Priceline Disappoints In Q2, But Remains Market Leader

Priceline Group Inc PCLN shares tanked 6.9 percent Wednesday after the company’s second-quarter earnings report fell short of market expectations. However, long-term investors shouldn’t read too much into one disappointing quarter, as Priceline remains the gold standard of online travel, UBS analyst Eric Sheridan said this week.

According to Sheridan, nothing in Priceline’s Q2 report threatens the company’s long-term growth or profit catalysts. Instead, according to a wide range of industry-specific metrics, Priceline is well-positioned to continue to lead the industry even in the face of expanding competition in Asia.

Furthermore, while Priceline is facing difficult comps, the stock’s valuation of only about 20 times UBS’s 2018 EPS estimate suggests Priceline's downside may be limited.

“We think investors should stay focused on solid end demand & industry trends which are driving 15-20% gross profit growth over the medium term & a mgmt team noted for its prudent approach to capital management (creating s/h value thru buybacks and M&A activities),” Sheridan wrote following the disappointing earnings report (see his track record here).

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Despite the negative market reaction, UBS identified several positives from Priceline’s second quarter. Gross profits came in ahead of expectations on the strength of improving margins. Management also reported positive commentary on Momondo integration.

Looking ahead, Sheridan expects Priceline will focus on growth via adding vacation rentals, improving conversion and adding new customers. He said Priceline will also begin to see meaningful tailwinds from adjacent businesses, including KAYAK, BookingSuite and Booking.com.

UBS maintains a Buy rating on Priceline and a $2,100 price target for the stock.