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Why Is Priceline (PCLN) Up 3.6% Since the Last Earnings Report?

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It has been about a month since the last earnings report for The Priceline Group Inc. . Shares have added about 3.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Priceline Stock Declines Despite Q1 Earnings Beat

Priceline’s first-quarter 2017 earnings beat the Zacks Consensus Estimate by 11.9% and were better than management’s guidance of $8.45 at the mid-point.

Revenues

Priceline reported revenues of $2.42 billion, up 3% sequentially and 12.6% from the year-ago quarter. Revenues however missed the Zacks Consensus Estimate by a slight margin.

Revenues by Channel

Priceline generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 18/74% in the first quarter (previous quarter split was (19/74%).

Merchant revenues were up 0.5% sequentially but down 6.3% year over year. Agency revenues increased 2.8% sequentially and 19% year over year.

Advertising & Other revenue was up 11.7% sequentially and 7.9% from last year. This is basically non inter-company revenues from Kayak and OpenTable.

Room nights, rental car days and airline ticket volumes were up a respective 34.1%, 32.9% and 12.5% sequentially.  On a year-over-year basis, room nights were up 27.4%, rental car days increased 15.4% while airline ticket volumes were down 2.1%.

Priceline’s room night growth is attributable to its geographically diverse inventory and brand recognition that tends to balance out macro uncertainties related to any one market, as well as growing competition from local and international players. The company saw average daily rates for accommodations or ADRs growing 1% year over year. Rentalcars.com also did quite well but there was some softness in ticket volumes.

Bookings

Priceline’s overall bookings were up 36.9% sequentially and 24.2% (27% in constant currency) year over year, better than guided.

Merchant bookings were up 19.3% sequentially and 20.2% year over year. Agency bookings increased 39.8% sequentially and 24.8% from the year-ago levels.

Margins and Net Income

Priceline reported pro forma gross margin of 96.5%, down 45 basis points (bps) sequentially but up 247 bps year over year.

Owing to the nature of its business and the mix of agency versus merchant revenues, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Priceline’s gross profit dollars were flat sequentially but up 16% (17% in constant currency) from last year and higher than the guidance. International gross profit grew 17% (19% on a constant currency basis). U.S. gross profit grew 6% from last year.

Priceline’s adjusted operating income was down 38.8% sequentially and 7.3% from $643.1 million reported last year. Operating margin of 24.8% declined 1065 bps sequentially and 516 bps from the year-ago quarter.

Priceline’s GAAP net income was $455.6 million or $9.11 a share, compared with $673.9 million, or $13.47 a share in the December quarter and $374.4 million, or $7.47 a share in the year-ago quarter.

Balance Sheet

Priceline ended the quarter with cash and short term investments balance of $5.4 billion, up $1.1 million during the quarter. Priceline generated $380.6 million of cash from operations. It spent around $70.5 million on capex and $209.8 million on share repurchases.

At quarter-end, Priceline had $7.3 billion in long-term debt with the net debt position being $4.9 billion compared with a net debt position of $4.09 billion in the previous quarter.

Guidance

For the second quarter of 2017, Priceline expects room nights booked to grow 16-21% and total gross bookings to grow 12-17% year over year (15-20% on a constant currency basis).

Notably, this guidance indicates a slowdown in growth rates of room nights booked and total gross bookings as it is the lowest compared to the last three quarters. Investors seem to be worried about this overly conservative guidance as reflected in the 3.46% depreciation in the stock price in afterhours trading.

Priceline expects gross profit dollars to increase 14-19% (17-22% on a constant currency basis), with adjusted EBITDA in the range of $860-905 million.

Pro forma earnings per share (EPS) are expected to come in the range of $13.30-$14.00. GAAP EPS is expected in the range of $12.55-$13.25.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

The Priceline Group Inc. Price and Consensus

 

VGM Scores

At this time, the stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with an 'D'. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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