Priceline.com (Nasdaq: PCLN) was recently recognized as the very best stock of the past five years, earning more than 800% from July 21, 2005, to today. If you're new to the company, consider this your Foolish way to get introduced and in the know.
What it does:
As the ".com" suggests, Priceline is an online company. Its stated goal is to become "the leading worldwide online hotel reservation service." Priceline derives a considerable portion of its earnings from international bookings under its Booking.com brand, but in the U.S., the company is probably best known for its Name Your Own Price system. If you're not familiar with the system as depicted in the William Shatner ads, buyers get to bid on plane tickets, hotel reservations, and other travel services, and they are matched up with retailers willing to meet them at that price. As a buyer, you do sacrifice brand choice for a guaranteed price tag; as a seller, you have the luxury of putting excess capacity onto the market anonymously so as to not compromise or cannibalize your traditional retail channels.
I can't help but geek out a little about this business model. Academic economics makes a lot of assumptions that don't always bear out in the real world, one of them being that market participants have perfect information. With perfect information on both the buyers' and sellers' sides, we would have absolutely efficient markets. There are, of course, no efficient markets -- neither financial or "real-world." Priceline's Name Your Own Price system, however, gets us a little closer, allowing otherwise untapped resources -- buyer dollars that don't have a product to purchase, and seller products that don't have dollars willing to pay for it -- to meet in a natural market setting. In that sense, Priceline is much like a travel-centric eBay.
How it stacks up:
After looking at Priceline's return on capital and its revenue growth, nothing else really compares. One note for intrepid researchers, the company's financials are a little bit dicey because of how it books revenues. Without getting too in the weeds here, just keep in mind that what its competitors refer to as net revenues, Priceline actually books at its gross profit line.
|
Company |
Total Bookings |
Net Revenue |
Return on Capital |
3-Year Revenue Growth | |
|---|---|---|---|---|---|
|
Priceline.com |
$9.3 B |
$1.3 B |
21.1% |
21.8% |
45.1% |
|
Expedia (Nasdaq: EXPE) |
$21.8 B |
$3.0 B |
10.5% |
12.6% |
9.8% |
|
Orbitz (NYSE: OWW) |
$10.1 B |
$0.7 B |
(0.8%) |
5.2% |
(2.0%) |
|
Ctrip.com (Nasdaq: CTRP) |
-- |
$0.3 B |
33.5% |
13.4% |
36.4% |
What to watch out for:
The Internet travel business is extremely competitive -- in Priceline's own 10-K,filing with the SEC, the company itself mentions more than 10 competitors. Moreover, the majority of Priceline's operating income is actually derived from its international business, which doesn't use the Name Your Own Price system. Besides its incumbent advantage in its global markets, there really isn't much of a sustainable and durable moat in this industry.
Why you should care:
While the innovative business model really gets my brain excited, it's Priceline's outstanding growth that makes my heart race. Management has its eyes on continued international expansion, particularly in Asia, where e-commerce is really taking off. It might be difficult to replicate its previous five-year track record but there may still be a lot of leg room yet.
If you want to learn more about companies like Priceline.com, check out our our premium technology and growth newsletter, Motley Fool Rule Breakers.
