Got to hand it to Connecticut-based Priceline, once the laughingstock of the post Bubble 1.0 bust. Those dark days are long gone.
JP Morgan’s Imran Khan:
Priceline announced 4Q’08 revenue, adjusted EBITDA, and pro forma EPS of $406M, $76M, and $1.29, ahead of our above consensus estimates of $372M, $63M, and $1.09, respectively.
Following are our key points:
- Int’l growth defies cyclical challenges. Despite int’l ADR declines of over 7% Y/Y, Priceline posted 4Q int’l gross bookings growth of 27.6% ex-FX, exceeding our expectation for 15% Y/Y local currency growth. We think that its offering of 60,000 hotels in over 70 countries provides much more breadth to customers and to partners such as Ryanair than competitive offerings. As such, we see volume gains offsetting pricing declines and FX headwinds (~14%) and are now modelling F’09 int’l gross bookings declines of only 1.1% Y/Y vs. our prior estimate of a 7.0% decline.
- Domestic market share gains continue. 4Q domestic gross bookings grew 31% Y/Y, roughly in-line with 3Q’s 33% Y/Y growth, despite difficult comps and macro-economic challenges. We think these market share gains will continue due to competitor weakness and Priceline’s lowest price positioning of the Name Your Own Price product and no fee air bookings. We think that the 2 new Negotiator commercials will aid in awareness of the brand. As such, we are increasing our F’09 domestic gross bookings growth est. to 9% Y/Y from our prior est. of 6% growth.
- Operating margins boosted by cost controls and leverage. 4Q pro forma operating margins were ~110 bps ahead of our expectations as operating leverage increased. We think the company will continue to gain leverage in F’09 and that mgmt will carefully monitor the ROI of advertising spend. As such, we have increased our F’09E pro forma operating margin to 18.3% from 16.9%.
- We are raising our price target. PCLN is currently trading at 6.9x F’09E EBITDA vs. the peer group ave. of 6.1x. Given its market leadership, we expect it to trade at a premium and reiterate our OW rating. Due to the higher than previously expected EBIT growth, we are increasing our price target to $91 from $86.
Citi’s Mark Mahaney:
- A Strong Beat & Raise Q4 – $406MM revenue beat CIR/Street at $383MM/$378MM & $1.29 EPS beat CIR/Street at $1.03/$1.05. Midpoint Q1 Revenue and EPS guidance of $433MM and $0.90 was above the Street at $413MM and $0.81.
- Reasonably Positive Fundamental Trends – 29% FX-adjusted Y/Y bookings growth decel’d from Q3’s 40% level, but was impressive given the travel Recession. EBITDA margin expanded 100 bps Y/Y to 37.1%, leading to 31% Y/Y EBITDA growth.
- How Did PCLN Do It? – Strong execution, market share gains, counter-cyclical hedge/trade-down/deep value offering to consumers.
- Materially Increasing Estimates & PT – ’09 Gross Bookings increased 7% to $7.95B. ’09 EBITDA increased 14% to $415MM. ’09 EPS increased from $5.70 to $6.60. PT upped from $83 to $105 – 9X ’10 EV/EBITDA.
- Reiterate Buy – Stock has rallied more than 50% off its November low, but we think there is more upside. Long thesis based on 1) PCLN’s sustainable business model advantages in Europe (large installed base & low-cost agency model); 2) PCLN’s defensive hedge in the U.S. market based on trade-down, deep-value Name-Your-Own-Price travel offering; 3) Translation of the above two into clear market share gains; 4) Best management team in the online travel sector; & 5) Very reasonable valuation (9X ’09 EBITDA with a 7% FCF yield) for a company hitting 30% EBITDA growth in a Severe Recession…
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