After Priceline's (NASDAQ:PCLN) surprisingly optimistic Q3 guidance and high performance, this quarter's more conservative forecast shocked Wall Street, leading to a 9% drop in the stock's price overnight.

On this video segment, The Motley Fool's Chris Hill, Jason Moser, and Taylor Muckerman explain some of the larger context around the global travel industry, how it affected Priceline's Q4 guidance, how the sudden dip fits into the company's long-term growth, and how investors should look at the event.

A full transcript follows the video.

 

Chris Hill: Let's get to the earnings. We'll start with Priceline. The third quarter profit and revenue came in higher than expected, but the guidance for Q4 was not only lower than Wall Street was expecting or hoping for -- I mean, the guidance for this quarter was pretty gaudy. And Priceline delivered on it. So, I think it was a little -- I'm gonna give Wall Street a pass on this one. I think they were legitimately surprised that the guidance for Q4 was as low as it was. Were you?

Jason Moser: I get it to a degree. But a lot of this guidance was based on a stronger dollar. So, a lot of this is currency-related in booking travel to the United States and whatnot. This forecast is being a little bit weaker than maybe was potentially expected at the beginning of the year. Now, I mean, obviously, the market is always concerned about not what have you done for me, but what are you going to do for me. Investors looking for an easy way to play the travel industry could look at Priceline.com today as probably the most legitimate option. I think whenever you see a business like this selling off due to something that's more or less related to currency, I mean, you can look at this as a potential opportunity. It's a very high-quality business.

Scale alone, these guys are the biggest dog in the online travel agency space. And typically, the biggest network is gonna win. And just to put this in context, Priceline announced they have over 820,000 properties now on their primary property, their Booking.com, up 38% over last year's quarter. And you compare that to Expedia (NASDAQ:EXPE), which made some news itself here recently with this acquisition of HomeAway. Expedia just announced about 270,000 properties in its most recent earnings. So, you can see there that there's a big difference, just in the size of the two networks. And that's why Priceline has always gotten so much credit, and that's why I think Priceline has always earned an optimistic valuation from the market.

So, to see this, no, it's not terribly surprising to see the market kinda bailing on the stock today. But again, it's not like there's a fundamental flaw with the business. I mean, this is just the vagaries of the travel industry, right? Because it is truly global, and it's always gonna be exposed to those currency risks. But, you know, as long-term investors, we tend to look at these currency risks and things. I mean, they are real, they do exist. But rather than seeing them as problems, we tend to look at them as opportunities.

Taylor Muckerman: I think we talked about this, I don't know when, probably a little while ago, last quarter or the quarter before, but if the U.S. dollar is strong, chances are people from the U.S. are traveling to Europe maybe a little bit more often --

Moser: That's correct, yeah.

Muckerman: So, it's a give-and-take thing. But also, they've been moving even more internationally than they already were with their minority stake in Hotel Urbano, that's in Brazil. So, that's their first foray into Brazil. We've got the Olympics coming up in 2016. More people becoming exposed to what traveling in Brazil is actually gonna be like. And then, we talked two weeks ago, I think, about the deal with Ctrip (NASDAQ: CTRP) and Qunar, and Priceline has a big stake in Ctrip.

And it reminded me of a study I saw a few weeks back from Visa. It was talking to global travelers, East Asia in particular, and even more particularly China. And it says that Chinese, when they're planning a trip, budget comes a distant second to having the best experience 56% of the time, versus 46% for the rest of the world. And they only consider a strict budget 18% of the time, versus a global average of 29% of the time. So, getting more exposure to China, I think, who clearly is more willing to spend more money on trips to get the best experience, I think Priceline is gonna be better than just a fourth quarter over the long term.

Hill: And even with the stock falling about 9% this morning, it's still up 12% over the past year. It's still handily ahead of the market. So, if you're thinking long term, this kinda seems a little bit like a buying opportunity.

Moser: Yeah, I don't disagree. It's one that we've noodled a decent bit for MDP, and one that will continue to kick around. I mean, we own TripAdvisor (NASDAQ:TRIP) already at MDP, and we've talked a lot about that one recently as well, given the news that's come out with TripAdvisor given the instant-booking platform, the hotels that it's bringing onto its platform; now, the agreement they've come to with Priceline. This was a big deal, actually. I think, to Taylor's point there about experience, about travelers going out and really -- because travel really isn't something you go out and do all of the time or every day. You tend to want to make it really worthwhile.

Muckerman: You don't want to have any regrets coming back.

Moser: Right, yeah.

Muckerman:
I spent a lot of money and didn't see anything.

Moser: Yeah. So, I think people are very focused on the experience and making sure they know where they're going and what there is to see. So, we saw that agreement with TripAdvisor and Priceline, which I think lends itself to that mentality there. And honestly, I think that Priceline sees a tremendous opportunity in that platform and that content. And we're going to see more consolidation in this space as time goes on. But when you're looking to the leaders, and you're looking just to the best-quality companies, Priceline is the one that stands out. No, it doesn't represent the growth opportunities that it once represented. And that's OK. It still doesn't mean the story is done, because this is, as it's typically referred to, a multi-trillion dollar market opportunity, when all was said and done. And Priceline is not a multi-trillion dollar company, yet, Chris.

Muckerman: No, not yet.

Jason Moser owns shares of TripAdvisor. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group, TripAdvisor, and Visa. The Motley Fool recommends Ctrip.com International and HomeAway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.