Is priceline.com Really as Great as the Market Thinks?

It's easy to be bearish about Priceline.com  (NASDAQ: PCLN  ) . The online travel website has had a staggeringly successful series of years, but this might lead some to worry that it has reached its peak. After all, as the saying goes, what goes up must come down.

But upon closer examination, it becomes clear that Priceline has a stalwart financial engine supporting its $800+ share price. Let's see exactly what makes this company tick, and why its stock market triumphs aren't just dumb luck.

Today hotels... tomorrow the world!
Priceline doesn't just want to simplify the process of picking a hotel. This company wants to take over the very concept of travel, and be the only stop for anything you might need on a trip. Cheap flight? Done. Rental car? Bingo. Affordable hotel room that isn't covered in vermin? Check and double check.

Becoming a synonym for "cheap travel" is a tall order to fill, but so far Priceline has successfully done so, thanks in part to a number of well-timed expansions and mergers. Since its inception in 1998, the company has broadened its scope of influence to include rentalcars.com, hotel booking website Agoda.com, and Booking.com. According to Priceline's 10-K, Booking.com has generated the majority of the company's international sales, which tally up to a whopping 92% of Priceline's consolidated operating income. That's pretty impressive.

As far as mergers go, Priceline is no stranger to swallowing up its competition. The company most recently inked a deal to buy rival travel website Kayak for $1.8 billion. Kayak's popular search engine, which aggregated travel results from other websites into one list, is an excellent asset for Priceline to have, as it will help make the company's search capabilities even more efficient.

To thine own financial statements be true
Since 2008, Priceline has seen its annual revenue shoot up an astounding 174%, while still maintaining dazzling profit margins. The company's operating margin for 2012 was 34%, up from 32% the year before. Not only is Priceline raking in major revenue, but its operations are efficient enough that the company can take a healthy percentage of that money as profit.

Additionally, Priceline has seen its free cash flow increase by a whopping 482% since 2008. The company brought in more than $1.7 billion in cash last year, which certainly helped make the Kayak merger possible. Despite these epic financial stats, Priceline's P/E is still a relatively modest 28. That may be more than the industry average of 11.99, but rival Expedia looks bloated by comparison at 45.06. Priceline's ability to keep a healthy portion of its earnings as profits keeps its P/E from similarly shooting into the stratosphere.

Care to check in?
Priceline has made itself worth a ton of money by offering the cheapest deals available. Despite its remarkable price, the company's P/E is still not overblown, and its margins and cash are more than healthy. It may seem crazy for an online travel company to be worth more than $800 a share, but Priceline has the financial guts and business sense to back up a spectacular share price.

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