Image source: Priceline.
Most investors look forward to seeing their stocks split. However, one of the most successful stocks over the past decade not only has never done a standard stock split, but has also survived the often-catastrophic move of doing a reverse stock split. Reverse splits are often a death knell for a company, but Priceline Group (PCLN 2.67%) has taken the lifeline that its reverse split provided, and produced immense returns for those investors who kept their confidence in the travel pioneer. Let's take a closer look at the Priceline reverse split and the impact it had on the company.
Priceline's history of stock splits
Priceline's only move with its shares came with its reverse split in 2003:
|
Date of Split |
Split Ratio |
|---|---|
|
June 16, 2003 |
1 for 6 |
Data source: Priceline SEC filings.
At first glance, the reverse split might seem like a natural move in response to market conditions during the tech bust. By late 2000, Priceline's stock price had fallen from above $100 per share to just over $1 per share, and repeated flirtations with the $1 mark continued over the next couple of years.
Yet Priceline had already started to recover even before the reverse split took place. Between February and June of 2003, Priceline shares more than tripled, and the travel company certainly didn't need to worry about delisting fears by the time it actually moved forward with the reverse split in June.
Instead, the company made a different argument in favor of the reverse split. Then-CEO Jeffery Boyd said in a press release accompanying the reverse split that the move "enhances our position by expanding investor interest, reducing transaction costs for trading our stock, making our results more comparable to peer companies with far fewer outstanding shares, and allowing priceline.com's earnings per share on a post-split basis to more precisely reflect the company's operating results."
The aftermath of the reverse split
Since then, Priceline Group has been a nearly unparalleled success story. From its post-split level of around $22 per share, Priceline stock now fetches more than $1,400 per share.
Yet the gains didn't come all at once. From 2003 to early 2006, Priceline struggled to gain traction, and competitive pressures made it difficult for the company to differentiate itself adequately to produce the earnings growth that investors would later come to take for granted. Even after a huge two-year rally, Priceline gave back more than half of its gains during the financial crisis of 2008.
The last seven years, however, have taken Priceline to a whole new level. The company's strategic move to emphasize international operations was prescient, giving Priceline a first-mover advantage that its rivals are only now struggling to match. The purchase of Booking.com gave Priceline exposure to the European travel market, and its more recent investment in China's Ctrip.com International (CTRP 1.80%) has opened up the lucrative Asia-Pacific market as well.
Perhaps most importantly, the international travel industry has proven much more resilient than most people gave it credit for. Many believed that the 2008 recession and financial crisis would lead to a long-term decline in travel activity, but once the economic picture began to improve, travelers returned to airplanes and hotel rooms for business and pleasure. Similarly, subsequent economic and geopolitical challenges in Europe and elsewhere across the globe convinced many people that Priceline would suffer, and the rise of sharing services like Airbnb has posed a new competitive threat. Yet at least so far, Priceline has weathered all storms and continued to dominate its space.
Reverse splits are a scary sight for investors, and the number of companies that not only survive a reverse stock split but also thrive following the move is very small. However, Priceline has demonstrated that it deserves to be part of that elite group, and its success looks likely to continue for the foreseeable future -- qualifying it as one of the most impressive stock comebacks ever.
