Priceline.com is running full-steam ahead. The online travel agency has developed impressive European operations, expanded rapidly to Asia, and should gain more business in U.S. from budget travelers -- squeezed by high energy prices and the credit crunch -- because of the company's innovative "Name Your Own Price" service.
All of these factors may help Priceline beat profit forecasts when it reports first-quarter results May 8. Moreover, rival online travel agency Expedia bested the average of analysts' estimates by a penny per share when it posted its first-quarter results May 1. That's a sign that Priceline is poised for a strong quarter as well. Analysts, on average, estimate that Priceline will earn 59 cents per share in the first quarter, according to Thomson Financial.
Alas, Priceline's fine prospects may already be baked into the share price. The stock (symbol PCLN), which closed at $126.70 on May 2, has gained 103% over the past year. It trades at 25 times the $5.11 per share that analysts expect the company to earn in 2008. By contrast, Expedia, which closed at $24.83, trades at 15 times estimated 2008 earnings of $1.45.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
At current prices, Priceline is not compelling, says Citigroup analyst Mark Mahaney. He downgraded the stock to "hold" from "buy" on May 1. "This is primary a valuation call," he said, noting that Priceline's fundamentals were still strong.
Priceline's chief pitchman, actor William Shatner, gets a lot of attention, but Priceline's real star is its international operations.
The transition of Priceline into an international player started in 2004 when the company bought England-based Booking.com. Last November, Priceline acquired Agoda, an online travel company that focuses on discount hotel bookings in Asia. The company's international business represented about 55% of total bookings in 2007 and contributed more than two-thirds of gross profit (sales minus cost of goods sold).
Most of Priceline's international business comes from Europe. But the mix should change with the addition of Agoda.com. The company expects that international operations will represent a growing percentage of bookings and profit throughout 2008 and beyond.
An emphasis on overseas travel market plays to Priceline's strengths. First, the size of the international travel market is substantially larger than that within the U.S.
Second, the growth rates of international online bookings have exceeded those of the U.S. In the fourth quarter of 2007, international bookings on Priceline grew 90% year-over-year, when you exclude the impact of foreign currency, compared with 24% for U.S. operations.
Finally, Priceline's online reservation system is more appealing to small chains and independent hotels more commonly found outside of the United States. The lodging business in Asia and Europe is fragmented compared with the business in the U.S., where large chains dominate the market. Priceline aims to be the top hotel service provider in Europe, and will try to expand services to more markets from that European base.
The overseas opportunities have not gone unnoticed. Expedia is getting more competitive in Europe because of aggressive advertising, Mahaney says. He sees clear signs of weakness in the U.K. travel market, and that increases the possibility of a slowdown in continental Europe. Such obstacles will slow Priceline's expansion in those markets.
Look for Priceline shares to run up if the company beats earnings estimates when it reports May 8. If you already own the stock, that could be a good opportunity to trim positions. If you're a long-term investor, wait for a better entry point.
-
Do You Really Need That Wine Cellar?Home Features Wine cellars are a popular feature in high-end houses. Will installing one in your home increase its value, or would you be better off with a cheaper solution?
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
My Three-Day Rule for Investing: And If it Applies NowStock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
