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Pricing Priceline

Posted on Monday, Jul 2nd 2007

With Independence Day barely days away, Priceline predictably has come out with its 4th annual survey of 50 most popular holiday destinations. The survey is based on more than 30,000 actual booking requests made by its customers online, and therefore an accurate predictor of trends this season.

The beeline of holiday customers and humming of activity at Priceline is reflective of a general boom in online travel, that somewhat puts in shade its reported Q1 loss last month of $0.44 a share compared to a $0.02 loss a share in the same quarter last year.

Analysts feel the sheen of Priceline stock will not pale much since the company’s Q1 total revenue rose by an impressive 25% at $301.4 million ($241.91 million same quarter last year) and its Q1 pro forma revenue at $285.5 million registered an 18% increase over last year’s.

In November last year, Goldman Sachs had held a price of $49 a share for Priceline as 12-month target. The scrip however is doing much better, hovering around $63-64 in the last few trading sessions.

It has been a long story for Priceline, a dot-com wonder that pioneered the concept of NYOP (Name Your Own Price) in 2000. It shot into fame because of this unique model where travelers would name their prices for air travel, car rental and hotel room in its website that were matched by the database of suppliers that Priceline maintained. [Our recent review of Priceline against the Web 3.0 framework is here.]

Later though the model lost popularity on account of apparent lack of transparency, and Priceline in April 2005 started, for the first time, a ‘published list format’ in which travelers would be able to make bookings, knowing which brand and product they have been choosing from.

This was the same format that bigger rivals like Expedia and Travelocity were already following, and so for Priceline this began just another avenue to sell its travel related products.

What however proved the main issue-clincher in the company’s favor has been the strong showing by its European division, Priceline Europe. Said to be one of Europe’s fastest growing companies, Priceline Europe now sells more than 5,000,000 room nights per year, promoting over 15,000 hotels in 40 European destinations.

Little wonder then that its Q4-2006 profit at $13.2 million ($0.33 a share) more than doubled compared to previous year’s figure of $3.8 million ($0.09 a share), which has been due to stellar European performance.

Backed by significant ownership of its stock by Cheung Kong Holdings of Hong Kong that recently sold its stake in India’s cellular phone provider Hutch to UK’s Vodafone for a record $19 billion, the mood at Priceline is clearly upbeat.

However, whether the stock scales its all-time high of $104 at the peak of dot-com era is something that remains to be seen. If it does, this time, it will be based not on random speculation, but rather solid fundamentals, since the Online Travel industry now is here to stay.

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Priceline was much higher than $104…It had a 6-1 reverse split. Based on that it once traded at around $158 times 6 or $1,000 and change. That was in 1999, it went public based on the split at around $400. It still has tremendous upside, they are taking over the US market.

Ted Garren Tuesday, July 3, 2007 at 8:30 AM PT

I checked a chart, those numbers are correct. Thank you. Yahoo is rumored to be looking at Priceline.

Mark Salucco Tuesday, July 3, 2007 at 11:15 AM PT

Yahoo looking at Priceline makes good sense. Yahoo needs to consolidate the Travel vertical and create a much stronger position in it.

Sramana Mitra Tuesday, July 3, 2007 at 12:33 PM PT

With the Hilton Hotel acquisition at 30 % plus over share value just announced, Priceline is ripe for a takeover. Consider this, the Priceline January 2008 90 call options are trading at $1.45 with an unusually large open interest of 1,177 contracts. That is a staggering premium, no other $68 dollar stock has 90 calls anywhere near that number. It is only a matter of time, Priceline is going to be taken over, and the price tag may be over $100.

Ralph Hollendorfer Tuesday, July 3, 2007 at 6:27 PM PT

I live in the UK and the Bookings.com Priceline own is going great guns. Don’t think people like Murdoch aren’t taking notice, also Priceline apparently are close to large deals with Ryan Air and others. They also are now making moves in Poland and the Czech Republic.

Cheers, Clive

Clive Boddington Tuesday, July 3, 2007 at 7:20 PM PT

I had no idea priceline was once $1,000 a share, unbelievable but true.

