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Earnings Preview:

Read MoreHide Full Article Inc. is scheduled to announce its third-quarter 2012 results on November 1, 2012. We witness no movement in analyst estimates in the build-up to the release.

Prior-Quarter Synopsis

Priceline’s second quarter was quite good, with earnings beating the Zacks Consensus by 51 cents, attributable to strong revenue growth, strong international bookings growth, as well as higher margins.

Revenue for the quarter was up both sequentially as well as from the year-ago quarter, driven by strong volumes across the business, with hotel room nights, rental car days and airline tickets, all growing sequentially. Room nights and rental car days were also up strong double-digits from last year, although airline tickets were flat.

The gross margin was also up 402 basis points (bps) sequentially and 774 bps year over year, attributable to higher volumes in the international business, helped by better pricing in the U.S.

(Detailed earnings results can be viewed in the blog titled: Priceline Shares Feel Macro Pressure)

Third Quarter Guidance

Priceline expects total gross bookings to grow in a range of 10–18% year over year, with international bookings growing 12–20% (up 23–31% on local currency basis) and domestic bookings growing around 5%. This is expected to yield a year-over-year revenue increase of 9–15% ($1.63 billion at the mid-point).

Pro forma EPS is expected to be in a range of $11.10–$12.10, while GAAP EPS is estimated in a range of $10.21 to $11.21.

Agreement of Analysts

Out of the 11 analysts providing estimates, none revised their estimates for the third quarter as well as for fiscal 2012 in the last 30 days.

Priceline’s revenue has increased double-digits over the past few quarters and the analysts expect the trend to continue in the upcoming quarter. They expect a healthy third quarter, with earnings coming in at the higher end of the guidance, on strong room night growth, industry data and strong results from Expedia Inc. (EXPE - Free Report) .

The analysts see potential for accelerated share gains, helped by the extension of and Agoda brands into new markets. They contend that International bookings growth will remain strong in 2012 and will continue to take meaningful share of the European hotel market.

However, the analysts remain cautious about the higher domestic airfares, weakening hotel metrics and overall headwinds in Europe. They expect third quarter guidance to be impacted by unfavorable foreign currency movements and macro headwinds.

Magnitude of Estimate Revisions

In the past 30 days, the Zacks Consensus Estimate remained unchanged for the third quarter as well as for fiscal 2012 at $11.47 and $28.85, respectively.

Over the 90-day period, the Zacks Consensus Estimate was down 87 cents for the third quarter and by $1.05 per share for fiscal 2012.

Our Recommendation

We expect Priceline to report a decent third quarter, with strong execution and strength in the hotel business, driven by share gains and new businesses.

Though the overall trends look extremely strong, we remain a little concerned about the headwinds in Europe. We also believe that Airline tickets will likely remain a weak spot due to continued capacity cuts and price hikes.

Longer term, we believe that Priceline remains well positioned to sustain its growth as consumers now prefer the Internet for making travel plans and seek the benefit of discounted prices offered by ecommerce companies like Priceline, rather than the time consuming offline ways.

Additionally, Priceline is expected to continue investing in the business to push growth further and especially to continue its international expansion strategy. This is likely to result in some downward pressure on earnings.

Priceline retains a Zacks #4 Rank, which translates into a short-term Sell rating.

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