Priceline.com (PCLN), the intermediary facilitator between travelers and sellers spread around the globe, announced its fourth quarter earnings for 2013 on February 20th 2014. The company showed strong quarterly and annual performances with surging bookings for airlines, car rentals, and hotels. The following discussion will highlight the changing industry conditions following the comparison between actual and estimated earnings.
Actual Earnings VS Estimates
The top line of the company increased 29% YoY even though its revenue base plunged by a steep 32% QoQ. The drop in quarterly revenue was possibly because of the end of holiday season. For the most recently ended quarter, analysts were expecting the revenues for the quarter to be $1.52 billion whereas Priceline beat analysts' estimates by yielding a nominal amount of $1.54 billion. The strong top-line growth and increasing operational efficiencies is apparent from the swelling gross profit margin. The gross profit margin for the fourth quarter of 2013 stood at 86.5% compared to 78.9% of Q2'12.
The bottom line of the company showed an equally strong performance. The profit for the quarter was $378 million reflecting an increase of 31% compared to the same period last year. In per share terms, profit for the quarter was $7.14 up from $5.63 per share during the fourth quarter of the year before. However, adjusted per share earnings that excluded one-time events were $8.85 compared to $6.77 of the previous year. Thus, the profit for the quarter exceeded Wall Street's expectations where the estimated range for per share profit hovered around $7.80 to $8.30.
The growth in the topline was basically a function of surging bookings, both domestically and internationally. Priceline's night reservations for the year showed a stellar 37% growth rate. It is noteworthy, however, that the double digit growth experienced is lower than the 40% growth figure of the previous year. The overall gross bookings still represented an increasing trend yielding $9.1 billion in the most recently ended quarter. The agency segment's gross bookings for the company surged by 43% YoY while the merchant segment's bookings increased by 22%. Geographically, the international revenues of the company showed a stellar growth of 41% while domestic revenues surged by 27%. International revenue growth was primarily derived from the emerging markets like Asia Pacific where the traveling trends are taking a positive turn. As of the fourth quarter earnings release, international revenues contributed 85% to the total revenues of the company. So, a 41% growth from the international regions means a significant boost in the top line of the company in the foreseeable future.
Following the earnings announcement, the stock price of the company rose by 0.3% to $1,286.61 in after-hours trading. Throughout 2013, the stock of the company escalated by 87% against the 30% return of the S&P 500.
Changing Industry Trends
People are increasingly becoming more interested in traveling around the globe. The developed markets will contribute to the travel industry's revenues through higher travel frequency per inhabitant, whereas growth in revenue from developing countries will be boosted by the increasing middle class.
ITB World Travel Trends Report for 2013/14 indicates that global traveling and tourism grew by 4% this year with China and Russia beating the other countries in terms of growth in traveling. The future looks rosy with an anticipated growth rate of 4-5% in global traveling. The report further indicates that the developing countries' middle class is swelling at a rapid rate and might double by the year 2030. A rising middle class entails rising trends in traveling; the amount of middle class travelers from the emerging markets is expected to increase by 1.5 billion. The following table segregates the progress in traveling over the past three years coupled with the present year's estimated growth in traveling based on regions around the world.
Source: ITB World Travel Trends Report
This change in the industry will hugely benefit the companies dealing in the industry possibly enhancing their margins by manifold.
Future Outlook
For the current quarter the company expects a revenue growth of 15-25% which is lower than what analysts had projected (27%). The bottom line of the company is projected to fall within a range of $6.35-6.85 compared to analysts' expectations of $7.19.
The lower revenue growth projected by the company is justified because the Easter season has been pushed on to the second quarter due to the calendar shift. Therefore, the growth in booking orders will surge around the second quarter of the present year. The company also projects that total gross bookings will indicate a growth of 23-33% for the current quarter.
Conclusion
The company has ended the quarter on a strong note and is expected to continue to grow into the future as well. International traveling will particularly boost the growth going forward. Priceline is a smart company that is gradually expanding its operations around the globe and is making strategic acquisitions that will bag more unique customers. Take Kayak Software Corp. for instance; the acquisition not only strengthened Priceline's online presence but it also introduced the company to a huge number of online consumer traffic. The company's future earnings are expected to receive a positive boost as a function of the changing industry dynamics and smart strategic moves by the company's management. This is evident from its present (37.02) and forward P/E (24.87) ratios as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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