Citi’s Mark Mahaney cuts his target for Priceline (PCLN) $19 to $142. While he believes the stock has fallen too far (it is currently trading at $118), he thinks deteriorating fundamentals in Europe make the risks too high.
Principal headwinds for PCLN:
- Weakening European macro trends
- Weakening European travel trends
- Increasing Search advertising competition
- PCLN has proven out as the most defensive ‘Net stock YTD (up 9%) due to 60%+ of bookings/profits in Europe & counter-cyclical U.S. hedges.
- PCLN is a clear market share gainer.
- PCLN’s huge installed base advantage – almost 45,000 hotels in Europe vs. 15,000 for Expedia – means it is unlikely to face material marketing inefficiencies near-term
- 4) PCLN has the travel sector’s best management team.
However, Mahaney sees plenty of offsetting risks for those positives:
- PCLN trades at 17X ’08 EBITDA –more than 2X that of comps EXPE and OWW and one of the highest multiples in the Net sector
- FX has been a significant and unsustainable tailwind for PCLN.
- We don’t believe PCLN has counter-cyclical hedges in Europe for when that market really weakens.
- The European installed base advantage will likely diminish over 1-2 years.
Citi maintains HOLD on Priceline (PCLN), target price cut from $161 to $142.