This summer, for the first time in five years, I used Priceline.com (PCLN) to book a hotel room and rental car. Turns out, I am part of a trend. The online travel agency saw an increase in bookings over the summer. Now it forecasts sales in the current quarter rising 28 percent from last year's fourth quarter.
The stock closed 18 percent higher Tuesday, rising $30.49 to $202.22, the highest close in nine years. Count Priceline.com among the Internet companies that rallied in 2009. In the past year, Priceline has outperformed Amazon.com (AMZN) shares, which are up 168 percent and shares of Google (GOOG), which has gained 78 percent in the past 12 months. I decided to find out what's going on at the company, which is known for its business model of letting customers name their price for travel services and then seeing what they get at the price.
Priceline benefited from a stronger-than-expected summer travel season as more customers used Priceline's booking.com web site to reserve hotel rooms in Europe. Unlike many of us here in the U.S., Europeans aren't as willing to give up their vacations during difficult economic times. They take longer vacations and much of August off and Priceline benefited.
"Many of us went into the summer assuming there would be a severe travel slump," said Benchmark analyst Fred Moran. "While there was a bit of softness in the U.S., Priceline saw strength from a very strong summer travel season in Europe for leisure travelers."
Jeffery Boyd, CEO of Priceline, said on the company's earnings conference call on Nov. 9 that "Overall industry growth rates improved in the third quarter (this year) due to weakening economic conditions in the third quarter of 2008." Moran and Boyd said the company also benefited from charging fewer online booking fees, leading to price-conscious consumers booking more trips. Travel isn't making a comeback, Moran explained. What is surging are the number of travelers looking to save money.
James Cakmak, an analyst at Sidoti & Co. in New York, said Priceline has been expanding its presence across Europe and Asia. Booking.com is Priceline's main destination for European customers and agoda.com is its primary Web site in Asia.
"Priceline dominates the European market and will benefit as more customers use travel sites," Cakmak said. "As economies recover in the U.S. and around the world, fewer travelers may take the time to hunt for discounts before booking their trips," Cakmak cautioned investors. That said, Priceline's international growth should outweigh any slowdown in name-your-own-price travel when the U.S. economy improves.
Cakmak raised his price target to $229 on Priceline's shares, from $221, while Moran, who has a buy rating on Priceline shares, raised his price target to $253, from $200 a share, because he expects higher earnings for the online travel company.
Priceline benefits when extra sales are booked, Moran said, because its websites and infrastructure are already built. "As much as anyone on the Internet, as the economic environment gets better, Priceline will reap the rewards," he said. Priceline offers lower-than-retail-prices on hotel rooms, rental cars and flights and cruises.
My sister, who travels often for work, recommended I give Priceline a try this past summer. Who knew it was a trend among travelers? I thought the company was growing old, like its aging spokesman William Shatner. (He's 78. Trekkies, that's old.) Furthermore, who knew that the trend would point investors to an Internet stock that was beating shares of Internet giants Google and Amazon?
Anthony Massucci is a senior writer and columnist for DailyFinance. You may follow him on Twitter at hianthony.
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