January 22, 2008：Priceline.com Inc. may be a smaller player at home, but it´s a powerhouse abroad, which is giving some investors cause for optimism.
A third-quarter earnings surprise sent Priceline shares skyward in November, following an earlier announcement that the online travel agency planned to make permanent a no-booking-fees promotion on its airline ticket purchases. Priceline bulls also see its strong international presence driving growth.
But past stumbles may have many investors wary of betting big on Priceline, and some on Wall Street lack confidence in the company´s future price potential, believing prospects for others in the sector remain stronger.
"The people who have a negative view of Priceline are overly focused on the North American business and are ignoring the huge opportunities in Europe and in Asia," said Arieh Coll, a fund manager at Eaton Vance Management in Boston.
"Specifically, what they see in the U.S. is a company that is ranked third or fourth in the industry and is losing market share, as opposed to the company in Europe that is ranked No. 1 in the online hotel reservation space and growing 100 percent year over year," Coll said.
Through the first three quarters of 2007, 55 percent of Priceline´s revenue came from its overseas operations.
Promotion questioned
Priceline´s management is on the offensive, courting greater market share at home while focusing on expanding its international presence. Nevertheless, opinion is still out on the effect Priceline´s no-booking-fees policy will have on the domestic online travel agency sector and Priceline as a whole.
The company´s main competitors, Orbitz Worldwide Inc. and Expedia Inc., derive a larger percentage of sales from airline bookings and the fees they generate. Priceline is less reliant on airline purchases and derives more of its sales through its hotel bookings, a higher-margin segment.
Priceline hopes to use the policy to bring more users to its site for air-travel savings, and then sell a hotel room at a higher profit margin.
In a November note to investors, Thomas Weisel analyst Jake Fuller said he was "convinced that there is no immediate risk to [booking] fees at Expedia and Orbitz." But he also noted that by marketing its no-fee promotion, Priceline "could look to spoil."
Cutting booking fees out of airline purchases is a bold play in the highly competitive domestic online travel market, which is defined almost exclusively by low prices.
An online travel survey conducted by Piper Jaffray in October found that 86 percent of respondents said pricing was the most important feature of a travel agency Web site and that most respondents shop around among sites for the best deal. And as the domestic market reaches maturity, investors believe European and other international markets will continue to drive growth.
In Europe, Priceline operates Bookings.com, an international online hotel reservation service. In the third quarter, Bookings posted a 98 percent increase in gross travel booking from 2006 levels. The company expects similar results in the fourth quarter.
