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Priceline Reports Solid Results, Booking Volume Remains High

Written by on May 28, 2013

Online travel agent Priceline posted first-quarter results that exceeded company forecasts and analysts estimates, thanks to strong booking and revenue growth coupled with smaller than expected deleverage on the online marketing spend line. Although management continues to voice caution about the economic outlook in Priceline’s core European market, the travel agent’s strong branding and network effect remain intact, and should continue to resonate with both travel suppliers and shoppers worldwide, driving shopping traffic and transaction volume in the coming years.

First-quarter gross travel bookings grew 36% to $9.2 billion, fueled by a 43% increase in international bookings (minimal currency impact in the quarter) and a 9% increase in U.S. bookings. The firm pointed to strong volume growth in hotel room nights (up 38%) and rental car days (up 43%), while air ticketing (traditionally not a strategic focus) rose by 1.4%. Revenue grew by 25% year over year to $1.3 billion, 69% of which came from international markets, up from 60% in the year-ago quarter.

The firm kicked off a U.S. TV campaign for booking.com in the last quarter, more than doubling offline ad spend to $28 million, and we expect offline marketing spend in 2013 to be significantly higher than historical levels given booking.com’s ambition in the U.S., although such spending remains a low 2% of total revenue. Adjusted EBITDA rose 36% year over year, implying a 210- basis-point expansion from a year ago thanks to tight expense management, although analysts expect moderate margin headwinds from stepped-up spending across online channels for newer markets such as Asia, where Priceline investments in branding and consumer outreach may take time to yield results.

Priceline’s second-quarter guidance calls for booking growth in the 30%-37% range (which implies a 3% currency tailwind), driven by international bookings growth in the high 30s to low 40s and domestic booking increase in the mid-single digits. The firm remains cautious about leisure travel demand in Europe given macro headwinds, although we think the expansion of accommodation inventories to include bed & breakfasts, hostels, and guest apartments in Europe, coupled with strong hotel demand in emerging markets in Asia Pacific and Latin America, should help cushion the potential negative effect.

The firm guides for revenue growth in the 15%-22% range, and adjustment EBITDA in the range of 560 million-595 million, which at the midpoint implies a 16.7% year-over-year increase in dollar terms and a 60-basis-point margin contraction due to deleverage in online advertising expenses. The June quarter guidance does not include any contribution from Kayak, as the acquisition is scheduled to close on May 21. The management expects the Kayak acquisition to have minimal impact on 2013 earnings.


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