Priceline Sell-Off a Good Buying Opportunity
Lower near-term U.S. bookings don’t dent our view of narrow-moat Priceline as a top investment idea, writes Morningstar’s Dan Wasiolek.
Narrow-moat
The firm enjoyed strong constant-currency international bookings (89% of total bookings) growth of 25% (versus 16%-23% guidance) and agency revenue margins (metric measuring international profitability and brand strength) of 18.3% (versus 17.8% the previous year). This drove total revenue growth of 9.4% (versus 1%-8% guidance) and gross profit growth of 12.5% (3%-10% guidance). That said, the fourth-quarter outlook for a decrease in U.S. bookings (11% of total bookings) of 5%-10% represents a meaningful deceleration from the 2.5% decline (versus flat guidance) reported in the third quarter. This stems from the continued weakness of the company’s Name Your Own Price brand, as strong industry hotel occupancy and lower airline fares affect bookings growth but not gross profit.
While the U.S. booking update is disappointing, Priceline reports international and U.S. bookings based on where the brand is located and not where the booking is oriented from. Therefore all transactions through booking.com (whether made from the U.S. or elsewhere) are classified as international, and the company noted they are pleased with the U.S. performance within the booking.com brand. Additionally, U.S. bookings continue to become a smaller piece of the overall business; as a result, Priceline will not provide U.S. bookings metrics beginning in 2016, while continuing to provide revenue and gross profit for the region.
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