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Priceline Group Inc (PCLN) Stock Could Fall Another 20%

PCLN stock is dipping despite excellent first-quarter operations. Priceline is at risk, but it has nothing to do with its results.

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Shares of Priceline Group Inc (NASDAQ:PCLN) are off about 3% on Wednesday morning, brushing the $1,850 area, despite a very solid first-quarter earnings report. To be fair, PCLN stock had run up from $1,738 in the past month, so maybe the market is just selling the news.

Priceline Group Inc (PCLN) Stock Could Fall Another 20%

Yes, the company’s outlook was “softer than expected” and it “missed estimates.” But I’ve always found it peculiar that when a company reports numbers that are great by any measure, the market gets upset about it because of the expectations game. These excuses are nonsense, and one of the things I teach in my stock advisory newsletter, The Liberty Portfolio, is how to ignore noise like this.

The thing is, I still believe PCLN stock has a lot of downside from here — just not because of anything that was in the company’s first-quarter report.

Priceline Q1 Earnings Recap

Just look at this amazing number: Gross travel books were $20.7 billion, up 24% year-over-year, and 27% on a constant currency basis. This is phenomenal. Not only is the absolute gross dollar bookings number staggering — which goes to show how much of the online travel industry PCLN owns — but a 24% increase? For a company this mature?

Gross profit came in at $2.3 billion, which is a 16% YOY increase, and 17% on a constant currency basis. So again, this is solid growth. I also want to add that the year to year currency effects are now declining significantly since the dollar has stabilized over the past year. (By the way, $2 billion of that gross profit came from international operations, which also shows that Priceline is now a global juggernaut.)

The bottom line, which is what we really care about, didn’t disappoint this investor. Net income was $456 million, which was up 22% (or $9.11 per share). Tell me where else you can find 22% organic growth in net income from a company this size. It’s not common.

Two other metrics in Priceline’s earnings report piqued my interest:

  • has 1.2 million properties on its platform. This includes homes and apartments. When one considers how difficult it is to launch an online travel agency, and to see over a million darn listings on, you get an idea about just how powerful this business model can be.
  • Rental car days increased 15% year over year. This even accelerated from 14% in the previous quarter. While rental car companies are struggling because of Uber, can someone guess why Priceline is still booking the darn things? We’ll have to parse the conference call, but my guess is that these are international rentals, where Uber hasn’t gotten a solid foothold.

As for guidance being “soft,” that’s ridiculous. For Q2, PCLN expects …

  • Room nights booked to increase from 16% to 21%
  • Total gross travel bookings up 12% to 17% (add 300 bps for constant currency)
  • Gross profit increases of 14% to 19% (add 300 bps for constant currency)
  • Adjusted EBITDA between $860 million and $905 million.

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