Samantha Fischler is a Financial Analyst at I Know First.

Priceline Group Stock Prediction: Prices Up Well Against its Competitors

Summary

The Priceline Group’s websites and leadership

The Priceline Group’s Q2 earnings report was released on August 4 with PCLN exceeding expectations

Many customers turn to Priceline due to its lack of booking fees

Priceline is breaking into the Chinese market through Chinese booking company Ctrip

I Know First is bullish on PCLN

What does the Priceline Group do?

Want to book a hotel anywhere in the world, but don’t want the hassle of scrolling through different websites to find the best value accommodations? The Priceline Group can hook you up at over 910,000 accommodations worldwide. Headquartered in Norwalk, CT, the Priceline Group (PCLN) is a company that helps users book their traveling needs at discounted rates. Priceline Group delivers its services to its customers primarily through 6 websites: booking.com, priceline.com, agoda.com, kayak.com, rentalcars.com, and opentable.com. The Priceline Group’s services are available in over 220 countries across the globe and are available in over 40 languages. According to the Priceline Group’s website (pricelinegroup.com), “With over $55.5 billion in gross bookings in 2015, The Priceline Group is the world leader in online travel & related services.”

Back in April, a highly publicized internal investigation about then-CEO Darren Huston’s personal relationship with a female employee revealed that Huston violated the company’s code of conduct. Huston subsequently resigned and Jeffery H. Boyd stepped up as interim-CEO of the Priceline Group. Boyd has been on Priceline’s board since 2001 and has served as Chairman of the Board since January 2013. He served as Priceline’s president and CEO from November 2002 until November 2013. To add to his impressive resume, Boyd was also a partner at the law firm of Robinson & Cole and an associate at Sullivan & Cromwell.

Q2 Earnings

Q1 expectations? The Priceline Group surpassed them. In the Q1 earnings call, the company warned investors of the rocky-road and difficulties that lay ahead for the company. The Priceline Group relayed certain expectations for Q2 to investors when it released its Q1 earnings. Priceline expected a year-over-year increase in room nights booked of between 15%-22%. The company expected a YOY increase in revenue of about 7%-14%.

Q2 expectations? Despite an increase in international terrorism and other conditions that one would expect to take a toll on a travel company, the Priceline Group thrived and surpassed analysts’ expectations. Analysts expected The Priceline Group’s revenue and EPS to take a big hit from the effects of Brexit and lowered their expectations. Brexit sent the value of many currencies throughout the world on a downward spiral. Considering the fact that the Priceline Group generates about 2/3 of its revenue from European markets, Brexit could have had devastating effects, but fortunately for the Priceline Group, it did not, although revenue was slightly lower than analysts expected. Revenue was expected to skyrocket by 14% up to $2.6 billion. Revenue fell slightly short of projections, instead coming in at about $2.56 billion. EPS for Q2 were $13.93 per share, opposed to the $12.69 that analysts had projected. Priceline announced in May that it expected earnings per share to be approximately between $11.6 and $12.5. Additionally, according to interim-CEO Jeffery Boyd, “Globally, our accommodation business booked 141 million room nights in the second quarter, up 24% over the same period last year. We believe this consistent growth demonstrates the strength of our brands, the value of a diversified global footprint and solid execution by our brand management teams.” This too exceeds the expectation that the company put forth with the release of its Q1 earnings.

After the Q2 earnings report, PCLN jumped from closing at $1359.99 per share the day of the report to closing at $1414.22 per share the day after earnings were announced. There was a 5% increase just in after-market trading when the reports were released on August 4.

Source: Google Finance

No Booking Fees

Among the information disclosed in the Q2 earnings was the 19% year-over-year bookings growth that PCLN experienced. Despite relatively low domestic bookings, the international bookings more than made up for it. Domestic bookings declined by 8%, while international bookings spiked 16% in Q2.

One thing that the Priceline Group is resolute in is no booking fees. Sites such as Travelocity charge fees anywhere between $6-$10 on average for use of their services. The Priceline Group on the other hand is resolute in maintaining their booking fee free business model intact. This draws many customers to Priceline’s slew of websites to avoid the fees, no matter how small the fees may be. A competitor to Priceline’s booking.com, HomeAway, recently instated a fee for bookings which will turn many HomeAway users to booking.com to avoid the fees. HomeAway’s fee is quite hefty at 6% of the rental price before taxes and refundable deposits.

In another attempt to keep up with increased competition from companies like Expedia and AirBNB, the Priceline Group has had to ramp up their advertising. Specifically, Priceline spent more money on Facebook’s targeted ads and will continue to do so in Q3. This counteracts hotels’ use of direct ads to entice consumers to come directly to their websites and avoid booking.com’s cut of all bookings done through their website.

Let’s Take a Trip to the C!

The Priceline Group holds a stake in a major competitor in the Chinese market, Ctrip. This past quarter, Priceline added to their original investment of $500 million, bringing their total stake in the company up to 1 billion dollars. Additionally, Priceline has started marketing their own website, booking.com, within China, targeting an increasingly large middle class. In 2015, China experienced an increase of 12% in outbound tourism from the previous year. It is expected that the trend of increased Chinese outbound tourism will continue due to more relaxed policies regarding visas, an increasing number of international flights leaving from China, and the ability of more civilians to afford to travel abroad. This projection for the future of Chinese outbound tourism shows potential for a company such as the Priceline Group to reap a great profit as the Chinese travel market grows.

Expedia, on the other hand, formerly held a stake in Chinese travel site eLong Inc, but ultimately sold their stake (part of which was sold to Ctrip!). Expedia’s investment wasn’t profitable, but the company’s work is not done in China. Expedia has decided to work on bookings for Chinese citizens looking to travel abroad.

Conclusion: Where is the Priceline Group Heading?

Where is the Priceline Group heading? As Boyd puts it “As we move into our peak travel season, our teams are focused on delivering an exceptional customer experience by offering the best selection and competitive pricing to our customers around the world.” With a solid stake in Ctrip, Priceline will likely continue to penetrate the Chinese market. This is in addition to its success in the European market and all over the world, due in part to its lack of booking fees and ability to track down the lowest prices. After two consecutive better-than-expected earnings reports, the Priceline Group will likely continue this trend of strong growth.

This is in accordance with the I Know First algorithm which is currently bullish on PCLN and forecasts that their stock will continue to soar. This is modeled in the forecast below. I Know First’s algorithm forecasts how stocks are going to perform for 3 days, 1 month, 3 months, and a year. In the case of the Priceline Group (PCLN), the middle row represents the signal strength and the bottom number represents the predictability indicator, the historical correlation which is heavily weighted on the algorithm’s recent predictions. To learn more about how I Know First’s algorithm operates, click here.

In a prediction dated May 10, 2016, the I Know First algorithm forecast that PCLN would grow within the 3-month period. PCLN indeed showed strong growth, returning 12.96%.