Priceline Is the Best-Positioned Online Travel Company

That said, we don’t expect the change to alter our existing fair value estimate much, as Momondo represents only 1.4% of our consolidated sales forecast in 2018. Although Priceline shares have now approached fair value, we wouldn’t require much margin of safety, as we maintain our long-held view that Priceline is best-positioned for long-term growth within the attractive online travel industry, which we expect to grow around high single digits annually on average over the next several years. We think investors seeking travel exposure should review narrow-moat TripAdvisor, which trades at an attractive discount to our $67 fair value estimate.

As we discussed when this deal was proposed in February, we see the purchase of Momondo as a good use of capital for several reasons. First, it will strengthen the company’s presence in Europe and Africa, where Priceline’s existing meta platform, Kayak, is not as strong as Trivago (Expedia-owned). Second, we believe Priceline will be able to accelerate Momondo’s growth using its market-leading technology and marketing expertise. Additionally, we think the $550 million all-cash deal is a good price, as it represented a five times trailing 12-month, or TTM, sales multiple at the time of the announcement, for a company that should increase revenue above 30% annually for the next few years. This compares with the 7.7 times, 6.1 times, and 7.6 times TTM sales multiples that narrow-moat Expedia, Priceline, and Ctrip respectively paid for metasearch companies Trivago (announced December 2012), Kayak (November 2012), and Skyscanner (November 2016).

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