Source: Priceline.
Priceline (PCLN +0.66%) stock was trading at fresh historical highs on Wednesday morning, as investors reacted with optimism to the company's earnings report for the second quarter of 2015. Due to its big global presence, Priceline is being hurt by currency headwinds, but the company keeps proving that it has what it takes to deliver booming performance under all kinds of conditions.
Gaining altitude
Gross travel bookings, meaning the total dollar value of travel services purchased by customers across Priceline's platforms, were $15 billion during the second quarter, an increase of 11% over a year ago. However, growth in constant currency was much more impressive, with gross bookings jumping by 26% versus the second quarter in 2014.
Priceline produced most of its gross bookings in international markets, with this segment bringing in $13 billion last quarter. International gross bookings grew 12.1% in U.S. dollars and 30% in constant currency during the period. The company generated only $1.9 billion in U.S. gross bookings during the quarter, growing by a modest 0.7% versus the second quarter in 2014.
Performance was quite strong across the board, especially in hotel reservations and car rentals. The company registered 113.1 million hotel room nights during the quarter, an annual increase of 26.2%. Car reservations jumped by 20.1%, to 17.1 rental car days, while airline tickets increased by a much more moderate 0.3% year over year.
Rock-solid financial performance
Total revenue during the quarter was $2.28 billion, a 7.4% increase from $2.12 billion in the same period last year. The number came in ahead of the $2.27 billion in sales projected, on average, by Wall Street analysts.
Priceline operates mostly under the agency business model, meaning that the company allows hotels and other industry operators to list their prices and offers on the company's platforms in exchange for a commission every time a transaction gets done. This means there is almost no directly associated cost of revenue for Priceline, and gross profit can be as important as revenue when evaluating the main business trends.
Gross profit was $2.1 billion during the second quarter, an increase of 11% year over year. On a constant-currency basis, gross profit jumped by a vigorous 26% versus the same quarter in 2014.
The company is investing tons of money on marketing and advertising. When taken together, sales, marketing, and advertising expenditures amounted to $931.6 million, a big year-over-year increase of 21%.
Still, this did not stop Priceline from beating earnings expectations. Adjusted net earnings per share came in at $12.45, better than the $11.98 per share expected by analysts for the quarter.
The best is yet to come
Performance over the last quarter is undeniably important. However, investing decisions need to be based on forward-looking considerations, not past performance, and the fact that Priceline announced optimistic guidance for the third quarter of 2015 was one of the main positives in the report.
CEO Darren Huston believes the company is on track for a record quarter. In his own words, "We believe we are well set up to deliver the largest quarter in our company's history."
Priceline provided a fairly wide guidance range for the coming quarter, and it's important to keep in mind that the company tends to be conservative when it comes to guidance. Management likes to under promise and over deliver, and financial performance is on many occasions above the company's own guidance range.
Management expects a constant-currency increase in gross travel bookings of between 13% and 20% during the coming quarter, driven by a growth rate of 16% to 23% in constant-currency international gross bookings. Gross profit is expected to do even better, as gross profit in constant currency is projected to grow by between 19% and 26% year over year in the third quarter.
When leaving aside the negative impact from currency fluctuations, Priceline is doing remarkably well, and the future looks quite encouraging for the company in the middle term. With this in mind, it's really no wonder why Priceline stock is trading at record highs.
