Can priceline.com Maintain Its Edge?

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As the media concentrates on the upward price march of tech giant Apple's shares, another company has been experiencing much the same phenomenon. priceline.com (NAS: PCLN) has been walking all over its competition in the online travel sector, and investors are taking notice.

Priceline has seen its stock price soar 57% since last October, and it shows no sign of slowing. Analysts have been singing its praises, all the while noting how rivals like Expedia (NAS: EXPE) and Orbitz (NAS: OWW) are being left behind. What is the secret of Priceline's success?  In a word: growth.

Priceline has grown in several areas, but none more important than in revenue. The company's brilliant fourth-quarter report highlights its $990 million in revenue, an increase of nearly 36% from last year, against Expedia's $787 million, a mere 6.7% rise from the previous year. As for Orbitz, its revenues decreased by nearly 3% year over year, capping off a very disappointing year. Unfortunately, 2012 doesn't look any better, as the company has already lost 15% of its stock value over the last three months.


What has spurred Priceline's revenue growth? Unlike its competitors, Priceline has been aggressively pursuing growth outside of the U.S., with stellar results. The company has steadfastly increased its presence in Europe since buying Booking.com in 2005, and expansion into Asia has been streamlined by the purchase of Agoda.com two years later. This has translated into overseas sales that made up 66% of the company's revenues in the fourth quarter -- marking a 10% increase just from the previous quarter. Compared with Expedia's and Orbitz's reliance on the U.S. travel market and their scanty overseas bookings growth, pegged at 28% and 29%, respectively, for the first two quarters of 2011, it's not difficult to see that non-domestic business growth is a driving force behind Priceline's success.

What to expect
Unless Priceline plans to pull out of the North American market altogether, its ever-increasing percentage of market share from overseas should begin to stabilize soon. That doesn't mean that its soaring profits must decline, however, as it continues to explore emerging markets and the economic picture brightens here at home. The company's sunny guidance of 22% to 27% for the year certainly doesn't seem overdone, considering its performance since 2008, from which time it has increased revenue 209% -- compared to Expedia's 29% growth in the same time period. This rosy outlook is reflected in its 18.6-times forward P/E, compared with the industry standard of 16.6 times, and Expedia's 10.7 times.

Though currently trading at well over $700, this company seems to have the energy to continue its upward value climb, with very little headwind. The economic chill that still permeates Europe and the current slowdown in China might impact business a bit, but this company will surely find a way to get around any roadblocks to success. If you've got deep enough pockets to invest now, you might find in very short order that $715 was a bargain price, after all.

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At the time this article was published

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