Analysts Keep Priceline Ratings Intact Despite Slowing Growth
Priceline Group's (NASDAQ: PCLN) second-quarter earnings beat pleased analysts even as growth in room nights slowed for the second consecutive period.
Second-quarter performance "offered no surprises" for those bullish on Priceline, according to Deutsche Bank's Ross Sandler, who maintained a Buy rating on the shares Tuesday, boosting his target to $1,520, from $1,300 a share.
The company "continues to deliver room-night growth well ahead of the competition," Sandler said despite deceleration.
Growth in the category slowed from 32 percent to 29 percent in the first quarter, in part because political unrest in Thailand scared off potential customers of the company's Agoda online booking service.
Recent results "paint a clearer picture of Priceline's trajectory" according to Credit Suisse's Dean Prissman, who said the recent international expansion of its Kayak unit and additional spending for online advertising offered "no immediate payoff."
Online marketing's platform shift to mobile has required heavy investment and this, coupled with increasing competition and higher prices, has helped driven down returns from online advertising.
"It's a trend we don't see reversing any time soon," Sandler said, noting that Priceline's marketing costs have been increasing for the past two years.
Macquarie's Tom White said the trend will pressure Priceline's profit margin.
"But the bottom line is this sector will remain competitive and we expect Priceline can maintain high levels of growth," White said in a note.
White maintained an Outperform rating and boosted his target to $1,595 from $1,500 per share.
Disappointing returns from online advertising is "either a warning sign" or a sign of conservative management, according to UBS's Eric J. Sheridan.
Other margin pressures stem from Priceline's continued investment in a push toward vacation rental offerings as well as off-line advertising initiatives in Germany and other markets, Sheridan said.
Nonetheless, Sheridan maintained an Outperform rating and raised his target to $1,600 from $1,500.
Latest Ratings for PCLN
|Sep 2014||Evercore Partners||Downgrades||Overweight||Equal-weight|
|Aug 2014||Stifel Nicolaus||Initiates Coverage on||Buy|
|Aug 2014||Pacific Crest||Maintains||Outperform|
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