How High Can Priceline Fly?

Image: Priceline.com.

It's hard to believe that a decade and a half ago, it seemed that Priceline Group (PCLN 1.23%) would turn into another casualty of the tech boom of the late 1990s, with the campy online travel website having lost 99% of its value. Yet since 2000, Priceline has gone from a kitschy fad to a force in travel, and coming into its third-quarter report on Monday, Priceline investors believe that the company will continue to soar. With the industry leader having recently announced a partnership with rival TripAdvisor (TRIP 2.11%), many wonder whether Priceline is so dominant that it isn't worried anymore about its competition. Let's look more closely at how Priceline Group has done lately and what we're likely to see in its third-quarter report.

Stats on Priceline Group

Source: Yahoo! Finance.

Will Priceline Group earnings keep climbing higher?
Priceline has actually broken its streak of typical investor behavior recently, as investors have gotten more upbeat about the travel website's earnings prospects in the past few months. They've boosted their third-quarter estimates by nearly $0.50 per share and added even more to their full-year 2015 and 2016 projections. The stock has soared to new all-time highs, climbing 18% since late July.

Much of those gains came following Priceline's second-quarter financial report in August. On their face, Priceline's results for the quarter didn't look all that strong, with revenue climbing 7% and net income falling 2% from year-ago levels. Yet those numbers were actually much stronger than most had expected, with Priceline having faced 15 percentage points of pressure to its gross bookings due to the strength of the U.S. dollar. Gains in agency, merchant, and advertising revenue all pushed Priceline's top-line higher, and CEO Darren Huston was uncharacteristically optimistic as he predicted "the largest quarter in our company's history" for the third quarter.

Priceline hasn't been afraid to take unusual steps to bolster its growth. In September, Priceline bought Australian restaurant reservation system provider AS Digital in a deal with undisclosed terms, as the company looked to add on to the presence it gained in the reservation space with its larger acquisition of OpenTable last year. Geographically, the Australian company will give Priceline and OpenTable a foothold in Australia and assist with further expansion plans throughout the Asia-Pacific region, especially Japan.

Yet the news that made the biggest headlines during the quarter was Priceline's decision in October to use TripAdvisor's instant-booking platform to make some of the hotel-room inventory that Priceline's Booking.com has available to TripAdvisor's users. The move is a somewhat risky one for Priceline, as some fear that travel customers will have the incentive to go straight to TripAdvisor rather than going through Booking.com or other Priceline sites directly. Yet Priceline's move strategically makes it the first-mover among online travel portals that have been reluctant to join forces with TripAdvisor, and that should give Priceline a competitive advantage that outweighs any risk of losing its loyal customer base.

In the Priceline report, investors need to watch closely to see how the company managed to fare in the hot summer season for travel. With such confident predictions, anything short of a blowout quarter could cause problems for Priceline's credibility, especially given the stratospheric rise the stock has enjoyed in past months. Still, from a fundamental standpoint, Priceline has a lot of things going for it, and past experience suggests that the company has good odds of overcoming the hurdles it has set for itself this quarter and beyond.