine Kayak with its expansion in markets where it has so far lagged behind.

How Does The Geographical Spread Of Its Business Impact Priceline’s Growth?

Over 90% of Priceline’s revenues come from outside the U.S. while its closest rival Expedia has only one-third of its revenues from international markets. The global OTA leader has a presence across 200 countries that speak over 40 languages. The distinct advantage of this strategy is that Priceline stands to gain more from growth in tourism in nations across the globe.

For example, if we consider China, Chinese travelers are the highest spenders in international outbound tourism and there has been a 12% increase in their spending to $261 billion in 2016. Chinese tourists, with a strength of 135 million in  2016, comprised  the world’s largest outbound market. It is noteworthy to mention that though Ctrip is the OTA market leader in China, Priceline has a partnership with Ctrip which allows the latter to display Priceline’s hotel inventories to its customers. Priceline also has around a 15% stake in Ctrip. Hence, the more Chinese travel increases the better it is for Priceline’s business.

Also, UNWTO World Tourism Barometer reflected that the tourism expenditure from major outbound markets indicated a growing demand for international tourism across the world. Along with the rise in international travel and travel spending, Priceline stands to gain even more.

top ten outbound unwto

However, not all might be good in the world of international travel. For example, if we take the French Election into consideration, the two forerunners of the French election about to contest in the final round on May 7th are Marie Le Pen and Emmanuel Macron. While Le Pen wants France to break from the European Union like the U.K., Macron advocates the continued integration. The French Election results might change travel demand as well. If Le Pen wins and France indeed makes an exit from the EU, then travelers from other EU countries wouldn’t be able to travel to France without a passport. The members of the EU nations so far can travel from one country to another without their passports. Additionally, Le Pen is pushing for a greater control at the borders. Along with these stricter regulations there might be a decline in vacationers to France, both from the EU nations and also internationally. This means less traffic to the Eiffel Tower and Louvre Museum and hence a dampening impact on France’s tourism and, in turn, Priceline’s business. However, in the case that Macron wins, along with the EU, the situation will just be the opposite.

However, rising travel demands currently make it seem that the good outweigh the bad for Priceline at the moment. There has been evidence of increased lodging demand in the EU in Q4 2016. This has brought forward the question whether the European Union will set a ruling to increase competition among hotel providers in order to take advantage of the greater hotel demand to grow the economy further. Priceline with its huge scale and inventory supply will have a huge competitive advantage over the other players in case of increased competition.

Hence, we see that with an eye for organic growth and toward expanding its supply base, coupled with fewer but perhaps more strategic acquisitions, and a portfolio that spans across international markets, it seems that Priceline is well poised for growth in the near as well as the distant future.

Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at content@trefis.com

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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