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Priceline Has More Room For Upside

February 28, 2017

Priceline Group Inc (NASDAQ: PCLN) reported strong fourth-quarter 2016 results and announced healthy guidance for Q1 2017. While there would likely be “heavy investment in paid channels’ in the first half of 2017, the company could benefit from operational leverage as the year progresses, Benchmark’s Daniel L. Kurnos said in a report.

Kurnos maintains a Buy rating on the company, while raising the price target from $1,800 to $1,900. He added that the company’s Q4 results and Q1 guidance indicated “further room for upside.”

Q4 Review

Priceline reported room-night growth of 31 percent, up from 29 percent in the prior quarter. This was higher than the consensus estimate of 25 percent, “likely driven by a combination of outperformance at Booking.com and Agoda, as evidenced by agency bookings upside of ~$560 million,” Kurnos noted. The company also delivered a $58 million EBITDA upside.

Booking.com’s alternative accommodation options totaled 7.8 million. Priceline acquired Momondo to enhance Kayak’s European presence and expanding instant book to cover 591,000 vacation rental properties on Booking.com. The company also generated 70bps of operating leverage year-over-year.

Q1 Projections

Citing the strong momentum of Q4 that would likely continue into Q1, the analyst raised the gross booking and revenue estimates by $3 billion and $250 million, respectively. He added that the forecast did not include any benefit from the $550 million acquisition of Momondo, which is expected to close by the end of 2017.

The adjusted EBITDA forecast was left unchanged at $5.1 billion, due to heavy investment expected in paid channels in the first half 2017, “although we suspect there will be upside via operational leverage as the year progresses,” Kurnos wrote.

At last check, shares were up 6.45 percent at $1,737.24.