Priceline Group Inc (NASDAQ:PCLN) is the company face of some popular online travel agents that allow consumers to purchase airline tickets and rent hotel rooms and cars from hub sites. It’s predicted PCLN will grow, and the stock is a good buy compared to its competitors.
This being the case, it’s no wonder PCLN stock has soared, earning it membership in the $1,000 club. But tastes change quickly in the tech world, and the tide could be turning for Priceline and other online travel agents.
I think investors should be cautious about holding PCLN stock. Let’s review some of the reasons:
PCLN Stock: Direct Booking Is Growing
Online travel agents like PCLN are great for people who want to go online and experience one-stop shopping. There’s no time spent going from site to site or scouring the internet to come up with the best possible deal.
But then there are those who want rock-bottom prices without having to pay an agent. They enjoy the thrill of having discovered a bargain that the masses are clueless about. And this is where PCLN can get hurt.
More people are falling into that latter category. The New York Times recently likened these customers to people who visit bookstores to take notes from travel guides, but never actually buy the books.
More people are using online travel agents as starting points for flight searches that will conclude by purchasing directly from airlines. There are also popular peer-to-peer websites that let consumers cut out the “agent” and deal directly with individuals offering accommodations.
PCLN Stock: The Euro Factor
To say that PCLN does a good deal of its business overseas would be an understanding. In fact, the company does the majority of its business internationally — to the tune of about 90% of its bookings. And most of this comes from countries in the eurozone.
The problem is that the dollar’s strength makes it a particularly bad time for American companies getting the majority of their revenue from Europe. Deutsche Bank AG (USA) (NYSE:DB) expects the euro to be valued at 90 cents by the end of 2016 and at 85 cents by the end of 2017.
PCLN has enjoyed impressive growth for the past decade, but it’s hard to see where the additional growth will come from, especially in light of an ever-increasing and aggressive number of competitors such as Google (NASDAQ:GOOGL, NASDAQ:GOOG) and Hotel Tonight.
Mobile apps such as Hotel Tonight present a particularly thorny problem for PCLN and other online travel agents due to their agility. Even Priceline CEO Darren Huston has admitted the company has had trouble taking advantage of all aspects of the mobile platform.
Bottom Line
Priceline’s impressive growth over the last decade has made it a Wall Street darling. But the question is whether the company will be able to sustain those stellar growth numbers.
With increased competition and the bulk of the company’s business being in Europe — where the euro is down against the dollar — the question is a valid one.
Take your profits from PCLN stock now.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
