by Tom Taulli | May 10, 2012 1:09 pm
Today, the shares of Priceline.com (NASDAQ:PCLN) lost some altitude, falling nearly 5%, to $684. While the company had a strong first quarter — profits were up 74%, to $182 million, or $3.54 per share — guidance for the second quarter was disappointing. Earnings are expected to range from $7.20 to $7.40 per share. The Wall Street consensus was for $7.37.
Then again, Priceline.com has been a tremendous winner for investors. Over the past five years the shares are up a stunning 1,100%.
So should you buy Priceline.com stock? To decide, let’s take a look at the pros and cons:
Global Powerhouse: Priceline.com was smart to move into global markets early on (the first big push was in 2007). The result has been standout growth. Consider that in the first quarter, international revenue soared by 59%, to $619 million.
In fact, the market opportunity is still massive, especially in Asia and Latin America.
Leveraging the Platform: This has been key to Priceline’s growth rate. For example, the company has been investing heavily in its hotel-reservations business. This was spot on — it was the main driver of the 44% jump in bookings during the first quarter.
Marketing Power: Priceline.com’s longtime advertising spokesman, William Shatner, has made a lot of high-impact commercials. Then the company killed him off! So now it’s time to refresh Priceline’s marketing approach. Given the site’s history, it should be able to find ways to develop a branding strategy that will continue to get traction.
Competition: Priceline must deal with longtime rivals such as Expedia (Nasdaq:EXPE), Orbitz (NYSE:OWW) and Sabre. And a variety of fast-growing startups are gaining momentum, such as Hipmunk. These new rivals can test new approaches and technologies, such as with mobile. It also helps that venture capital is plentiful in this arena.
Because of its acquisition of ITA Software, a data provider for flight information, Google (NASDAQ:GOOG) has also become a threat. The company has a huge advantages in being able to leverage its search engine as well as its Android mobile platform.
Europe: The Continent is a big part of Priceline.com’s business. Unfortunately, eurozone economies continue to be weak, and there may be yet another debt crisis ahead.
Valuation: Priceline has a price-to-earnings ratio of 33. Also, the company does not pay a dividend.
Priceline.com continues to find ways to boost growth. And CEO Jeffery Boyd is one of the best in the tech world.
But investors should be cautious. Europe seems to be mired in a long-term slump, which is likely to be a problem for Priceline. And when a high-growth company starts to show deceleration in revenues, it can mean lots of trouble for the stock price.
So in light of this, the cons outweigh the pros on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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