Priceline.com (PCLN) Stalls Out After a Downgrade
Shares of online travel booking service Priceline.com (PCLN: Charts, News) have apparently stalled out over the past week, after the stock rose nearly 20% between October 25 and December 3 on waves of optimism from bullish analysts.
On Monday, that ascent quickly reversed course, after formerly bullish analysts at Deutsche Bank downgraded the stock from buy to hold, reducing their price target by 11% to $710. Deutsche Bank noted that a more challenging macro environment would put pressure on the stock in the short term, due to airlines posting more competitive first-party prices and competition from Google's (GOOG
) growing travel search network. The bleak state of the European economy and the fiscal cliff gridlock in the United States also worries analysts regarding the travel industry's outlook for 2013. Since the downgrade, Priceline's shares have slid over 5%. Daily Chart
Analysts believe that Priceline's recent purchase of Kayak Software (KYAK
) for $1.8 billion is intended to expand the company's defensive moat against Google. Kayak is a meta-search site, which combs through other sites, such as Priceline, Expedia or Orbitz, in order to produce the best price. These abilities are similar to Google's new "Google Flights" search ability. Kayak generates approximately 80% of its revenues domestically, which help balance Priceline's international business, which generates most of its revenue. Priceline relies heavily on Europe for most of its revenue. The company generates 82% of its $7.8 billion in gross bookings from international markets, with Europe holding the largest slice. International sales surged 30% last year, compared to 7% growth in the United States. Although Priceline is commonly associated with low-cost airfare, the majority of its revenue is generated from hotel bookings. Priceline's 2005 purchase of European travel giant Booking.com for $135 million has given the company deeper access to the continent's smaller, independent chains and operators. Prior to the European sovereign debt crisis, Booking.com was considered the primary driver of Priceline's explosive growth. At the time of the purchase, Priceline only reported $10 million in annual profits, while today its profits exceed $1 billion. Overseas revenue have risen 68% at a compounded annual rate since the acquisition. Priceline has also expanded steadily into Asia. Its subsidiary Agoda is slowly becoming the Booking.com of Asia, and helping it keep Expedia, which owns No.2 Chinese travel site eLong (LONG
), at bay. More importantly, Priceline has inked a deal with Ctrip.com (CTRP
), the largest Chinese travel booking site, to mutually share search results. This deal gives Priceline access to Ctrip's Chinese hotels, and in turn gives Ctrip access to Booking.com's 235,000 hotels worldwide. Analysts believe that China will surpass the United States as the world's largest travel market by 2020, and both Priceline and Ctrip are well positioned to capitalize on the estimated $277 billion market. By that time, travelers from the Asia-Pacific region will comprise approximately 22% of global traffic as well as generate a third of the world's travel spending. Technical analysts believe that Priceline could pull back to $590 per share, although further downside is limited. The stock is trading at 16.7 times forward earnings with a 5-year PEG ratio of 0.99 and does not pay a dividend. Other News About PCLN Is Priceline.com Ready to Rebound?
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Published on Dec 13, 2012
By Leo Sun