Priceline.com nears $1,000 on strong earnings
Remember the technology boom just 14 years ago, the wild price swings, the days where an idea without revenues was a public company. Well, much has happened in these short 14 years. The stock market has rebounded from the technology woes of the early 2000’s yet crumbled again during the 2008 financial crisis. Throughout all the turbulence and days of despair, the market is back at all time highs in 2013 as it seems stocks are the only reasonable place to generate a return these days.
Since Priceline.com’s (NASDAQ:PCLN) hot initial public offering in 1999, the company itself has been victim to great price swings as exuberance has turned to fear, and then back to exuberance again. The company’s IPO early in 1999 was just another one of the “hot” initial public offerings you needed to get your hands on before it was too late. Shares traded as high as $990 per share in 1999 before pulling back substantially, below $10 per share after the bubble eventually burst. This year shares of the company have soared alongside broad market strength. Year to date shares are up by more than 50% as time after time again the company a has proven its business model successful amid increasing competition.
On Thursday the company reported a phenomenal second quarter after the market close. Following the announcement, shares traded higher almost immediately by more than 6.4% to as high as $994 per share in the extended hours session. The company results were in line with the rest of the travel sector, a number of the market leading online travel companies have been helped by a stronger travel environment this year. Net income rose 24% to $437.3 million, or $8.39 a share, from $352.3 million, or $6.88 a share, in the second quarter of last year. Excluding items, earnings rose to $9.70 per share from $7.85 a share a year ago. On the top line revenues shot up by an astounding 26% to $1.68 billion from $1.33 billion just a year ago.
These results came in stronger than analyst consensus estimates in terms of earnings and revenues. Analysts had expected Priceline to report earnings of $9.36 per share on $1.66 billion in revenue. Gross travel bookings, which includes all services purchased by the customers, grew 38% to $10.1 billion in the quarter. Going forward, the company is expecting equally impressive results during its third quarter of operation. Priceline stated it expects gross travel bookings to increase 27% to 34% during its third quarter. These results will be due in large part to strong international travel demand with modest domestic increases.
Early in Friday’s session shares traded within $2 of the closely watched $1000 price tag. Should the company trade at or above $1000, it will become the first company in the S&P 500 to do so in the history of the index. Ben Graham, legendary investor and author, would be rolling in his grave at the thought of using a $1,000 price tag as an investment determinant. A number of analysts think $1000 may just be the beginning, on Friday a number of analysts raised their price targets to account for the results. One analyst from Goldman Sachs raised his price target to $1,200 from $985 following the report citing strong booking growth. Another analyst from Deutsche Bank raised his target to $1,120 from $980 as international booking appears to be outpacing previous estimates. Over the coming days it is likely a slew of analysts will follow in the footsteps of their colleagues. It was a strong quarter on all conventional metrics and the future looks bright to say the least. If you’re looking to buy the stock today, just remember there are inherent risks with buying high growth companies. Priceline may be growing at astounding rates, however, its valuation may fully account for these gains. The company trades at 32 times earnings, a premium to others within the travel space and the broad market as a whole.
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