Earnings Preview: Priceline

 | Feb 20, 2014 | 11:30 AM EST
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It's always exciting when a member of the Four Horsemen reports its quarterly results. It's like the Olympics of earnings, except you don't have to travel to Russia.

Priceline (PCLN) will report its fourth quarter 2013 on Thursday, February 20 after the market close. Analysts are expecting another blowout quarter. It seems nothing can stop Priceline's domination of the online travel space.

Analysts expect revenue for the quarter to grow 27.3% to $1.51 billion and produce earnings per share of $8.29. Investors are carefully watching the company's gross margin. The mean gross margin estimate is 73.68%. For fiscal 2013, the company is expected to report $6.7 billion in revenue and earnings per share of $41.18.

With a momentum stock like Priceline, the forward outlook is critically important. Investors expect fiscal 2014 revenue of $8.4 billion, up 24.1% and earnings per share of $51.59. Despite increasing competition, investors look for gross margins to grow to 74.4% next year.

Priceline's growth is coming from overseas. In the third quarter, international bookings grew 42% year over year. Room nights in Asia-Pacific grew 36% to 75 million. For the fourth quarter, the company expects its international gross bookings to grow between 29% and 36%.

While the U.S. business is growing, Priceline is not the leading travel site in the U.S. Expedia (EXPE) has an estimated 40% market share. Priceline's share is just 16% in the U.S. The company is hoping to catch up by spending heavily on TV ads for its recently-acquired meta-search engine site Kayak.com. With over half the market, Kayak is the number one meta-search engine on the Internet. U.S. bookings are expected to grow between 17% and 24%.

There seems to be a lot of growth left for Priceline, especially overseas. According to the Global Business Travel Association, the Asia-Pacific region has grown 8% annually since 2000 and was estimated to be worth $393 billion in 2012.

Chinese travel is expected to double by 2017 to $375 billion. Latin America travel totaled $49 billion in 2012. Brazilian travel is expected to grow 7% over the next five years to become the sixth-largest business travel destination.

As long as Priceline can keep its focus on growing its overseas business, I think the stock will continue to move higher. Travel in the developed world, like Europe and the U.S., is highly competitive and only grows in the low-to-mid-single digits. Travel bookings, especially for China, Brazil, India and Russia, are all growing in the mid-teens and that plays to Priceline's strength.

While the valuation may make some people air sick, Priceline should continue to fly higher.

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