Priceline's Room-Night Acceleration Continues For Q3; Q4 Will Be A Different Story

Priceline Group Inc PCLN delivered a Q3 beat, with a re-acceleration in room-night growth, highlighting further share gains in the United States. However, comps will be tougher in Q4, and a room-night acceleration from Q3 levels is unlikely, Pacific Crest’s Brad Erickson pointed out in a report.

Erickson maintains a Sector-Weight rating on Priceline saying, “[W]e need greater confidence in the sustainability of accelerating room-night growth and improving ad efficiency trends before arguing for significant further multiple expansion.”

Strong Execution

Priceline exhibited strong execution in Q3, delivering a revenue, gross profit and EPS beat. Room-night growth re-accelerated to 29 percent year-over-year, while incremental gross booking dollars per online ad dollar spent improved year-over-year for the third straight quarter.

Priceline has gained share versus Expedia Inc EXPE for the past couple of quarters. Erickson believes Booking.com’s partnership with Tripadvisor Inc TRIP's Instant Book “has recently amplified share gains versus Expedia.”

Looking Ahead

Management indicated some incremental pressure in Q4. Moreover, Q4 comps are more difficult and room-night growth may not accelerate from the Q3 levels. The analyst added, “Given Expedia plans to drive more paid channel growth in the out-quarter as well as our view that Expedia could join IB at some point, we see potential for some mean reversion.”

At last check in Tuesday's pre-market, Priceline was up 4.37 percent at $1,545. Year-to-date, the stock is up 16 percent.