Net wunderkind Priceline (PCLN) continues its remarkable turnaround, blowing out consensus again. One early bull, Mark Mahaney of Citi got off the train too early (switching to Expedia, no less), but Goldman thinks the stock has farther to run. JP Morgan loves it, too, jacking up its estimates,
The bear story on Priceline is that the recession and oil prices will eventually lead to higher airline fares and fewer tickets sold. This certainly isn’t happening yet–in the US (bookings up 50%) or internationally (+70%).
Priceline posted proforma EPS of $0.76 on $403 million in revenue, blowing away consensus of $0.60 and $377 million. Priceline benefitted from robust gross bookings growth across all geographies. In the US, bookings accelerated for the third straight quarter to 51% year-over-year.
Strength was attributed to merchant gross bookings growth of 26% Y/Y, up from 11% in 4Q, and positive trends in airline sales. Air tickets sold increased 83% Y/Y vs. last quarter’s 34% increase due to a positive response to the elimination of booking fees. We expect US gross bookings growth to remain strong as we believe the company has gained market share through its fee elimination program and value opaque offering.
International growth was also strong, with PCLN’s foreign businesses contributing $1.04 billion in gross bookings during quarter. PCLN also benefitted from FX:
During the quarter, foreign exchange rates benefited the top-line by adding approximately $128M to the Y/Y growth. However, even excluding FX, PCLN achieved int”l gross bookings growth of 75% Y/Y… We believe that PCLN will continue to benefit from online penetration gains, geographic expansion, and market share gains…
Perhapse more importantly, PCLN posted an impressive margin expansion during the quarter, restraining advertising costs and benefitting from a shift in mix to its more profitable agency business:
Profitability growth continued to benefit from a mix shift towards agency business, which carries no associated cost of revenues, resulting in 850 bps of gross margin expansion. On the expense side, advertising expenses were 17.3% of sales in 1Q, below our expectations for 18.5%. We believe 2 factors contributed to this out-performance: 1) higher consumer demand, conversion, and repeat business as PCLN offers a competitively large aggregation of hotel inventory on one site and 2) paid click expenses are likely lower in secondary and tertiary markets where there is less competition.
Revenue, pro forma EBITDA, and EPS estimates to $1.88 billion, $363 million, and $5.65 from $1.72 billion, $325 million, and $5.11. Rating remains Overweight.