An Online Travel Smackdown: PCLN vs. EXPE

The online travel world is getting smaller, as only two players remain and/or own the other smaller players, thanks to the Expedia Inc’s (NASDAQ:EXPE) stupid purchase of Orbitz Worldwide, Inc. (NYSE:OWW).

Online Travel Smackdown: PCLN vs. EXPEThat’s right, I said it!  It was a stupid purchase just like Priceline Group Inc’s (NASDAQ:PCLN) purchase of OpenTable Inc.

But I digress.

Let’s compare these two big shots and see which you should hold in your portfolio, because you should have one. Travel is booming and will continue to boom — and these guys are making tons of money.

PCLN Stock

PCLN stock is up 438% over the past five years. It owns,, KAYAK, and OpenTable, besides its own flagship site. Its numbers are crazy good.

Its fourth quarter delivered $10.7 billion in bookings, a 17% increase year over year, and 23% on constant-currency basis. Gross profit was $1.7 billion, up 26%, and international operations contributed almost 85% of that amount. Net income was $577 million or $10.85 per share, up 23% from last year’s $8.85 per share.

For the full year, net income was $2.8 billion, up 29%.

The balance sheet is insane — $8 billion in cash offset by only $3.8 billion in debt, or about $83 in cash per share. Free cash flow has always been fantastic because there is very little in capital expenditures in a company like this. It was about $2.8 billion last year, up about 25%.

The stock trades at about $1,220, and backing out net cash, you get $1,137 per share. Earnings for the 2015 fiscal year are a bit difficult to peg because of currency issues affecting international companies such as PCLN. Right now PCLN stock is pegged at $58.65, with long term growth at 20%. If so, fair value is $1,172, so the stock is arguably undervalued by a little bit. On 2016 earnings of $67, fair value would be $1,340.

Priceline stock is a great investment for the long term. I hate the OpenTable purchase for $2.6 billion because PCLN paid a zillion times earnings for something that won’t contribute that much profit to the business. Yeah, I know they think it gives them cross-marketing opportunities, but why pay so much for marketing?

EXPE stock

Expedia stock is also worth considering.  It has 14 websites and is arguably more diversified than Priceline stock. The 2014 fiscal year was a great one for Expedia stock with gross bookings up 28%, revenue up 21%, U.S. bookings up 29% and U.S. revenue up 24%. International revenue rose 11% on an 18% increase in bookings.

Expedia earnings ran into trouble in the aggregate, however, due to some really awful currency effects. Backing those out, EPS was $3.96, up 23% for 2014. Fourth-quarter earnings actually fell 7% from the previous year, thanks to the currency impact.

Expedia is also investing a lot of money in all of its websites, and is losing money on its travel unit, which is for China travel.

The company has $2.1 billion in cash, but $1.7 billion in debt, giving it a net cash position of $3 per share. The stock trades at $92, and backing out cash, at $89 per share. Long-term earnings growth is pegged at 16%. On 2015 earnings of $3.90, that puts fair value at $62.50, and on 2016 earnings of $4.70, fair value is at $74.

Either way you look at it, Expedia is significantly overvalued.

I also hate the Orbitz purchase, which set them back more than $1 billion. Stupid. Again, its about cross-marketing, and I think that’s just plain dumb. Nobody uses Orbitz. That’s why it makes no money.

If cross-marketing were such a great idea, you’d think that the multitude of online assets owned under all the various tracking stocks of Liberty Media Corp (NASDAQ:LMCA) would be hyping each other constantly. There’s none. If John Malone and Greg Maffei don’t do it, then don’t do it.

PCLN vs. EXPE: The Verdict

You either buy Priceline here, or if you can’t afford it, do what I do and sell naked puts six months out that are $150 or more out of the money and collect the big premium.

Lawrence Meyers holds PCLN Jul$1,030 naked puts.

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