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Priceline Earnings Beat As Usual, Shares Up
08/05/2016 Priceline.com (NASDAQ:PCLN) beat second quarter guidance on all counts and easily beat the Zacks Consensus Estimate on revenue and earnings. Both agency and merchant businesses are showing strong momentum, room nights are growing much faster than in recent history, rental cars are also going strong. The only point of persistent weakness is the airline tickets.
After Expedia’s (NASDAQ:EXPE) disappointing results, investors cheered the performance and for once, rewarded management for the tradition of guiding conservatively. As This was reflected in the 5.7% appreciation in share prices.
Currency did have a negative impact on the quarter’s results although management had expected the impact to be neutral. Easter falling in the first quarter this year had a negative impact on quarterly performance, especially with respect to the sequential comparison. Terrorist attacks also had a negative impact on booking and resulted in increased cancellations in affected areas but the total impact on Priceline was negligible. Management said that Brexit and the devaluation of British currency would have a limited impact on Priceline as UK destination gross profit and UK source gross bookings were only around 10% of the business. So with that, let’s dive into the numbers- Revenue Priceline reported revenue of $2.56 billion, up 19.0% sequentially and 12.1% from the year-ago quarter. Revenues missed the Zacks Consensus Estimate by 1.5% but were better than management’s guidance of $2.52 billion at the mid-point. Revenue by Channel Priceline generates the bulk of its revenue from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenue, which was 22/70%) in the last quarter (previous quarter split was (20/72%). Merchant revenues were up 10.2% sequentially and down 5.2% year over year. Agency revenue grew 23.5% sequentially and 17.1% year over year. Advertising & Other revenue was up 3.9% sequentially and up 21.6% from last year, accounting for the balance. This is basically non inter-company revenue from Kayak and OpenTable, of which OpenTable grew 22% year over year. The restaurant reservation service that Priceline acquired some time back is rapidly building on the number of restaurants in North America and also expanding internationally. Room nights, rental car days and airline ticket volumes grew a respective 3.1%, 14.2% and 11.1% sequentially and a respective 24.4%, 7.6% and -4.8% from last year. Priceline’s room night growth is attributable to its very geographically diverse inventory and brand recognition that tends to balance out macro uncertainties related to any one market as well as growing competition from local and international players. The company did however see ADRs declining. Rentalcars.com also did quite well but there was some softness in ticket volumes. Bookings Priceline’s overall bookings were up 7.3% sequentially and 19.4% (21% in constant currency) year over year, better than guided. Management stopped breaking out U.S. and international bookings this year but is still providing some color on the respective gross profit contributions. Merchant bookings were up 17.7% sequentially and 19.1% year over year. Agency bookings grew 5.7% sequentially and were up 19.4% from year-ago levels. Operating Performance Priceline reported a pro forma gross margin of 95.1%, up 106 basis points (bps) sequentially and up 329 bps year over year. Because of the nature of the business and the mix of agency versus merchant revenue, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Priceline’s gross profit dollars were up 20.3% sequentially and 16.1% (27% in constant currency) from last year, just above guidance. International gross profit grew 17% (19% on a constant currency basis). U.S. gross profit grew 8% year over year. Priceline’s operating income grew 30.8% sequentially and 7.6% from the $721.0 million reported last year. The operating margin of 30.3% expanded 275 bps sequentially while shrinking 128 bps from the year-ago quarter. Advertising expenses as a percentage of sales grew sequentially but remained below year-ago levels. Other expenses were also down sequentially and all except S&M were up from last year. Priceline reported adjusted EBITDA of $867.1 million, up 7.8% from the year-ago quarter, better than management’s expectations of adjusted EBITDA in the $740-795 million range. Net Income The pro forma net income was $649.8 million, or 25.4% of revenue, compared to $472.8 million, or 22.0% in the previous quarter and $592.8 million, or 26.0% in the year-ago quarter. Our pro forma estimate excludes amortization of intangibles and other charges as well as tax adjustments, and includes stock based compensation in the last quarter. Including these items, Priceline’s GAAP net income was $580.6 million or $11.60 a share, compared to $374.4 million, or $7.47 a share in the Mar quarter and $517.0 million, or $9.94 a share in the year-ago quarter. Balance Sheet Priceline ended with a cash and short term investments balance of $4.37 billion, up $988.2 million during the quarter. Priceline generated $966.0 million of cash from operations. It spent around $60.4 million on capex and $265.8 million on share repurchases. At quarter-end, Priceline had $7.26 billion in long-term debt with the net debt position being $2.88 billion, down from a net debt position of $2.94 billion at the beginning of the quarter. Days sales outstanding (DSOs) went from 36 to around 35. Guidance For the second quarter, Priceline expects room nights booked to grow 18-23% and total gross bookings to grow 14-19% year over year (15-20% on a constant currency basis). This is expected to yield a year-over-year revenue increase of 12-17% ($3.55 billion at the mid-point), below the $3.59 billion analysts were expecting. Priceline expects gross profit dollars to increase 15-20% (16-21% on a constant currency basis), with the adjusted EBITDA at $1.73-$1.83 billion. The pro forma EPS is expected to come in at $28.30-$29.80, better than the Zacks Consensus Estimate of $28.64. GAAP net income is expected to be $1.30-1.38 billion, or $26.10-$27.60 a share. https://skyllex.com/news/104
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