Priceline Group Inc (NASDAQ:PCLN) shares are up more than 22% since the start of 2017. The Priceline stock price started falling after the second quarter results. However, we believe the recent dip is a buying opportunity.
Priceline posted a solid second quarter. Earnings in the period increased by 20% year-over-year while revenue in the period jumped by 18.4%. Room nights surged 21% in the period. But the stock failed to gain value after the earnings report because the Street didn’t like Priceline’s guidance. Priceline expects to earn $32.4-$34.1 per share in the third quarter, slightly below the consensus forecast of $34.14. But we believe that the market is overreacting to the guidance. Priceline has a history of giving conservative guidance. The company has beaten its own revenue and EPS guidance in the last 8 quarters consecutively.
Priceline has strong growth prospects because more and more people are booking flights and hotels online. Priceline is heavily spending on advertising and marketing, but its profitability and margins are still improving. Gross profit increased by 21% in the second quarter, while Adjusted EBITDA grew by 20% year over year. Operating margins in the quarter came in at 29.5% of sales — up 80 basis points from the previous quarter.
Priceline’s biggest strength is Booking.com, which is intensely popular among tourists worldwide. Booking.com added about 150,000 properties in the second quarter, ending the period with a total of 1.3 million properties, which shows an annual growth of 39%. No platform matches Booking.com currently, and analysts think that the platform will continue to grow as hotels and tourists prefer to use websites which are famous and have a strong rapport. Priceline also acquired famous travel platforms like Kayak, OpenTable and Momondo.
Priceline has a massive penetration in the market when compared with industry giants. As of the end of June, Priceline has 600,000 hotel properties registered on its network, compared to 375,000 hotels registered on Expedia. According to App Annie, Priceline’s mobile app is one of the most popular apps in 68 countries, while Expedia and TripAdvisor apps are famous only in 18 countries. In the second quarter alone, over 170 million rooms were booked online on Priceline, versus 80 million bookings done on Expedia in the same quarter.
Priceline is also listed on the famous Goldman Sachs’ VIP list of stocks. Goldman’s VIP list has outperformed S&P 500 by a clear margin in 2017.
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