Is It Too Late to Buy Priceline?

Priceline has produced explosive gains for investors over the last year. However, the past is only a prologue to the future. Does Priceline still offer upside potential, or is it too late to buy the stock?

Jul 9, 2014 at 10:08AM

PCLN Chart

PCLN data by YCharts.

Priceline (NASDAQ:PCLN) has delivered truly explosive gains for investors over the last several years, as the company has surpassed rival Expedia (NASDAQ:EXPE) and consolidated its leadership position in the very profitable online travel industry. However, investment decisions need to be based on future potential, not past performance. Is it a good time to buy Priceline, or is it already too late to invest in the company?

A high-quality business
Priceline is in the business of matching buyers and sellers in different travel-related industries. The company operates different platforms allowing customers to make online reservations for hotels, airline tickets, and car rentals. Priceline is also in the process of acquiring online restaurant reservation platform OpenTable (NASDAQ:OPEN) in a $2.6 billion cash deal; this will generate opportunities for additional growth venues in the years ahead.

Priceline operates mostly on the agency business model, which means allowing hotels and other service providers to list their own offers, paying the company a commission for every transaction. This means there is almost no associated cost of sales, and the company gets to leverage its fixed costs on a rapidly growing revenue base as it expands over time.

Pcln Image

Source: Priceline.

This smart and efficient business model is generating tremendous profitability for investors in Priceline. Gross margins are exceptionally high, at more than 85% of revenue, and the company generates an operating margin above 35% of sales.

Priceline vs. Expedia
Priceline's main competitor is Expedia, which has a considerable presence in the U.S. However, Priceline's focus on international markets has turned out to be a winning strategy over the last several years, and Priceline has clearly outgrown Expedia over time.

PCLN Revenue (TTM) Chart

PCLN Revenue (TTM) data by YCharts.

According to management, Priceline continues to gain share in different categories and geographies as of the last quarter, and financial reports from Priceline and Expedia confirm this.

Priceline delivered a big sales increase of 26% during the first quarter of 2014, reaching $1.64 billion during the period. Gross travel bookings, meaning the dollar value of services purchased on the platform, came in at $12.35 billion, a big increase of 34% versus the prior year.

Expedia is also doing well, but it's not growing as rapidly as Priceline. Expedia announced a 19% increase in sales during the quarter ended on March 31 to $1.2 billion. Gross travel bookings came in at $12.6 billion, a 29% increase versus the first quarter in 2013.

Both Priceline and Expedia have increased their advertising spending lately, and this is a relevant risk to watch, as it could have a negative impact on profitability levels if a competitive war becomes a more serious problem in the future.

However, the online travel industry is providing enough opportunities for Priceline and Expedia to grow and thrive at the same time. Besides, Priceline looks as strong as ever on the competitive front as the company continues building its network of hotels and other service providers; it announced on July 1 that it now has more than 500,000 hotels included in its platform.

Growth and valuation
In spite of the spectacular returns the company has produced over the last several years, Priceline does not look excessively valued. When looking at valuation ratios such as forward P/E and enterprise value/EBITDA, Priceline is trading roughly in line with historical valuation ratios over the last five years.


PCLN EV to EBITDA (TTM) data by YCharts.

Furthermore, the company still has a lot of room for expansion. International bookings grew 37% during the last quarter, which, according to management was because of "increased penetration of core Western European and North American markets but also very attractive growth in newer markets, including Eastern Europe, the Middle East, South America and the Asia-Pacific region." 

The acquisition of OpenTable will provide Priceline a leadership position in online restaurant reservation, a business with many synergies with the company's other segments.

OpenTable covers a network of more than 31,500 restaurants, and the company makes more than 15 million reservations per month. However, it only has 7,721 restaurants in international markets as of the first quarter in 2014, so Priceline's presence and experience in global markets could be enormously valuable for OpenTable when it comes to international growth. Besides, there are clear opportunities for cross-promotion, as travel and restaurants are closely related industries.

Foolish takeaway
Priceline has delivered impressive gains over the last few years, but that's not the end of the story. Considering its outstanding financial performance, rock-solid competitive position, robust growth opportunities, and reasonable valuation levels, the company has what it takes to continue outperforming the markets in the years ahead.

Leaked: Apple's next smart device can change your future (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Andrés Cardenal owns shares of Priceline Group. The Motley Fool recommends and owns shares of Priceline Group. 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 Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers