Priceline Group Inc. (PCLN, Financial) reported its third-quarter earnings Monday, and the results were decent from the investors’ perspective. But the shares of the online travel giant tumbled more than 8% on Tuesday morning which might look a bit surprising. Analysts were not happy with the guidance meted out from the company corner on the fourth quarter. Let’s quickly peek into the financial playbook of the online travel behemoth that also owns Booking.com, Kayak and OpenTable to decipher the major highlights of the third quarter earnings.
The number crunching exercise begins
Priceline reported earnings of $22.16 a share and revenue of $2.84 billion during the third quarter. Thomson Reuters had consensus estimates of $21.11 as earnings per share and $2.83 billion in revenue. Therefore, both earnings and revenue beat the analysts’ consensus and was far better from $17.30 a share as earnings and $2.27 billion in revenue posted in the third quarter of last year.
Net income for the quarter came in at $1.2 billion, which was an increase of 29% when compared to a year ago period. Revenue was driven by improvement in international bookings which increased 32% in the third quarter.
In the third quarter the gross travel bookings inclusive of all taxes and fees came to $13.8 billion, a 28% jump from the year earlier.
Priceline President and CEO Darren Houston stated during the earnings call, “The Priceline Group finished the summer travel season with market leading growth and strong operating performance. Globally, our accommodation business booked 95 million room nights in the third quarter, up 27% over the same period last year. Booking.com continues to extend its lead as the world’s largest brand for booking accommodations, with over 540,000 hotels and other accommodations on the platform, up 52% over last year. Our rental car business grew rental car days by 18% over last year, acceleration from 14% in the second quarter, led by improving results at both rentalcars.com and priceline.com. Our brands are performing well in a very competitive marketplace and against a mixed macro-economic backdrop, particularly in Europe. We intend to continue to make the smart investments for future growth, including broadening our offerings, building our brands and providing a superior experience to our customers, pre- and post-reservation, across all devices.”
Investment in growth has hurt the quarter earnings
Priceline has been preparing for a battle in China, and has recently purchased a minor stake in Chinese online travel site Ctrip (CTRP, Financial) which is one of the several investments done by the group to boost its bottom-line in the long-term.
Also the company bought online reservation site OpenTable earlier this year for $2.6 billion which is a huge cost of acquisition borne by Priceline. However, the company does see huge potential in the restaurant-reservation service OpenTable, which it acquired this summer. To explain this further, the CEO stated, “We are really bullish on, of course, OpenTable and its opportunity to add to us longer term. … We're also doing a lot on the mobile front.”
Headwinds affect the future guidance
On the company’s earnings call, CFO Daniel Finnegan said the company had hedged against fluctuations of the euro or the pound against the U.S. dollar for the fourth quarter. “European travelers facing the stronger dollar often 'trade down' in terms of what they are willing to spend in dollars for a hotel room, to try and keep the cost of the trip consistent from a euro perspective,” he said.
He further added that Priceline would take a hit in the fourth quarter from a decline in its “Name-Your-Own-Price” service, and it plans to invest more in advertising and other expenses to support its brands.
The company gave guidance for the fourth quarter of $9.40 to $10.10 in earnings per share, and it expects a year-over-year increase of 11% to 18% in revenue. This falls short of the consensus estimate that stands at $10.91 in earnings per share and $1.91 billion in revenue.
Final word
Priceline is facing the current pocket of turbulence in Europe which will hit its top and bottom lines in the holiday season due to its slow economic recovery and the weakening of the euro. Analysts’ are concerned about Priceline’s pace of growth in its key European market which is a concern raised by the company as well. Since the outlook of the company also looks to be on the low, investors are worried whether they should hold on to the positions taken in the stock. It's best to stay tuned and watch how the stock moves in the next few months before taking a concrete decision.
