Priceline Shares Tumble on Slowing Growth, Wary Outlook
08/07/2012| 07:00pm US/Eastern
--Revenue and bookings growth slows markedly
--Company expects significant deceleration
--Shares nosedive 15% after hours
(Updates throughout with executive comments from conference call and interview, further details and context about results)
By Joan E. Solsman
Priceline.com Inc.'s (>> Priceline.com Inc) growth slowed markedly in the second quarter, with a surprisingly downbeat outlook underscoring how its robust gains in the European hotel market are falling prey to economic uncertainty.
As the online travel agency reported a 37% earnings increase, its stock went into a tailspin after hours on the unwinding growth and cautious outlook. Shares were down 15% at $580.50 and dragged down others in the sector. Expedia Inc. (>> Expedia, Inc.) traded down 3.8% to $56.65, TripAdvisor Inc. (>> Tripadvisor Inc) fell 4.6% to $36.90, and Orbitz Worldwide Inc. (>> Orbitz Worldwide, Inc.) declined 2.8% to $4.53.
Among online travel agencies, Priceline has the greatest international and hotel focus, which until now have been the sector's breeding grounds for growth.
Priceline Chief Executive Jeffery H. Boyd said the company--operator of its namesake website as well as Booking.com, Agoda.com and Rentalcars.com--now assumes fairly significant deceleration, particularly in the key European businesses that represent about 60% of its booked hotel room nights.
The negative comments were jarring, coming after other travel companies reported relatively stable performance even with the overhanging uncertainty in places like Europe. Google Inc. (>> Google Inc) recently noted strength in the travel sector across the board, TripAdvisor reported its hotel shopper growth, and Expedia's core operations posted a strong second quarter.
Executives on a conference call to discuss results said Priceline believes it continued to gain share against competitors in major markets during the second quarter. However, they conceded rivals' better results in the last couple of quarters due to good execution on their part.
Priceline Chief Financial Officer Daniel J. Finnegan said its outlook assumes that as macroeconomic conditions deteriorate further, unit growth rates "will decelerate fairly significantly."
For several quarters now, Priceline has noted weaker transaction growth rates and average-daily-rate trends for some southern European countries, he said. "We see evidence of these trends spreading to other markets, including the U.K.," he added.
The forecast also reflected "the significant drag on growth" from the stronger dollar and natural deceleration of a large business lapping lofty rates in prior-year periods, he added. Priceline has long been girding investors for that flattening curve because of its size.
Priceline projected third-quarter earnings of $11.10 to $12.10 a share with revenue growth of 9% to 15%. Analysts polled by Thomson Reuters had forecast per-share profit of $12.76 and revenue growth of 24%.
Bookings, the value of all services bought online, are expected to grow 10% to 18%, which would represent the slowest rate since the middle of 2009.
In the latest period, gross bookings rose 27%, near the low end of the company's expectation and itself marked slowing from previous quarters. International bookings were up 33%, also at the low end of guidance, though it was being compared to a period with Priceline's strongest international growth rate in years.
In the latest quarter, Priceline contended with declines in average daily rates for hotels; further slowing in Europe, particularly in economically beset Southern Europe and the U.K.; and a overall difficult comparison internationally. It continued to have high growth in Asia Pacific and the Americas.
Priceline reported a profit of $352.3 million, or $6.88 a share, up from $256.4 million, or $5.02 a share, a year earlier. Excluding stock-based compensation and other items, per-share earnings rose to $7.85 from $5.49. Revenue jumped 20% to $1.33 billion.
The company's cautious May forecast called for earnings between $7.20 and $7.40 a share on an 18%-to-23% increase in revenue.
Gross margin widened to 75.7% from 67.9%.
Overall domestic bookings were up 5.3%. Hotel-room nights sold jumped 39%, while rental-car days rose 29%. Airline-ticket volume decreased 1.8%.
Priceline on Tuesday also unveiled a new partnership with CTRIP.com International Ltd. (CTRIP), a travel service provider in China. In an interview, Mr. Boyd said the partnership would increase the Priceline group's access to Chinese traveler demand, which is predicted to be an increasingly important factor in travel.
-Nathalie Tadena contributed to this article.
Write to Joan E. Solsman at email@example.com
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