Priceline's Price Target Raised To $1,600 At Goldman Sachs

Goldman Sachs’ Heath Terry believes Priceline Group Inc PCLN is best positioned among OTAs “given its exposure to faster growing Asia, lower mix of chain hotel business and its relatively attractive multiple.”

Terry maintained a Neutral rating on the company, while raising the price target from $1,400 to $1,600.

Q3 Results

Priceline reported its Q3 results, with bookings of $18.5 billion, ahead of the consensus, and EPS of $29.69 ahead of the estimate, despite advertising deleverage of 208bps.

Room night growth accelerated during the quarter to 29 percent, while gross profit increased 22 percent year-on-year, even as booking margins declined 50 bps year-on-year.

“Advertising as a percentage of gross profit rose 208bps yoy, compared to ~250bps in 2Q, as Priceline sacrificed margin to accelerate bookings growth,” the analyst mentioned.

The company announced it intends to scale back the expansion plans for its dining service, OpenTable, which led to $941 million write-down that offset the robust bookings witnessed by the core business.

Guidance

Priceline expects continued deterioration in advertising ROIs in Q4. Management also guided to gross bookings growth of 16-21 percent, expecting persisting bookings margin compression in Q4.

Terry expects “outperformance to be limited as structural changes at traffic sources force OTAs to sacrifice margin for growth and pressures on booking margins persist.”

Priceline shares surged following the earnings announcement.