Can Priceline Hit $1,000?
Priceline (NASDAQ:PCLN) is drawing close to a record stock price set during the dot.com bubble and the psychologically significant level of $1000 per share. If shares do cross $1000 soon, which some analysts say is likely, it will be the first time for a Standard & Poor’s 500 stock.
Shares were trading around $985.26 just after the market opened on Friday — a jump of 5.5 percent from Thursday’s close with the release of better-than-expected second-quarter earnings fueling the morning’s gain. Shares even rose to an all-time high of $994.98. Previously, the stock hit a record high of $990 in 1999 before the stock was underwent a 1-for-6 reverse split 10 years ago. But the fallout of the dot.com bust pushed the stock to a low of about $6 per share in October 2002.
The company’s stock has been advancing at a strong pace for the past 12 months. It has gained 58.24 percent this year to date and 74.7 percent in the past year. Amazingly enough, this growth has come despite the four-year long debt crisis in Europe, an especially important business region for Priceline.
Since the company acquired Amsterdam-based Booking.com in 2005, Priceline has depended on the European hotel reservation business to provide the bulk of its growth. In the intervening years, the economies of Ireland, Spain, Greece, and Portugal have required bailouts, yet international bookings have surged, strengthening the company’s overseas business. International bookings jumped 44 percent to $8.6 billion in the second-quarter from the $6 billion reported in the year-ago quarter, and that growth caused that segment to account for for 85 percent of total bookings. Gross bookings jumped 8 percent to $10.1 billion.
“When macroeconomic conditions were at their worst in the past year or so, Priceline’s international hotel business, the majority of which is in Europe, displayed extraordinary resiliency,” Macquarie Capital analyst Thomas White told Bloomberg. “The business has held up well through this and seemed to have emerged from the worst.” White has the equivalent of a buy rating on the stock.
Still, Priceline views “it as a challenging environment from an economic perspective,” said Jeffery Boyd, Priceline’s chief executive officer, on the earnings conference call. “We were relatively pleased with the growth rates we saw in Europe.”
In part, the success of Bookings.com can be tied to a recent investment in television advertising in the United States. “The advertising campaign is having a positive effect on the growth that Booking.com is experiencing in the United States,” Priceline Chief Executive Jeffery Boyd said in an interview with Reuters. “The most differentiated feature about this market is how highly competitive it is.”
The strength in bookings translated to strong earnings and sales. For the second quarter, the company reported Thursday that revenue rose 27 percent to $1.68 billion from the $1.33 billion recorded a year ago. Second-quarter net income increased to $437.4 million or $8.39 per share, from $352.3 million or $6.88 a share, in the year-ago quarter. Excluding one-time items, profit came in at $9.70 per share, above the $9.36 expected by analysts.
Priceline now has the highest market capitalization among online travel agencies. But Orbitz (NYSE:OWW), which posted quarterly results on Thursday as well, had a solid quarter too, which points to solid demand for travel. “The travel space is doing well, pretty much across the board,” Ascendiant Capital Markets’ Edward Woo told Reuters. “People are traveling, spending money and these companies are benefiting.”
Together, the results of Priceline and Orbitz indicate that the online travel industry has rebounded after suffering through a several years of depression as the cash-conscious travelers now look to find deals.
Priceline has boosted earnings and revenue for the past five years, which has helped it outperform both Orbitz and Expedia (NASDAQ:EXPE).
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