China has been unkind to the U.S. Internet giants Google, Facebook and Amazon.com. But as a growing China spurs demand for foreign travel, a smaller player—Priceline Group—is trying to change the narrative.

Darren Huston, president and CEO of Priceline.com Scott Eells | Bloomberg | Getty Images

Rather than going head to head with homegrown Chinese sites, Priceline has invested more than $1 billion (via convertible debt and equity) in local travel site Ctrip, spent advertising money with search services like Baidu and Qunar to capture consumer clicks, and opened 11 offices in the country.

Read MoreHow Priceline wins in Expedia-Orbitz deal That's helped brighten Priceline's outlook, pushing its stock up 13 percent in the past month and within about 6 percent of its all-time high from early 2014. (The stock has slid this week, including a 1.2 percent on Tuesday, after China surprisingly devalued its currency, raising concerns about future growth.) "Travel is such a huge business in China right now," said Glenn Fogel, head of worldwide strategy at Norwalk, Connecticut-based Priceline. "As countries develop and as people reach the middle class, one of the first things they want to do is travel, and we're helping to make that possible." China is still a small piece of Priceline's overall business. The company doesn't break out its China revenue, but RBC Capital Markets analyst Mark Mahaney estimates that the world's second-largest economy will account for $1.6 billion to $2.6 billion in bookings in 2017, while analysts project the company's total bookings for that year to total $77.3 billion, according to FactSet.



Priceline shares

Priceline's approach marks a clear contrast to that of Google, which exited the Chinese market in 2010 over a protracted censorship battle with Beijing. Google's mobile Android operating system has gained wide adoption in China, but without most of Google's core services. Facebook, meanwhile, is effectively blocked in China, and consumers have plenty of local options for social networking like QQ, Weibo and WeChat. And Amazon has the unenviable task of competing with Alibaba, which controls the Chinese online retail market. None of that makes cracking China any less important, however. Read MoreHow this Chinese company is infuriating investors Ernst & Young predicted in 2013 that more than 500 million Chinese could enter the global middle class within a decade. Research firm Phocuswright estimates gross booking from Chinese online travel will reach $139.9 billion in 2016. Just as Priceline is doubling down in China, its top rival Expedia is scaling back. In May, Expedia sold its majority stake in Chinese online travel site eLong to Ctrip and other companies, netting more than $670 million. CEO Dara Khosrowshahi said on Expedia's second-quarter earnings call that it will continue to invest in China, but more through partnerships. "It is a market that in general has been difficult to reach for Western companies," Khosrowshahi said. "We won't be competing as much as we had in the past for the local Chinese customer, but we are very much involved in both the Chinese outbound business and inbound business going into China as well."

For Priceline, the fourth-biggest U.S. Internet company by stock market value, China is a critical piece to its global growth strategy. The company has spent the past decade building the world's largest network for accommodations, thanks mostly to its 2005 acquisition of Booking.com, located in Amsterdam, followed by the purchase two years later of Bangkok-based Agoda.com. Priceline wants its family of sites to be the go-to location for global accommodations. In the latest quarter, Priceline's international business accounted for 88 percent of total bookings, and excluding the impact of currency, they grew 30 percent, compared with 0.7 percent growth in the U.S. "Priceline has been closely studying China for over a decade and is incredibly smart in how they think about and execute in the market," said Brad Gerstner, a long-time Priceline shareholder and CEO of Altimeter Capital, a multibillion dollar hedge fund focused on technology. Read MoreBooking.com bets on last minute travelers Darren Huston, who took over the CEO role at Priceline last year, said at a Goldman Sachs conference in June that he's spending a lot of time in China and called it a "high priority of mine to have a place in the Chinese market." Unique to China, he said, is that the current growth driver is outbound travel, meaning the most important piece is capturing revenue as people go abroad. Both Booking.com and Agoda.com are supplying inventory to Ctrip, expanding the likelihood that consumers will land on a Priceline property when searching for a hotel.

Priceline increased its stake in Ctrip in May, buying $250 million in convertible debt on top of a $500 million investment last year. Additionally, Priceline has spent $421.9 million on Ctrip stock, and if it converts all debt to equity, could own up to 15 percent of Ctrip. By partnering with Ctrip, Priceline gets a glimpse into how the online travel industry works there and how best to handle customer support. Huston said Priceline now has "400 Chinese multilingual people sitting in Shanghai helping Chinese people travel the world, and we just couldn't have done that before." Priceline said the company has 315 full-time customer service representatives in Shanghai with openings for 200 more. In addition to its stake in Ctrip, Priceline captures Chinese consumers searching for travel on Baidu and metasearch site Qunar as well as smaller travel sites Mafengwo and Qyer. Globally, Priceline is an online advertising machine, spending $2.36 billion in 2014, or 31 percent of gross profit, largely on search. But Priceline has plenty of work to do to ensure that its investments in China pan out. Doug Young, a financial journalism professor at Fudan University in Shanghai, wrote a post for Forbes in May expressing skepticism. "This latest deal looks mildly positive for both Ctrip and Priceline," he wrote. "Though I expect the latter may ultimately be disappointed if and when the investment fails to bring much in terms of new revenue."