Please ensure Javascript is enabled for purposes of website accessibility

Priceline Group, Inc. Stock in 3 Charts

By Jeremy Bowman - Feb 16, 2016 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's a simple way to understand the online travel leader.

One of the few survivors of the dot-com bubble, Priceline Group Inc (BKNG 1.09%) has gone on to reward investors immensely since that market crashed. 

In the last ten years, the stock is up more than 4,000%. The company has benefited from the online travel industry's seemingly endless growth; growing primarily through acquisitions.

The five major brand acquisitions
There are a handful of acquisitions that Priceline has made in the past that have proven incredibly important to its growth:

Company Year
Booking.com 2005
Agoda.com 2007
Rentalcars.com 2010
Kayak 2013
OpenTable 2014

Above all, Booking.com is the biggest reason for Priceline's success, generating the majority of its revenue today. Because of those acquisitions and the growth of its namesake property, Priceline has delivered consistently strong revenue growth over the years.

PCLN Revenue (Quarterly YoY Growth) Chart

PCLN Revenue (Quarterly YoY Growth) data by YCharts

Though the headline figure dropped to 7% in its most recent quarter, that was largely due to the stronger dollar. In constant currency, Priceline's revenue grew 22% in the most recent quarter. Currency exchange rates have an outsized effect on the company's figures, as it derives 88% of its revenue from abroad. However, analysts expect revenue to increase 15% in 2016 with the help of normalized exchange rates.

Fading growth in the U.S.
Priceline's international business has been growing rapidly, but the U.S. business has started to decline recently as the company moves away from the "Name Your Own Price" brand.

Source: Priceline earnings reports

In its most recent quarter, U.S. bookings fell 2.5%. While retail room nights and rental car days have grown, its Name Your Own Price service has declined, and lower airfares have negatively affected gross bookings, though they do not affect gross profits. In the fourth quarter, management projects the loss to get steeper, falling 5-10%. The slide also comes as Expedia Inc (EXPE 1.66%) has stepped up its position in the U.S. with its recent acquisition of Orbitz, growing organic U.S. room nights 25% in the quarter.

While Priceline's growth may be slowing, its profitability continues to improve. Priceline charges 12-15% commission for its listings, which supports a wide profit margin. Priceline benefits from its strong brands, and can charge a premium because of its network effects. As each site gets more popular, the desirability to list with it increases.

PCLN Profit Margin (TTM) Chart

PCLN Profit Margin (TTM) data by YCharts

In its most recent quarter, Priceline posted an operating margin of 35%, and a net profit margin of 27.6%. That puts it well ahead of rivals TripAdvisor (TRIP 3.76%) and Expedia, which had a profit margin of just 6%. That difference is due to Priceline's extensive use of the agency model, meaning it acts as an intermediary between buyers and sellers, as opposed to the merchant model employed by Expedia, which buys inventory and then sells it. 

The merchant model drives greater revenue, but the agency model is easier for partner businesses to use and more profitable on a margin basis.

Looking forward, Priceline has been warning about slowing growth rates for several years, and analysts expect growth in the industry to decelerate as it reaches maturity. However, with its reach into international markets and knack for acquisitions, Priceline may have more growth than the market gives it credit for. Last year, the company increased its stake in Ctrip.com (TCOM 1.24%), which operates in China, a market that saw growth double last year, so there are clearly still growth opportunities.

With its portfolio of brand-name sites and track record of growth, expect Priceline to continue leading the online travel industry despite any headwinds that arise.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TripAdvisor, Inc. Stock Quote
TripAdvisor, Inc.
TRIP
$18.47 (3.76%) $0.67
Booking Holdings Stock Quote
Booking Holdings
BKNG
$1,767.98 (1.09%) $18.99
Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$96.40 (1.66%) $1.57
Trip.com Group Limited Stock Quote
Trip.com Group Limited
TCOM
$27.79 (1.24%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.