Priceline Aims at Maintaining Its Dominance

Image: Priceline.com.

Within the online travel space, Priceline Group (BKNG -0.69%) has demonstrated an uncanny ability to produce huge profits for investors over the long run. Recently, gains in disposal income among U.S. travelers have led to a new travel boom, especially when considered in conjunction with the drop in the euro compared to the U.S. dollar. Coming into Thursday morning's upcoming first-quarter financial report, Priceline investors hope that the company will be able to keep its sales climbing while at least treading water on the earnings front. Still, as competitors aim at major combinations to compete more effectively, Priceline will have to respond somehow. Let's look more closely at Priceline to see what investors should expect in its report later this week.

Stats on Priceline Group

Source: Yahoo! Finance.

Will Priceline Group earnings top expectations once again?
Once again, investors have reduced their views on Priceline Group earnings in recent months, with cuts of almost $1 per share in their first-quarter projections and 5% on their full-year 2015 views. Nevertheless, the stock has soared by almost 25% since late January.

The biggest gains for Priceline came after its fourth-quarter earnings report in February. The company posted sales growth of 19%, outpacing expectations as the online travel company managed to see dramatic growth in international bookings even during a time of seasonal and economic weakness in many markets. Nevertheless, the company's gloomy guidance led to the downward revisions to Priceline earnings expectations among those following the stock, as Priceline maintained what has becoming a reputation for overly pessimistic guidance going forward.

Yet some believe that nervousness about Priceline is justified. In addition to its traditional online-travel rivals, Priceline is also having to deal with a new entry from Amazon.com (AMZN -1.11%), with its Amazon Destinations website allowing travelers to book hotel rooms for certain locations. By combining its data on customer purchases with its travel recommendations, Amazon can tailor offerings that are more likely to appeal to each of its users, posing a threat to the traditional business model of simply allowing travelers to come up with their own plans independently. For now, Amazon has a limited geographical scope for its service, but if it expands, it could pose a bigger threat to Priceline and its peers.

Image: Priceline.com.

The other wildcard is the proposed combination of Expedia (EXPE -0.16%) and Orbitz Worldwide (NYSE: OWW), which is still undergoing regulatory scrutiny. At some point, the online-travel industry risks getting too concentrated, and the question from an antitrust standpoint is whether regulators will see online travel as its own independent niche or consider direct players in the travel industry, such as airline and hotel companies, as participants that make Expedia and Priceline look less dominant in a wider field.

Still, many are hopeful that the strong U.S. dollar could spur further travel activity among those seeking currency-based bargains, helping to lift prospects for Priceline and other travel companies catering to international travelers. With the dollar going further in Europe, Japan, and several other popular travel destinations, Priceline has an opportunity to take full advantage of rising demand by serving up as many attractive travel offerings as possible.

In the Priceline Group earnings report, investors need to remember that the stock has already climbed 25% from its lows just a few months ago, and so expectations have likely risen along with the share price. Even as Priceline's anticipated growth rates start to come down, it'll be tougher for the stock to post gains without further surprises in its financial results. Priceline's leadership position isn't in any immediate danger, even as its rivals take steps to shore up their own positions in the online travel industry. Over time, though, Priceline has to demonstrate its ability to respond with aggressive moves of its own in order to defend its position atop the online travel industry in the years to come.