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Priceline (PCLN) Stock 2Q Earnings Preview: Beat or Miss?
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Priceline is slated to report second quarter earnings results on Aug 4 after the bell.
The company is one of two leading players in a highly fragmented online travel booking market, the other one being Expedia (EXPE - Free Report) . But the two companies are really rather different because Priceline generates most of its revenues overseas particularly Europe while Expedia is more focused on North America. Both companies are expanding geographically. Therefore, Expedia’s disappointing results doesn’t necessarily spell doom for Priceline.
In fact, while many were speculating that online travel companies would be negatively impacted by the Brexit vote, this will likely not be the case. Brexit may impact how travellers move in and out of Britain, but there’s still quite a bit of traffic moving within the European Union and to and from destinations other than Britain. Moreover, this isn’t a change that will suddenly happen overnight but rather over time.
On the other hand, the company remains focused on improving the travel booking experience (Booking.com is now harnessing the power of artificial intelligence to increase personalization in phases). This kind of move has a direct impact on results.
Another emerging trend is the alternative accommodations segment, where both Priceline and Expedia have been strengthening their presence. Privately-held Airbnb is the frontrunner here, but the leading OTAs have huge reach and can come up strongly from behind.
Let’s take a quick look at how Priceline has been doing recently:
Quarter One Highlights
In the last quarter, Priceline beat the Zacks Consensus Estimate on both the top and bottom lines. It exceeded its own conservative guidance on revenue, bookings, EBITDA and earnings.
Currency continued to pressure results since most of the business is generated overseas. But the company grew revenue anyway and margins also went up from where they were a year ago.
Room nights and rental car days continued to grow but ticket volumes were down from last year.
For the second quarter, Priceline estimated that room night bookings would grow 15-22% and total gross bookings would grow 11-18% year over year (11-18% on a local currency basis).Gross profit dollars were expected to increase 9-16% (9-16% on a constant currency basis), with the adjusted EBITDA at $740 million to $795 million. The pro forma EPS was expected to be $11.60-$12.50, based on a 16% tax rate and 50.6 million shares. The GAAP EPS was expected to be $9.35 to $10.25.
The Industry Is Attractive
The U.S. Commerce Department estimates international travel to the U.S. will grow at a CAGR of 3.1% from 2015 to 2020. Visitor volume is expected to grow from 0.4% in 2015 to 2.6% this year. Inbound travel volumes from Mexico, China, Canada and the UK will be the highest during this period. Moreover, market research data indicates that prices are rising across the world, with the biggest increases in Central/South America and the Middle East/Africa. Since it is a major international player, these trends play into Priceline’s sweetspot.
What Do the Numbers Say
The company has topped estimates in each of the last four quarters at an average rate of 4.73%. Not just that, the company hasn’t missed estimates in any quarter since 2012, which is a very big deal and seems to indicate that this quarter will be no different.
But the Zacks methodology indicates that this alone may not be a reason to buy the shares heading into earnings.
According to Zacks, a company with a Buy (Zacks Rank #1 or #2) or Hold rating (Zacks Rank #3) will have a good chance of beating estimates if it also has a positive ESP. Sell-rated stocks (Zacks Ranks #4 and #5) are best avoided.
Priceline has a Zacks Rank #3 (Hold) and ESP -0.35%. Hence it’s difficult to predict a positive surprise.
Besides, valuation looks rich, which could mean limited upward movement even if it beats estimates in characteristic fashion. More so because Priceline’s price chart shows that a positive surprise hasn’t always led to an upward movement in share prices.
Priceline belongs in an attractive industry and has a strong international presence, which is particularly positive for business although it means that FX is always an important factor. The company has a solid history of positive surprises and this quarter may not be different. However, given its Zacks Rank #3 and rich valuation it is difficult to recommend the shares at this point.
Safer bets would be PetMed Express (PETS - Free Report) or Stamps.com , both of which have a Zacks Rank #1 or even Groupon (GRPN - Free Report) , which has a Zacks Rank #2.
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Priceline (PCLN) Stock 2Q Earnings Preview: Beat or Miss?
Priceline is slated to report second quarter earnings results on Aug 4 after the bell.
The company is one of two leading players in a highly fragmented online travel booking market, the other one being Expedia (EXPE - Free Report) . But the two companies are really rather different because Priceline generates most of its revenues overseas particularly Europe while Expedia is more focused on North America. Both companies are expanding geographically. Therefore, Expedia’s disappointing results doesn’t necessarily spell doom for Priceline.
In fact, while many were speculating that online travel companies would be negatively impacted by the Brexit vote, this will likely not be the case. Brexit may impact how travellers move in and out of Britain, but there’s still quite a bit of traffic moving within the European Union and to and from destinations other than Britain. Moreover, this isn’t a change that will suddenly happen overnight but rather over time.
On the other hand, the company remains focused on improving the travel booking experience (Booking.com is now harnessing the power of artificial intelligence to increase personalization in phases). This kind of move has a direct impact on results.
Another emerging trend is the alternative accommodations segment, where both Priceline and Expedia have been strengthening their presence. Privately-held Airbnb is the frontrunner here, but the leading OTAs have huge reach and can come up strongly from behind.
Let’s take a quick look at how Priceline has been doing recently:
Quarter One Highlights
In the last quarter, Priceline beat the Zacks Consensus Estimate on both the top and bottom lines. It exceeded its own conservative guidance on revenue, bookings, EBITDA and earnings.
Currency continued to pressure results since most of the business is generated overseas. But the company grew revenue anyway and margins also went up from where they were a year ago.
Room nights and rental car days continued to grow but ticket volumes were down from last year.
For the second quarter, Priceline estimated that room night bookings would grow 15-22% and total gross bookings would grow 11-18% year over year (11-18% on a local currency basis).Gross profit dollars were expected to increase 9-16% (9-16% on a constant currency basis), with the adjusted EBITDA at $740 million to $795 million. The pro forma EPS was expected to be $11.60-$12.50, based on a 16% tax rate and 50.6 million shares. The GAAP EPS was expected to be $9.35 to $10.25.
The Industry Is Attractive
The U.S. Commerce Department estimates international travel to the U.S. will grow at a CAGR of 3.1% from 2015 to 2020. Visitor volume is expected to grow from 0.4% in 2015 to 2.6% this year. Inbound travel volumes from Mexico, China, Canada and the UK will be the highest during this period. Moreover, market research data indicates that prices are rising across the world, with the biggest increases in Central/South America and the Middle East/Africa. Since it is a major international player, these trends play into Priceline’s sweetspot.
What Do the Numbers Say
The company has topped estimates in each of the last four quarters at an average rate of 4.73%. Not just that, the company hasn’t missed estimates in any quarter since 2012, which is a very big deal and seems to indicate that this quarter will be no different.
But the Zacks methodology indicates that this alone may not be a reason to buy the shares heading into earnings.
According to Zacks, a company with a Buy (Zacks Rank #1 or #2) or Hold rating (Zacks Rank #3) will have a good chance of beating estimates if it also has a positive ESP. Sell-rated stocks (Zacks Ranks #4 and #5) are best avoided.
Priceline has a Zacks Rank #3 (Hold) and ESP -0.35%. Hence it’s difficult to predict a positive surprise.
Besides, valuation looks rich, which could mean limited upward movement even if it beats estimates in characteristic fashion. More so because Priceline’s price chart shows that a positive surprise hasn’t always led to an upward movement in share prices.
PRICELINE.COM Price, Consensus and EPS Surprise
PRICELINE.COM Price, Consensus and EPS Surprise | PRICELINE.COM Quote
Summing Up
Priceline belongs in an attractive industry and has a strong international presence, which is particularly positive for business although it means that FX is always an important factor. The company has a solid history of positive surprises and this quarter may not be different. However, given its Zacks Rank #3 and rich valuation it is difficult to recommend the shares at this point.
Safer bets would be PetMed Express (PETS - Free Report) or Stamps.com , both of which have a Zacks Rank #1 or even Groupon (GRPN - Free Report) , which has a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>