Why Shares of Priceline Group Are Tumbling Today

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What happened

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Shares of online travel company Priceline Group (NASDAQ: PCLN) slumped on Tuesday following its third-quarter report. While Priceline beat analyst estimates for both revenue and earnings, the company's fourth-quarter guidance fell short of expectations. The stock was down about 11.5% at 11:30 a.m. EST.

So what

Priceline reported third-quarter revenue of $4.43 billion, up 20.1% year over year and about $90 million higher than the average analyst estimate. Gross bookings jumped 18% year over year to $21.8 billion, driven by an 18.6% increase in room nights and a 5.5% increase in rental car days. Airline tickets sold tumbled 11.8%, extending a long string of declines.

Non-GAAP earnings per share came in at $35.22, up from $29.69 in the prior-year period and $0.97 better than analysts were expecting. Priceline's gross margin was 21.9%, up from 21.8% in the prior-year period.

Where Priceline fell short of expectations was its fourth-quarter guidance. The company expects non-GAAP EPS between $13.40 and $14.00, well below the consensus analyst estimate of $15.56. Adjusted EBITDA between $870 million and $910 million was also below expectations of $1 billion.

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Now what

Priceline expects room nights to grow by 8% to 13% year over year during the fourth quarter, with gross travel bookings growing by 9.5% to 14.5%. Those ranges represent a slowdown compared to the third quarter.

The good news for investors is that the fourth quarter is seasonally weak, making the third-quarter earnings beat more meaningful than the fourth-quarter guidance shortfall. Priceline has generated $60.17 in non-GAAP EPS through the first nine months of the year, and that number will rise to around $74 once the fourth quarter is in the books. Nearly half of that total will have been generated during the third quarter, with less than 20% coming during the fourth quarter.

A guidance miss is never a good thing. But in this case, the market seems to be overreacting.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Priceline Group. The Motley Fool has a disclosure policy.