Priceline (NASDAQ:BKNG) announced earnings today for the second quarter of 2014. Although revenues came in below Wall Street analysts' expectations, the business is still generating outstanding growth rates while outperforming its main competitor, Expedia (NASDAQ:EXPE), and consolidating its leadership position in the industry. Let's take a look at Priceline's latest earnings report and what it means for investors on a forward-looking basis.

The numbers
Total sales came in at $2.12 billion during the quarter ended on June 30, a strong increase of 26% versus the same quarter in 2013, but below analysts' forecasts of $2.14 billion. Gross travel bookings, meaning the total dollar value of all travel services purchased by customers, jumped by 34% year over year to $13.54 billion during the period.

Gross profit increased 36% during the quarter, as gross profit margin expanded from 82% of revenues in the second quarter of 2013 to 89% of sales during the last quarter.

Growing profitability allowed Priceline to deliver better-than-expected earnings during the quarter in spite of sales numbers coming in below expectations. The company reported adjusted earnings per share of $12.51, comfortably beating analysts' expectations of $12.04.

For the third quarter of 2014, management is forecasting adjusted earnings per share between $19.60 and $21.14, below Wall Street projections of $21.28 for the period. However, Priceline is well-known for consistently providing conservative guidance figures, so the company's guidance is probably too modest if history is any indicator.

The context
Priceline has sustained remarkable growth rates over the long term, and the latest earnings report confirms that the company is still as strong as ever. Even if sales came in below expectations, Priceline is still sustaining impressive financial performance as it grows in size over time.

Revenue $1.3 $1.68 $2.27 $1.54 $1.64 $2.12
Revenue growth 25.5% 26.6% 33% 29.4% 26.1% 26.4%
Gross profit $1.01 $1.38 $1.99 $1.33 $1.41 $1.88
Gross profit growth 35.8% 37.8% 42.4% 41.9% 39.3% 36.1%

Revenue and gross profit in billions. Source: SEC fillings.

Importantly, Priceline has consistently outgrown Expedia over the last several years, and there is no reversal in the competitive dynamics judging by recent financial performance. For the second quarter of 2014, Expedia reported a 24% increase in revenues to $1.49 billion, while gross bookings grew 29% to $13.05 billion.

According to Darren Huston, president and CEO of the Priceline Group, the company is outperforming the competition and consolidating its position as the growth leader in the industry. "We believe the group delivered market-leading growth from both a top line and profitability perspective," Huston said.

The online travel industry is a textbook example of the network effect as a major source of competitive strength. Travelers want to go to the platform where they can find more and better deals, and companies like hotel operators, airlines, and car rental businesses choose to partner with the platforms that can bring in more customers.

More users make the service more valuable for both travelers and service providers, and this attracts more users on both sides of the transaction. This means that Priceline is getting stronger over time as it outgrows the competition and consolidates its position in the industry.

At the same time, recent moves such as the acquisition of online restaurant reservations platform OpenTable and an expanded partnership which Chinese online travel platform show that management is actively seeking ways to continue gaining market share in the industry via partnerships and acquisitions.

Key takeaway
Even if sales came in below expectations during the quarter, Priceline is still delivering impressive growth rates and expanding profitability. Perhaps more important, the company continues outgrowing the competition and building the foundations for sustained growth over the long term. Fasten your seat belt, relax, and enjoy the flight, because the online travel leader looks well positioned to continue gaining altitude in the years ahead.