Priceline Group Inc (NASDAQ:PCLN) is scheduled to announce its fourth-quarter earnings Thursday before the bell, but while quarterly numbers certainly matter, the real story behind why PCLN stock looks good right now can be found across the pond.
Let’s take a quick look at what Wall Street’s looking for, then jump into the bigger picture.
Priceline Earnings Outlook
Priceline is expected to post Q4 earnings of $10.10 per share, which would be a substantial increase from last year’s $8.85 per share. Wall Street expects that profit boost to come in on $1.8 billion in revenue, which is ahead of the company’s own guidance of $1.75 billion.
All told, Street expectations are for 13% profit growth and 17% revenue growth.
Investors should note that a mere match of estimates won’t be enough, though — PCLN has outperformed its own guidance and analysts’ estimates for 15 straight quarters, and has grown anywhere from 20% to 40% per year over the last decade.
It’s a testament to Priceline’s operational strength, but also a huge expectations hurdle to clear.
Look to Europe
PCLN stock raced through the early part of the decade, but in the past year, Priceline has shown a chink in its armor.
Some investors now view the stock with trepidation due to macro factors — especially those tied to Europe. Parts of Europe are either in or near recession, and the U.S. dollar has been clobbering the euro.
Why does Europe matter so much?
Priceline is more than just the Priceline.com, William Shatner and Kaley Cuoco we know and love here at home. It’s also Booking.com, which is the leading online travel agency in Europe, as well as other online travel brands such as Kayak and Agoda.com, which has a strong presence in South East Asia. In short, Priceline is an international company — one that depends heavily on the European market.
Thing is, while most think that if the European economy and the eurozone are weak, Europeans will forgo their vacations and stay home. But that might not be the case.
Matt Coffina, editor of Morningstar StockInvestor newsletter, says, “I think Europeans are very much committed to their traveling every year. So, instead of not taking that trip, they might just take a trip to a cheaper location, or they might downgrade their hotel room. But generally speaking, they won’t skip the trip altogether. That’s just sort of a cultural issue in Europe.”
In short — while the hotel room might be cheaper and the destination a little less exotic, Europeans still will be booking trips, which gives Priceline’s entities plenty to do.
Priceline isn’t the only U.S. online travel name with a much larger reach. Expedia (NASDAQ:EXPE) also owns Hotels.com, Hotwire, Travelocity and Trivago, and just bought Orbitz (NYSE:OWW) this month.
Still, Priceline remains the market leader, and being the largest player gives you some advantages. Not only do you have more guests booking and more hotels under your umbrella, but you also possess more market data, which you can use to effectively and efficiently convert users.
Does the Expedia purchase of Orbitz hurt Priceline? Not at all. Priceline has a much more international focus, while Expedia has a strong U.S. presence. PCLN specifically benefits from the European hotel culture, which is much smaller and more boutique in nature. These hotels are less able to market themselves, so they rely heavily on Priceline to get guessts in rooms — that gives Booking.com a lot of leverage in negotiating deals and keeping competitors out.
Then we have the means of how Priceline goes about its business — it’s more focused on the hotel side of the business, and sends bookings to hotels while never being responsible for them. Expedia’s mix is more hands-on as it leans more on the transportation aspects of traveling and actually takes hold of travel inventory.
Bottom Line
Priceline has a number of competitive advantages that have translated into staggering growth over the past few years. Those advantages haven’t gone anywhere.
Keep an eye on Priceline earnings for any major red flags, but barring disaster, PCLN should be as much of a buy after earnings as it is today.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
