Priceline’s Robust Performance Is Expected To Continue In Q3 Primarily Boosted By Its Accommodations Booking Growth

by Trefis Team
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Priceline
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Priceline, (NASDAQ: PCLN), the global online travel leader, is slated to release its Q3 2017 earnings results on November 6th. The company derives over 90% of its revenues from accommodation reservations and in this segment, its star performer is Booking.com, the most popular accommodation booking website in the world. However, though Priceline’s accommodation booking growth still continues, the rate of growth is gradually decelerating. In Q2 2017, the company’s accommodation reservation witnessed 21% y-o-y growth translating to 170 million room nights booked. Though the room nights grew well, yet the pace of growth, i.e., 21%, has been the slowest pace for the company since 2010. Then again, as Priceline’s size keep growing the rate of growth is expected to slow down gradually. Currently, Priceline seems to be taking a keen interest in the alternative accommodations, a segment whose growth rate outpaces that of the traditional hotel bookings. Maybe, alternative accommodations will once again speed up Priceline’s accommodations booking growth rate in the future. Also, Priceline had earlier mentioned how it is eating into its rival’s market shares, the alternative accommodations will help on that front as well. Finally, last month Priceline invested around $450 million in Meituan-Dianping, an e-commerce platform in China. Even though Priceline has an alliance with Chinese OTA leader, Ctrip, this additional investment might signal its interest in penetrating the Chinese accommodations booking market further, especially in the lower tiered cities where Ctrip doesn’t have a stronghold.

For the first half of the year the gross bookings for the company grew by 20% y-o-y. Priceline’s net income grew by 23% to $1.18 billion while its revenues grew by around 15% to over $5.4 billion. Europe was one of the most important markets that drove growth for the company. We have a $1792 price estimate for Priceline’s stock, which is around 5% lower than the current market price.

Priceline’s Investment In Meituan-Dianping

Priceline’s investment in Meituan-Dianping, the third largest online consumer market place in China with a 260 million user base, seems to be a strategic move to capture a greater share of the China market. The Beijing-based company has been raising funds with the aim of expanding its presence in the online hotel, restaurant booking, and ride booking businesses. It has so far raised $4 billion for the same. Priceline’s Agoda brand, the booking website focused on Asia, will be in an alliance with Meituan-Dianping’s Travel & Leisure division, the division dealing with domestic and international lodging and transportation for Chinese travelers. It is expected to be a symbiotic relationship between both the entities as Meituan-Dianping is a popular platform in China that sold around 18 million room nights to Chinese consumers just in the month of July 2017. Agoda, on the other hand, has an inventory of around 200,000 international hotels. Agoda’s alliance with Meituan-Dianping is similar in nature to the one shared by Priceline’s Booking.com and Ctrip. The deal will help Agoda in gaining a stronger hold in China, while Agoda’s vast platform of hotels will help Meituan-Dianping in expanding its own international presence. Though Priceline has around a 10% stake in Ctrip and has the option of owning up to 15%, however, Priceline’s partnership with Meituan-Dianping might help it gain a greater share of the hotel bookings market in the lower tiered cities in China since the latter has an inventory of over 340,000 domestic hotels, mostly in the lower-tiered cities. Ctrip, on the other hand, is still striving to gain a bigger portion of the lower tiered booking markets.

Booking.com’s Foray Into Vacation Rentals

The Booking.com platform included around 721,000 vacation rental properties by the first half of this year growing at the rate of 54% y-o-y. The second quarter of 2017 was Priceline’s fourth consecutive quarter of this rapid growth in the rentals inventory which is currently growing at over twice the rate of its hotel inventory listings. Currently, vacation rentals is one of the top focus areas of the company. Since the time Expedia entered the vacation rentals market in a huge way after acquiring HomeAway, it seems that Priceline doesn’t want to be left behind in this segment. Booking.com’s features like foregoing an additional service fee and instantly confirming bookings, give it a competitive advantage over its peers in this segment.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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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