Priceline.com (PCLN) stock has taken flight today after announcing some impressive earnings. The discount travel agency website followed up a strong report from competitor Expedia (EXPE) two weeks ago. Priceline’s quarter was easily better than the Wall Street analysts anticipated as they reported earnings per share of $2.02, which was 27 cents better than expectations. Revenue was also better than analysts predicted, as they were able to grow revenue by 17.5% versus a year ago.
As if that performance wasn’t enough, Priceline was also confident enough in the operating conditions to lift guidance for the second half of the year. They raised third quarter earnings guidance $2.70-$2.85, whereas analysts were expecting $2.52. Management has also stated that they expect strong revenue growth of 19% to 23% for the third quarter. Not surprisingly, the stock is up more than 14% today (near midday), reaching new 52-week highs.
The strong performance was helped by aggressive pricing of travel packages to summer vacation destinations. Hotels and airlines have been greatly impacted by the recession, so in order to entice travelers they have had to deeply discount their services. Priceline has become a main destination for bargain hunting travelers and PCLN has been able to take greater market share because of this. The hope is that travelers will continue using their booking service as the economy improves. Here is a related portion of the company’s statement that accompanied the earnings release,
“Unemployment and the global economic downturn continue to affect travel spending, particularly high yield business travel, which places considerable strain on travel suppliers. Suppliers have responded with promotions and discounts to spur leisure demand and we have offered distribution and advertising support for those efforts, which we believe has helped bolster occupancy and load factors. Despite significant decreases in pricing, priceline.com performed well in the first two quarters of this year and we believe our brands and service offerings have resonated with leisure travelers looking for the best value for their trips. In the 3rd quarter, we intend to continue to invest in expansion of our international hotel platform, integration initiatives and marketing of our brands in an effort to offer consumers the best travel value and to offer suppliers value as a unique and efficient distribution channel.”
These strong results suggest that consumers are continuing to travel through the tough times, albeit cheaply. We are reaffirming our Fairly Valued rating on PCLN shares even after the extremely solid quarter they turned it. This stock could continue to go higher, as high as the mid $160’s according to our methodology, but the stock is not priced particularly attractively after today’s substantial advance. Had we already owned the stock, we would be hanging on to it, but much of the upside potential has already passed by new investors.
