Why Priceline Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of discount travel website priceline.com (Nasdaq: PCLN  ) plunged 15% today after its quarterly results and outlook came in below Wall Street expectations.

So what: Priceline's second-quarter profit managed to beat estimates on strong bookings, but a small miss on the top line -- revenue of $1.33 billion versus the consensus of $1.35 billion -- coupled with downbeat guidance for the current quarter, reinforces concerns over its exposure to weakening conditions in Europe. In fact, close rival Orbitz Worldwide (NYSE: OWW  ) also issued a gloomy outlook today as the European turmoil weighed on travel plans, giving investors little hope for a near-term turnaround in the space.

Now what: For the third quarter, Priceline now sees adjusted EPS of $11.10-$12.10 on revenue of $1.58 billion-$1.67 billion, well below Wall Street's view of $12.82 and $1.8 billion, respectively. "Given the uncertainties surrounding worldwide economic conditions, particularly in Europe where much of our business is concentrated, the variability around our guidance is greater than as usually the case," CFO Daniel Finnegan said in a conference call with analysts. Of course, with the stock now off more than 25% from its 52-week highs and currently trading at a reasonable forward P/E, much of that macro uncertainty might already be baked into the price.

Interested in more info on priceline? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of priceline.com. Motley Fool newsletter services have recommended buying shares of priceline.com. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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