Hank Miller Tuesday, July 3, 2007 at 7:49 PM PT

I stay at the Best Eastern Hotel in Kiev using the name your price. Priceline is in Russia. Raka Petrova

Raka Petrova Tuesday, July 3, 2007 at 9:37 PM PT

i live in Europe. In service, twice, Priceline missed my expectations. This company is not serious at all, i prefer travelocity and expedia who had never cheat with their numbers.

christian Wednesday, July 4, 2007 at 6:44 AM PT

if the euro goes to 1.31 per dollar, the value price of priceline would be 55. I don’t like how priceline depends on that currency market. Europe consumer confidence is at the best and once it goes back, the stock will suffer as many times in the past. I prefer stocks with big markets not with big potential. PCLN is constantly loosing market share in the US.

federica Wednesday, July 4, 2007 at 4:51 PM PT

i agree, priceline cheated with his results in the past and now they have to pay $ 80 millions to investors for the dammage done. A company that didn’t borned serious is not serious. It is a nother case like Enron and Worldcom….

kevin Thursday, July 5, 2007 at 10:14 AM PT

i don’t want to hear about priceline. I lost my house being bullish in hat company and when market conditions changed, they cheated with the results. I hope everyone is advised of the behavior of this company.

michael Thursday, July 5, 2007 at 9:27 PM PT

You see I check the US market I just wake up, Pricfeline at $70.83 just wait Yahoo or Google buy Priceline over $100. Don’t blame Company for overpriced IPO, besides Priceline have all nwew m,anagement and like I say I stay all over Russia cheap price. Only Priceline have deal, expedia travelocity BS no better than hotel or airline website. ONLY PRICELINE DEAL!!

Raka Petrova Friday, July 6, 2007 at 7:19 PM PT

it was not an overprice IPO in 2005, it was lying by the management. And they just changed two persons from the management, all others 13 are the same and are under inverstigation by the justice. Probably, you will see one manager in the press going to jail by the middle of August.They have already agreed to pay 80 millions and it is not over because there are new investors claiming. I am a lawyer and i will do my best to continue showing this fraud.Google, Yahoo? those yes are serious companies and don’t cheat. I dont think that those companies will dammage their image buying priceline that made so many frauds.

michael Saturday, July 7, 2007 at 12:54 PM PT

Priceline at 80 with all the european airports under attack ??? Are you crazy. Under this war with Al Qaeda, you think that it is time to invest in companies that works with Airports ?? If you want to invest in Aiports, buy companies that sells security systems to US and eupopean airports.

karen Saturday, July 7, 2007 at 1:03 PM PT

never know in which airline i travel when i work with priceline. Just see the size of the company. They are trying to create a bubble but just take a look at the small size of priceline and you will understand that there is no chance or doesn t make sense any takeover.It is easier for companies just to start the business from zero before paying for a company of a P.E of 56 or 33 after paying all the sues that will never end.

luis Saturday, July 7, 2007 at 5:03 PM PT

This is fascinating actually. Some people love priceline, some people hate them. A comment was made about a $60 million lawsuit. That is true, insurance cover $30 million and priceline paid the $50 million already, around 4 months ago. The PE ratio is misleading as the lawsuit charge was taken in the last quarter. Analysts are estimating 80-90 cents for Q2 which will be announced in a month. I think they will make closer to $1.20.

Ted Garren Sunday, July 8, 2007 at 10:44 AM PT

listen, Expedia just announced a buy back of 3.6 bn of his own stock. That means that they dont see any value in PCLN that is valued in 2.5 bn market cap. If not, they would bought priceline instead of buying back their own shares 20% higher than the market price. Anyone from zero can create a company like Priceline and don’t spend 3 bn dollars.
Priceline is just smoke …speculation…you will see it in one of this corrections

laureen Sunday, July 8, 2007 at 10:45 AM PT

Actually expedia did priceline a big favor buy that announcement, and you will see a big correction…UP Buyout coming in the $95 range.

Mark Salucco Sunday, July 8, 2007 at 1:06 PM PT

Expedia is nothing more than an extra step versus a hotel or airline website. Priceline is a far superior Company. They will be bought out soon at $95 or higher.

Mark Salucco Sunday, July 8, 2007 at 1:11 PM PT

why do you think that any company will pay U$S 3 bn or more for something that they can create with his own platform and for far less than 1 bn ?? may be the cost to do something like priceline for any company could be 100 millions ?? so, takeover exists when you add value but priceline doesnt add value and doesnt have any particulat thing that can´t be copied by Google or Yahoo without paying 3 bn…. You are right, results are very good and thats keep the stock going but do not wait any takeover . Do you think that any manager will waste 3 bn knowing that it is not a difficult model to replicate when you already have millions of visitors visiting everyday your own internet page?

joe Sunday, July 8, 2007 at 6:23 PM PT

just wait for the next terrorist attack, you will see priceline at 30

martin Sunday, July 8, 2007 at 6:37 PM PT

yes, Priceline is a very easy business model to copy, no one will pay 3 bn when you already have visitors in your page like Google. It is much cheaper to promote your own online travel agency than paying 3 bn !!!!

