Priceline Group (PCLN) delivers Q1 earnings Thursday before the open. Business is so good at the online travel company that it has changed its name to reflect a business that’s gone well beyond the Priceline.com brand. With this week’s earnings its first under the new umbrella, it will be interesting to see what happens to PCLN stock on the news.
Now that we’re well into Q2, I’ll take a look at Priceline earnings expectations for the first quarter and look ahead to the remainder of the year and what investors can expect from PCLN stock. Can the company keep up its string of earnings beats? Or will expectations finally weigh down the stock?
There’s a lot to like PCLN and its business model, but there are also a couple of bugaboos to keep in mind before buying PCLN stock.
PCLN Stock — The Good
Analysts expect adjusted earnings in Q1 2014 to be $6.91 per share, 20% higher than a year earlier. The consensus estimate for revenue is $1.63 billion, 25% higher year-over-year. Gross travel bookings in the quarter are estimated to be $12.03 billion, 30% higher than the $9.2 billion in Q1 2013. In Q2, analysts expect adjusted earnings per share of $12.26 on $2.11 billion in revenue. Options pricing suggests PCLN stock will move 6.6% on the news, perhaps more if it beats by a large amount.
As is the case with most online businesses, mobile has become vital to a brand’s overall success; PCLN is no different. CEO Darren Huston said this about mobile in its Q4 2013 conference call: “… Booking.com completed just over $1 billion in gross mobile transactions in 2011 increasing this three-fold to $3 billion in 2012. In 2013 that same number exceeded $8 billion. But mobile is not just about booking; it is also an increasingly important part of our customers’ multi-screen lifestyles.”
PCLN’s success comes from providing its customers with the best experience regardless of the device they use to book travel. The fact that 64% of Americans now own smartphones highlights the importance of reaching customers on their mobile devices. The fact that Priceline managed to grow mobile transactions for a single brand by 800% in just two years is a big reason why PCLN stock is up an average of 29% annually over the past three years.
Another positive for PCLN stock is the vacation rental business, which is really starting to take off. This past year saw a sea of change in the vacation rental industry where holidayers normally booking hotel rooms were opting for vacation properties instead. Firms like Booking.com are making it easier for consumers to book vacation properties online just as easily as they would a hotel room. I’ve been staying at vacation properties rather than hotels for years; PCLN is simply making it easier. As more people become comfortable with the idea you can bet it will have a positive influence on PCLN stock.
PCLN Stock – The Bad
The first problem for PCLN is its reliance on Google (GOOG) for advertising. PCLN spent $1.8 billion advertising online in 2013, and GOOG was a big chunk of that. The two businesses have a respectful, if somewhat awkward working relationship, because although PCLN accounts for 3% of Google’s overall ad revenue, the search engine it also competes with Priceline for travel bookings.
Huston is trying to spread the love around to sites like Trip Advisor (TRIP) and Trivago, but that’s going to take time to build on. To date, the company has had terrible success with both Facebook (FB) and Twitter (TWTR), which suggests additional growth might be hard to come by. And that difficulty could definitely affect PCLN stock.
The other issue is PCLN stock itself. Currently trading around $1,190, its share price is beyond affordability for the average investor. Financial professionals call stock splits nothing but a gimmick, but the reality is that investors still think in terms of board lots despite the fact odd-lot trading goes on all the time.
Buying 100 shares of PCLN stock would cost $119,200. The average 55-to-64-year-old’s retirement portfolio is worth $261,400. To pull the trigger on 100 shares requires that the average retiree allocate almost 50% of their portfolio to one stock — albeit a good one. Apple (AAPL) recently split its stock 7-for-1; there’s no reason why PCLN shouldn’t do the same. Until it does, there’s a good chance it won’t be nearly as attractive to average investors.
PCLN Stock — Bottom Line
Once Priceline earnings are out of the way Thursday, investors can expect PCLN stock to start moving higher through the summer and into the fall. By the end of 2014, PCLN stock should achieve a positive total return for the sixth consecutive year — a claim that very few stocks can make.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.