As the rest of the Internet stocks have cratered on recession fears, Priceline has been a standout–and Citi analyst Mark Mahaney has been banging the drum all the way up. Now, however, Mahaney’s taking his chips off the table:
- Downgrading From Buy To Hold – PCLN has moved within 5%-6% of our $137 PT. Thus, we see the stock’s risk-reward as less compelling. We continue to view PCLN as a core Internet stock, but would prefer an entry/adding price closer to $110, which would provide 20%+ upside to our PT.
- This Is Primarily A Valuation Call – PCLN shares are up almost 50% since mid-January. Further, shares are trading right at their 2-year peak forward EBITDA multiple – 19X vs. a 16X average. Finally, we believe PCLN’s sustainable bottom line growth of 24% (our ’07-’10 EBTIDA per share CAGR) supports its current multiple, but not one materially higher.
- Fundamentals Thesis Unchanged – Our Core thesis has not changed since January, with key Long factors including:1) an impressive European and perhaps Asian growth platform; 2) Business model driven sustainable competitive advantages; & 3) Arguably the sector’s best management team.
- The Read-Thru From EXPE – Expedia reported Q1 results today. While EXPE reported a large deceleration in European bookings growth, they also reported almost no deceleration in their continental European business, which is PCLN’s core business (50%ish of bookings). So we view EXPE as most likely supporting a strong PCLN Q1 (consistent with our April 9th Sector Preview). The H2:08/’09 concerns for PCLN will be: 1. Signs that EXPE is getting more competitive in Europe (aggressive search advertising, hotel room supply gains); 2. Clear signs of travel macro weakness in UK; and 3. Increased possibility of continental European slowdown in H2.
See Also: Expedia, Once Dog, Now Top Pick
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