The Motley Fool Previous Page


Is priceline.com Ready to Rebound?

http://www.fool.com/investing/general/2012/12/11/is-pricelinecom-ready-to-rebound.aspx

Rich Duprey
December 11, 2012

priceline.com (NASDAQ: PCLN) is down 20% from the 52-week high it hit earlier this year, falling 5% yesterday alone after a formerly bullish analyst downgraded the stock to hold. The reasons given were that airlines are getting more competitive and Google's (NASDAQ: GOOG) presence in the travel space is growing.

While the online travel agent has long said it's not worried about Google's foray into the industry, its purchase of Kayak Software (NASDAQ: KYAK) was certainly made with an eye on the search king. Europe's financial house is still in shambles. raising concerns of the willingness of people to travel, and the U.S. is about to head over the fiscal cliff, creating a level of uncertainty of what the effects will be here at home.

With rival Expedia (NASDAQ: EXPE) converting more browsers into buyers, Priceline even had to bring back the Negotiator -- William Shatner -- to star in their commercials. In such a situation, it's easy to expect the online travel agency to continue falling short of expectations. Easy, but wrong.

Across the pond
Although best known here for its "Name Your Own Price" bidding service, Priceline actually derives more money from its traditional booking service and does most of its business in Europe. More than 82% of its $7.8 billion in gross bookings comes from international markets, which enjoyed growth of almost 30% from the year ago period compared to 7% growth in domestic markets.

And though most people also associate Priceline with airline tickets, in reality its business is hotels, hotels, hotels. So because the service is Euro-centric, it doesn't have as many hotel chains to contend with as it does here. Marriott (NYSE: MAR), Hyatt Hotels (NYSE: H), and Hilton don't carry the same leverage on the continent as they do in the U.S., allowing Priceline access to more inventory at better pricing from smaller, independent chains and operators who rely upon its heft and size to move rooms.

It purchased Booking.com in 2005 for just $135 million, yet that alone might be responsible for it being the international travel juggernaut it is today. Travel website Tnooz reports Priceline was making just $10 million a year in profits when it purchased the site; today profits exceed $1 billion as overseas revenue grew at a 68% compounded annual rate between 2006 and 2010.

Orient express
In Asia, its reservation service Agoda is achieving similar results simply because it is the go-to service there, and Priceline is using both to expand their brand awareness into Latin America and the U.S. And where Priceline had a negligible presence in China, a new partnership with Ctrip.comĀ (NASDAQ: CTRP) promises to change that.

Under Priceline's agreement with Ctrip, the Chinese travel agent will have access to Booking.com's portfolio of 235,000 hotels in more than 170 countries, vastly expanding Ctrip's current 50,000 hotel offerings worldwide. Both Ctrip and Priceline will capitalize on servicing China's fast-growing outbound travel demand.

Like many of the industries it touches, China's impact on travel will be