Have you had a tough time in the market recently? Maybe you should call in the priceline negotiator. Looking at the past year, spokesperson William Shatner has done a great job. Let’s see if the stock will have a bigger discount than a hotel room booked through the priceline.com site.
Priceline has had one of the most bullish performances as of late. The industry of online travel has had a pretty decent run as well. The use of online services to book travel related services has become as natural and easy as purchasing music online. The wide adoption of mobile apps that can help you plan a vacation while on the go has shown how far the industry has come. With the dust settling after the recent recession, travel has picked up again. The difference now is that consumers are in the mindset of getting the maximum value for their discretionary spending. This has helped the online travel industry since the majority of consumers feel that they can get the best deal for travel online.
One of the reasons Priceline has performed very well is that their major source of revenue is hotel bookings. Despite tighter consumer spending trends, people still go on vacation. However instead of flying to a destination, many take trips closer to home but still need a place to stay. The growth in hotel bookings has far outpaced any other online travel transaction. As a matter of fact, most of the upside price movement seen in the industry stocks have come from news of increased hotel bookings. Priceline also benefits greatly from its international businesses. Priceline’s bookings.com dominates the European online travel market. Priceline’s Agoda.com has been growing in the Asia-Pacific market as well.
A smaller segment of hotel bookings that is in competition with Priceline, is personal residence rentals. These are the companies that allow people to rent out their homes for travelers. This style of vacation rental has grown as of late, as it is viewed as great way to save money and have a more “authentic” as opposed to “touristy” experience. It is also a great option for those travelling in groups, such as families with children. Websites such as airbnb.com and homeAway.com have been at the forefront of this business model.
Is Priceline stock as good as a deal as their travel bargains are? Let’s take a look at their direct competition and one of the newcomers that deserves some attention as it represents a possible thorn in the side of hotel bookings. Here is some data for Expedia and Orbitz. HomeAway will be included as the disruptive business model for comparison.
| Priceline | Expedia | Orbitz | HomeAway | |
| Market Cap | 65.47B | 10.28B | 0.975B | 4.11B |
| Forward P/E | 25 | 18 | 19 | 52 |
| Profit Margin | 28.0% | 4.9% | 19.5% | 7.3% |
| Return on Assets | 17.4% | 4.3% | 4.2% | 3.1% |
| Return on Equity | 35.7% | 8.6% | N/A | 4.3% |
| Revenue | 6.44B | 4.77B | 0.847B | 0.327B |
| 52- Week Change | 86% | 25% | 131% | 51% |
*Data from Yahoo Finance
If you were long any of these names you are probably pretty happy with your trades. What’s evident is that Priceline is the industry leader. When you look at their efficiency of their business model as viewed through the returns on assets and return on equity it is apparent that they are doing something right.
Earnings for the Expedia, Orbitz, and HomeAway have already been released. All of the earnings reports point to growth in hotel bookings. Perhaps some of the lofty expectations of the industry leader are built into the current price. However, the stock is slightly lower than its 1313 recent high, so perhaps a strong earnings report can propel it there and higher. Either way there is the potential for some fireworks. So either you are long this industry leader and believe that its earnings will grow, or you are an option player and simply care about how it can move around the earnings. We looked at some of the fundamental reasons behind Priceline’s stock price now let’s get to the statistics.
Assuming Priceline is at USD$1280:
The average move in either direction has been $85.90. As of today the market is pricing in $73.40 move. The largest move around earnings in recent history has been $112.70 on the upside and $242.90 on the downside. If you look at arithmetic averages of the moves around earnings it would be about $35. From the past 13 earnings reports, the stock has closed up for the week 10 times. Hopefully you are doing some successful bidding (and asking) in your options trades. These statistics can help you put a frame of reference around your trades.
Good luck and trade rationally.