Priceline.com PCLN beat first quarter guidance on all counts and easily beat the Zacks Consensus Estimate on revenue and earnings. Both agency and merchant businesses are showing strong momentum, room nights are growing much faster than in recent history, rental cars are also going strong. The only point of weakness that we can tell at this point is the airline tickets, which could be a onetime affair (we’ll probably know more on the call).
But investors moved straight on to the guidance, which was conservative as usual. This is one of the reasons the shares have been punished in the past and they are being punished again today.
One good thing is that the company is not expecting any currency impact in the next quarter.
So with that, let’s dive into the numbers-
Revenue
Priceline reported revenue of $2.15 billion, up 7.4% sequentially and 16.7% from the year-ago quarter. Revenues beat the Zacks Consensus Estimate by 1.3% and were also better than management’s guidance of $2.07 billion at the mid-point.
Revenue by Channel
Priceline generates the bulk of its revenue from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenue, which was 22%/70%) in the last quarter (previous quarter split was (22%/70%).
Merchant revenues were up 5.4% sequentially and down 5.0% year over year. Agency revenue grew 7.1% sequentially and 25.1% year over year.
Advertising & Other revenue was up 16.0% sequentially and up 21.4% from last year, accounting for the balance.
Room nights, rental car days and airline ticket volumes grew a respective 37.7%, 32.8% and 5.9% sequentially and a respective 30.5%, 11.0% and -10.0% from last year.
Bookings
Priceline’s overall bookings were up 38.6% sequentially and 20.9% year over year, better than guided. Gross bookings of $16.7 billion grew 21% from last year, or 26% in constant currency, again better than guided.
Management stopped breaking out U.S. and international bookings from this quarter but is still providing some color on the respective gross profit contributions.
Merchant bookings were up 26.9% sequentially and 13.5% year over year. Agency bookings grew 40.5% sequentially and were up 22.1% from year-ago levels. Both growth rates display strength versus a year ago.
Operating Performance
Priceline reported a pro forma gross margin of 94.0%, up 4 basis points (bps) sequentially and up 405 bps year over year.
Because of the nature of the business and the mix of agency versus merchant revenue, management usually uses gross profit dollars rather than margin to gauge performance during any quarter. Priceline’s gross profit dollars were up 7.5% sequentially and 22.0% (27% in constant currency) from last year, better than guided. International gross profit grew 23% (31% on a constant currency basis).
Priceline’s operating income dropped 15.4% sequentially but was up 28.6% from the $460.9 million reported last year. The operating margin of 27.6% shrank 744 bps sequentially but expanded 255 bps from the year-ago quarter. Advertising selling and marketing expenses increased sequentially as a percentage of sales. Advertising and personnel costs also increased from last year.
Priceline reported adjusted EBITDA of $676.3 million, up 27.2% from the year-ago quarter, better than management’s expectations of adjusted EBITDA in the $580-620 million range.
Net Income
The pro forma net income was $472.8 billion, or 22.0% of revenue, compared to $561.5 billion, or 28.1% in the previous quarter and $375.4 million, or 20.4% in the year-ago quarter. Our pro forma estimate excludes amortization of intangibles and other charges as well as tax adjustments, and includes stock based compensation in the last quarter.
Including these items, Priceline’s GAAP net income was $374.4 million or $7.47 a share, compared to $504.3 million, or $10.00 a share in the December quarter and $333.3 million, or $6.36 a share in the year-ago quarter.
Balance Sheet
Priceline ended with a cash and short term investments balance of $3.38 billion, up $734.3 million during the quarter. Priceline generated $344.3 million of cash from operations. It spent around $53.3 million on capex and $259.4 million on share repurchases.
At quarter-end, Priceline had $6.32 billion in long-term debt with the net debt position being $2.94 billion, down from a net debt position of $3.51 billion at the beginning of the quarter. Days sales outstanding (DSOs) went from 29 to around 36.
Guidance
For the second quarter, Priceline expects room night bookings to grow 15-22% and total gross bookings to grow 11-18% year over year (11-18% on a constant currency basis). This is expected to yield a year-over-year revenue increase of 7-14% ($2.52 billion at the mid-point), below the $2.69 billion analysts were expecting.
Priceline expects gross profit dollars to increase 9-16% (9-16% on a constant currency basis), with the adjusted EBITDA at $740 million to $795 million.
The pro forma EPS is expected to come in at $11.60-$12.50, well below the Zacks Consensus Estimate of $14.12.
Recommendation
Priceline shares currently carry a Zacks Rank #4 (Sell). Safer Internet stocks are Travelport TVPT, which has a Zacks Rank #1 (Strong Buy), or Mercadolibre MELI or Groupon GRPN, both of which share a Zacks Rank #2 (Buy).
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