Priceline Soars on Strong Summer Results

By Markets Fool.com

Fast growth has been something that investors in Priceline Group (NASDAQ: PCLN) have almost taken for granted over the years, and the online travel specialist has consistently set the bar high in terms of its expectations for its future potential. Coming into Monday's third-quarter financial report, Priceline investors fully expected to see the typical growth in revenue and earnings that the company has achieved in the past, especially given that the summer is the company's high season.

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Priceline did its typical good job in exceeding expectations, and despite a writedown related to its OpenTable business, investors were happy with the results. Let's look more closely at what Priceline Group said about its results and what lies ahead for the company.


Image source: Priceline Group.

Priceline keeps climbing higher

Priceline's third-quarter results continued the company's streak of solid performance. Revenue was up 19%, to $3.69 billion, topping the $3.62 billion that most investors were expecting to see. GAAP net income took a hit from an impairment charge, but adjusted net income jumped 20%, to $1.57 billion, and that produced adjusted earnings of $31.18 per share. That was well above the $29.32 per-share consensus forecast among those following the stock.

Priceline's fundamental metrics were all quite solid. Gross travel bookings were up 25%, to $18.5 billion, accelerating from the company's growth pace earlier in the year. The strong dollar has ceased to have a major impact on Priceline's bookings, costing it just a single percentage point of growth. Gross profit for the international segment, which makes up the vast bulk of gross profit, was also up by a quarter.

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Taking a closer look at Priceline's various business segments, the hotel business remains the most important contributor to the company's results. The number of room nights booked was up 29% from year-ago levels, and that growth was far faster than Priceline experienced during the same period in 2015. Rental car days climbed 12.5%, to 18 million, continuing a trend toward slower growth in the area. Airline ticket sales stayed weak, falling another 2.5%, to 1.9 million.

Agency revenues remained the key growth driver for Priceline sales, climbing by nearly a quarter, to $2.89 billion. Merchant revenues rose at a more sedate 4% pace, but advertising revenue posted double-digit percentage growth for the quarter.

Interim CEO Jeffery Boyd was pleased with the results. "The Priceline Group brands executed well during our peak summer travel season," Boyd said, and the CEO noted that hotel-related growth stemmed from "the favorable market in which we operate as well as the value of our diverse global platform."

Can Priceline keep growing?

Of note for investors was the move to take a goodwill impairment charge of $941 million against the OpenTable business. In Boyd's words, "We also look forward to pushing ahead with OpenTable to build on their strong brand with a strategy that supports both building the core business and international expansion at a more measured pace."

Priceline once again gave pessimistic guidance for the coming quarter, but investors didn't seem to react negatively to that. The company said it expects 16% to 21% growth in total gross travel bookings, with non-GAAP net income coming in between $610 million and $640 million and producing adjusted earnings of $12.20 to $12.80 per share. That doesn't compare favorably with consensus forecasts for $13.57 per share in earnings, although revenue projections for 15% growth aren't completely inconsistent with Priceline's bookings guidance.

Nevertheless, Priceline investors reacted quite favorably to the news, sending the stock soaring by more than 5% in after-hours trading following the announcement. By being smart with its strategy to make OpenTable more appropriately sized, Priceline has gotten investors more confident in its ability to keep up its growth pace well into the future.

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Dan Caplinger owns shares of Priceline Group. The Motley Fool owns shares of and recommends Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.