Priceline’s shares underperformed the benchmark after reporting +18% growth in travel bookings, +19% room night growth and +18% growth in adjusted EBITDA. Despite those strong results, we think most of the weakness is attributed to the Company’s guidance of a high-single-digit growth rate in bookings. Further, growth among Priceline’s largest peers in the online travel agency industry has slowed over the past few quarters, leading many to think the industry is slowing. Though we trimmed our position earlier in the year, we continue to think the OTA industry remains underpenetrated, particularly international markets, where lodging supply is more fragmented. We also think some of the Company’s peers, particularly in “meta-search,” have failed to innovate and have resorted to competing directly with their OTA customers - including Priceline’s properties – and it represents an unsustainable strategy. As such, Priceline is in the process of shifting advertising spend – a critical component of demand generation – away from metasearch providers and towards alternative marketing channels, in order to drive better profitability from bookings growth. While this might be having a near-term effect on Priceline’s booking growth, we also think the Company’s year-ago comparable of over +30% represents a temporary “optical” hurdle. However, we continue to see Priceline as capable of reaccelerating to a double-digit growth rate in an industry that, overall, is taking share of travel spending.
From David Rolfe (Trades, Portfolio)'s fourth quarter 2017 shareholder commentary.
