JPMorgan On Travel: Prefers Priceline Into Q1 Earnings

Heading into first-quarter earnings, JPMorgan prefers Priceline Group Inc PCLN over peers Expedia Inc EXPE and Tripadvisor Inc TRIP.

Priceline

Analyst Doug Anmuth is looking for "1Q FXN total gross bookings growth of +23 percent Y/Y, toward the high end of the +18 percent – 25 percent guide, driven by +25 percent Y/Y hotel room-nights growth, also toward the high end of the +20 percent – 27 percent guide. We note the FXN total gross bookings and room-nights growth guide at the high end suggest stable growth in 1Q w/a possibility of further acceleration."

"We believe there is potential upside to our 25.4 percent Int'l FX bookings growth estimate driven by increased supply and more focus on vacation properties," Anmuth added.

Related Link: Priceline Hit With Upgrade By Vetr Top Raters

He also expects lower EBITDA and guidance compared to the consensus, saying, "1Q EBITDA of $612 million vs. $623 million consensus and the $580 million – $620 million guidance. We believe PCLN's expectation of ~140bps of deleverage in non-GAAP operating margin in 1Q, mainly attributable to its assumptions for online ad efficiency, is conservative, but note the cancellations post Brussels attack could weigh on marketing efficiency in 1Q. We model 137bps of deleverage."

Priceline's first-quarter results would benefit from a fall in airline ticket rates due to low oil prices, while strong bookings in December, a shift in Easter Day and Leap Year will aid quarterly performance.

Anmuth rates Priceline at Overweight, with $1,510 price target, saying, "We remain confident in PCLN's ability to drive further share gains globally. We recognize that shares have rebounded well since 4Q earnings and PCLN is now up on the year, but we're comfortable w/ current trends and believe valuation is attractive."

Expedia

For Expedia, Anmuth expects "1Q total gross bookings Y/Y growth of +36 percent (+38 percent FXN Y/Y growth), driven by +32 percent int'l FXN Y/Y gross bookings growth and +41 percent U.S. Y/Y gross bookings growth. 1Q EBITDA of $152 million vs. $139 million consensus."

The analyst noted that Expedia expects headwind on tech and content from Orbitz integration in 1H, as it anticipates double cost from building out a new platform for Orbitz on Brand Expedia to be incurred while maintaining the old Orbitz platform.

"Continued headwind in revenue per room night, driven by the slowing lodging trends and the deliberate reduction in hotel margins, to be completed by end of ‘16. We note, the accelerator program, if successful, should improve hotel margin, and we look for commentary on the roll-out progress," he continued.

Anmuth, who has a Neutral rating on Expedia shares, with a price target of $128, said though he is encouraged by continued solid execution, 2016 is more of an investment year and Expedia must successfully integrate both Orbitz and HomeAway.

TripAdvisor

For TripAdvisor, Anmuth sees "1Q total revenue of $377 million (+4 percent Y/Y) vs. consensus of $377 million. We model flat Hotel segment revenue Y/Y growth to $321 driven by -3 percent decel in click-based advertising revenue to $242 million and +13 percent Y/Y growth in Display-based advertising revenue to $40 million. 1Q adj. EBITDA of $104 million (-18 percent Y/Y) vs. consensus of $113 million."

Anmuth highlighted, "We note TRIP expects ongoing investments in improving the user experience, building out supply,& driving higher conversion will likely cause margin contraction in 2016. We believe this contraction will be more pronounced in 1H16 as IB rollout will put pressure on both revenue and margin."

The analyst, who has a Neutral rating and $66 price target on TripAdvisor shares, also expects continued revenue headwinds from the Instant Booking global roll-out.

At Time Of Writing...

Shares of Priceline were down 1.02 percent to $1,279.81, Expedia fell 1.69 percent to $103.95 and TripAdvisor slipped 3.53 percent to $63.22.