Priceline, Expedia, or Orbitz: Which Is a Buy After Earnings?

Priceline (NASDAQ: PCLN  ) , Expedia (NASDAQ: EXPE  ) , and Orbitz (NYSE: OWW  ) are three well-known and widely used online travel sites in the U.S. However, despite this being a fast-growing industry, each have seen sizable stock losses in recent months. After seeing first-quarter earnings and considering these losses, are any or all an investment right now?

The online travel industry at a glance
The online travel industry has seen its share of ups and downs this year, and although some companies are performing better than others, all three remain significantly off their 52-week highs.

Company

Percent Off 52-Week High

Priceline

17.6%

Expedia

16%

Orbitz

45.1%

Clearly, Orbitz is the laggard, and it's the smallest of the bunch, with annual revenue of $854 million. While Orbitz had a decent 2013, with revenue growth of 9%, its low-to-mid-single-digit growth guidance for 2014 -- excluding the acquisition of Travelocity Partner Network -- falls below the double-digit growth rate of the worldwide online travel industry.

At 15.2 times forward earnings, Orbitz is rather cheap. But this is an industry that is measured in large part by total bookings as an indication of future performance, and investors have been a bit alarmed that its first-quarter bookings rose just 3%.

In contrast, Expedia saw its bookings grow 29% to $12.6 billion, which was a rather impressive acceleration over the fourth and third quarter's 21% and 15% respective growth rates. Expedia is a company that looks to be moving in the right direction, and at 15.7 times forward earnings, it can be purchased for near the same price of a lagging Orbitz.

Priceline is the largest company within the space, and at 18 times next year's earnings, it is a bit more expensive than its peers. However, rightfully so, as this is a company that's one step ahead of all its competitors. Its gross bookings rose 34% year over year. And while the majority of Expedia's growth comes from U.S. markets, Priceline is surging in a much larger and faster-growing international market.

In fact, Priceline is hardly a U.S. online travel company, as $10.6 billion of its $12.3 billion in total bookings came from international markets, which can be attributed to Booking.com. Also, mobile is growing fast in international markets, as Booking.com's mobile accommodation bookings grew 160% last year to $8 billion, a market that's expected to keep surging.

Two metrics identify a clear winner
Priceline, Expedia, and Ortbitz trade in a range between 15 and 18 times next year's earnings, which is fairly consistent and does not identify one company as significantly more valuable than its peers. However, two metrics do identify clear value.

Company

Return on Assets

Operating Margin

Priceline

18.1%

35.6%

Expedia

3.5%

9.9%

Orbitz

3.8%

8.9%

Priceline is far more effective than either Expedia or Orbitz in making good investments and acquisitions and in creating profits from operations. Investors might wonder how Priceline is so much more efficient, and the answer can be traced to its international dominance.

Priceline has made many successful acquisitions of international companies, which is one reason its return on assets is so high. From those international markets, Priceline created 94% of its consolidated operating income last year.

The international markets are much more fragmented, and Priceline remains one of the few dominant players. Meanwhile, the U.S. is much smaller, with a few key leaders who are all battling for supremacy, which makes for higher costs and spending to gain an edge.

Final thoughts
If we think about which company has the most to gain long-term, Priceline looks to be best-positioned with the growth of Booking.com and other acquisitions. Sure, Expedia has Trivago, a large worldwide hotel search site, which grew 85% last year. Trivago is in large part responsible for Expedia's accelerated growth, yet Priceline is capitalizing in various markets aside from the U.S. and Europe.

Priceline certainly appears to be the best investment moving forward. Relative to the market, Expedia doesn't look bad itself, as Trivago does provide at least one growth engine for the company.

As for Orbitz, it's trying to compete in a crowded U.S. market against two juggernauts. The future doesn't look pretty for Orbitz, but for Priceline and Expedia, pullbacks are an opportunity.

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