laureen Sunday, July 8, 2007 at 7:48 PM PT

yes, the business model of Priceline is very easy to copy and no one will pay 3.5 bn to buy a so easy business model. For example, Google has an enough big platform and visitors just to implement that model with some publicity and avoid to pay 3,5 bn for Priceline or smoke…it is cheaper for sure.

laureen Sunday, July 8, 2007 at 8:42 PM PT

Folks,

You guys don’t seem to have any respect for a simple phenomenon that on the operating side is critical: Time-to-Market. It takes a long time, and a lot of work to get the kinks out of an operationally complex business. Priceline IS an operationally complex business. Their backend is very complex. While acquiring a bunch of traffic may be easy for Yahoo and Google, you will notice, Yahoo doesn’t actually have a lot transactional revenue from their travel business. They do a simple integration with Travelocity, which provides ALL the back-end.

The easiest and fastest way for any of the major Internet companies to get into the Travel vertical will be via acquisition. Expedia and Priceline are the only two independent public travel companies. IAC/Barry Diller owns a large chunk of Expedia, and is unlikely to let that company go to a competitor. But News Corp, for example, has no position in Travel.

The real issue is whether a private company may be a strong enough alternative. There are some Travel Search engines that are private and growing well (Sidestep, Kayak).

I suggest you read up on my Travel Vertical analysis if you are truly interested in what drives acquisitions. It is not just price.

https://sramanamitra.com/2007/05/15/online-travel-synthesis/

Sramana Mitra Monday, July 9, 2007 at 1:47 PM PT

sramana, with all my respect. I don’t think that the operations of priceline have a value of 3 bn? Nothing new, nothing creative. I dont think that due to the time to market, they will pay that number. 3 bn!!!! You can do 30 priceline if you start from zero with that money and you already have the traffic. Yahoo has big others problems to solve first before investing 3 bn in a commodity. I still believe that if you already have the traffic, Priceline is a very simple model and vis a vis of your chiefs, you better spend the money in something a little bit more creative and not in a commodity like Priceline.

laureen Monday, July 9, 2007 at 3:42 PM PT

if you already have the traffic, you have many companies with the same model than priceline and those companies are much cheap. If you buy Priceline, the only thing that you will be buying is the name Priceline.com and 3 billions is extremely expensive just for the name that will disappear one year later for the name that the company which did the takeover. Ridiculous. Maybe Blackstone can keep the name but who can believe that Blackstone will buy Priceline.

luis Monday, July 9, 2007 at 4:11 PM PT

yes, priceline is a commodity model, the only difference with his competitors was the “name your own price” that at this time is working worse and worse. After that, paying 3 bn to be in time to market…. there are many others more effective and cheapest solutions for big companies instead of buying a commodity.

robert Monday, July 9, 2007 at 6:10 PM PT

Orbitz is going public !!! Blackstone is selling stocks, a lot of online travel offer in the market, it looks that it is time to get out ,if Blackstone sells a part of Orbitz. Looks like the best days are over for PCLN

dianne Monday, July 9, 2007 at 6:26 PM PT

Come on Laureen, it isn’t the operations that is valued at $3 B. The company has over a billion in annual revenue, that is growing at a very good clip, is quite profitable.

I don’t think you have any idea what it takes to build a Billion dollar business. And a profitable one at that.

I think, the above points about lawsuits and fraud are well-taken. However, the business is definitely there, and the overall market is also there.

Why do you think the bankers are taking Orbitz public now? Because the market is hot. Because their numbers are starting to look interesting. Because these are now real businesses, as opposed to promises of becoming real businesses that the dotcom era was all about.

Sramana Mitra Monday, July 9, 2007 at 8:40 PM PT

trade idea: sell priceline and buy orbitz in the ipo. With this level of euro, i dont think that there will be much tourism in Europe.Also the consumer spending in the US and Europe will start to look dark.

martha Tuesday, July 10, 2007 at 11:14 AM PT

yes, it could be a good deal to sell an overvalued stock like Priceline and pick the IPO of Orbitz that could go to the market undervalued

samantha Tuesday, July 10, 2007 at 11:52 AM PT

wait some months and you will see Priceline again in 40. Unfortunately Al Qaeda is back again

vicky Sunday, July 15, 2007 at 10:32 PM PT

where is smarana now?? great advice she gave !!! congratulations !!!!

samantha Friday, July 27, 2007 at 6:48 PM PT

Samantha,

What I would say is that be patient. The market has collapsed this week. Not just Priceline.

And for future reference, I am not a trader, and I don’t provide recommendations for short term trading. I am almost entirely a company building person, so you can ignore my comments if you are looking for a quick buck off stocks.

Sramana

Sramana Mitra Saturday, July 28, 2007 at 1:21 PM PT