(PCLN) Target Cut As Europe Weakens

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.

See Also:
Piper: Priceline (PCLN) To Keep On Winning, Going to $175
Orbitz (OWW): Too Much Competition and Consumer/Air Exposure

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