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Stock Analysis: Priceline

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Priceline Stock Analysis

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Stock Analysis: Priceline

  1. 1. Stock Analysis Kara Stessl 1
  2. 2. Agenda Overview Quality Growth Momentum Valuation Overview •Business •Industry •Management •Financial Quality •Historical •Expected Growth •Price •Earnings Momentum •Intrinsic •Analyst Comparison Valuation Target Price Summary 2
  3. 3. Overview Quality Growth Momentum Valuation Business Description History Industry Fast Facts • Founded 1997 by Jay S. Walker • Headquartered in Norwalk, CT • Went public in March 1999 • Online travel company • “Name your own price.” feature • Dot-com bubble trouble • Listed on the NASDAQ Exchange • IWF Ranking: 50 • Market Cap: $59.7+ billion • Current Price: $1206.21 • Shares Out: 52,448,000 • 52 Week Range: $1017.12 - 1378.96 • Market share: 4% global travel bookings Consumer Discretionary Online Travel Agency 3 Data from Factset Price History
  4. 4. Overview Quality Growth Momentum Valuation Business Description 4 Data from Priceline 10-K 2013
  5. 5. Overview Quality Growth Momentum Valuation THE PRICELINE GR 5
  6. 6. Overview Quality Growth Momentum Valuation Business Description 6 Data from Priceline 10-K 2013 •Priceline buys product and resells to customer •Mark-up around 20% •Customers pay when they book Merchant Model •Merchants pay Priceline a fee of 12-15% •COGS virtually non-existant •Accounts for ~2/3 of revenue •Booking.com main revenue driver Agency Model Merchant Agency * % of 2013 Revenue Other
  7. 7. Overview Quality Growth Momentum Valuation Business Description 7 Data from Priceline 10-K 2013
  8. 8. Overview Quality Growth Momentum Valuation Business Description 8 Data from Priceline 10-K 2013
  9. 9. Overview Quality Growth Momentum Valuation Business Quality 9 Competitive Advantage Network Effects Once a network of service providers is in place, the customers tend to come, attracting more service providers, which should attract more customers International Markets Priceline Established International Leader Expedia and other competitors would have to invest heavily just to catch up to Priceline’s current position Strategic Alliances Ctrip Financial and strategic alliance. China poised to surpass US as largest business travel market this year.
  10. 10. Overview Quality Growth Momentum Valuation Business Quality 10
  11. 11. Overview Quality Growth Momentum Valuation Management Quality 1994 -1998: Engagement Manager 1998 – 2003: SVP Branded Projects and New Ventures 2003 – 2005: VP US Small MM Solutions and Partners 2005 – 2008: CEO Microsoft Japan 2008 – 2011: VP Global Consumer & Online 2011 – Present: CEO Booking.com 2014 – Present: CEO Priceline Group Darren Huston 11 Data from LinkedIn
  12. 12. Overview Quality Growth Momentum Valuation Industry Analysis Entrants •Medium: current and new competitors can launch new sites at a relatively low cost Substitute s •Low: offline travel agents or directly with suppliers, often more costly Suppliers •Medium: can choose other online sites to sell excess inventory Customers •High: looking for bargains, willing to switch for lower prices, search engines allow maximum comparability Rivalry •Highly competitive industry: competing mainly on price 12
  13. 13. Overview Quality Growth Momentum Valuation Financial Quality: Profitability and Liquidity 13 Data from Factset
  14. 14. Overview Quality Growth Momentum Valuation Financial Quality: Profitability Peers 0 10 20 30 40 50 60 70 80 Gross Margin % Operating Margin % Net Margin % ROA ROE Priceline Expedia Orbitz 14 Data from Factset
  15. 15. Overview Quality Growth Momentum Valuation Financial Quality: Dupont Analysis 0 10 20 30 40 50 60 70 Asset Turnover Operating Margin Interest Burden Tax Burden ROA Equity Leverage ROE Priceline Expedia Orbitz 15 Data from Factset
  16. 16. Overview Quality Growth Momentum Valuation Historical 16 Data from Factset
  17. 17. Overview Quality Growth Momentum Valuation FCF Growth 17 Data from Carlson Wagonlit Travel and Statista $0 $500 $1,000 $1,500 $2,000 $2,500 (millions)
  18. 18. Overview Quality Growth Momentum Valuation Expected 18 Data from Factset
  19. 19. Overview Quality Growth Momentum Valuation Opportunities 19 Opentable Acquisition Growing at 18% Potential synergies, immediately accretive , Booking.com reaching out to existing suppliers Dominantly based in US – Priceline has capability to take worldwide Successful history with past acquisitions Rising Agency Sales No inventory risk, Spread fixed costs across growing revenue base = better margins Popular in international markets Growing International Market Asia and Latin American markets expected to grow substantially Mobile bookings to catalyze growth Higher growing consumer discretionary budget in Asia Increased online penetration of travel bookings Ctrip Partnership $0.5 billion invested in Ctrip partnership, reserves right to increase stake China is world’s biggest outbound travel market; only 15% travel booked online Booking.com will advertise Ctrip's inventory of hotels in China. Ctrip will be able to offer its users a wider array of deals from Priceline's platforms
  20. 20. Overview Quality Growth Momentum Valuation Economic Impacts 20 35.90% 37.10% 38.90% 40.40% 42.30% 44.20% 46.20% 2010 2011 2012 2013 2014 2015 2016 Percentage of Worldwide Online Travel Sales 309 340 374 408 446 483 523 2010 2011 2012 2013 2014 2015 2016 Worldwide Online Travel Sales Volume Data from Barclays and Statista ($ billions)
  21. 21. Overview Quality Growth Momentum Valuation Online International Travel Sales Volume 21 Data from Barclays and Statista 0 50 100 150 200 250 300 350 400 2010 2011 2012 2013 2014 2015 2016 Europe Asia Pacific Latin America ($ billions)
  22. 22. Overview Quality Growth Momentum Valuation Economic Impacts: Catalyst 22
  23. 23. Overview Quality Growth Momentum Valuation Risks and Concerns 23 Threat of business disruption •Google licensing deal with Room 77 software •Apple iTravel patent app •Facebook? Supplier Dependence •Broad hotel, rental car, airlines, etc. selection necessary to remain competitive Unpredictable Global Events •Ebola, SARS, and other epidemics •Terrorism •Natural Disasters: Katrina, Icelandic Volcanic Eruption, etc Global Growth Slowing •Consumer Discretionary, luxury expense Strength of US Dollar •Majority of revenue derived from international operations Security Concerns •Personal information •Credit information •Security breaches Consumer Preferences •Seasonality: highest profitability quarters 2 and 3; • US Opaque reservations becoming more competitive
  24. 24. Overview Quality Growth Momentum Valuation Momentum: Price (10 years) 24 Data from Factset
  25. 25. Overview Quality Growth Momentum Valuation Momentum: Price (5 years) 25 Data from Factset 0 100 200 300 400 500 600 700 800 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 (INDEX) Priceline Group Inc - Price (INDEX) S&P 500 - Price (INDEX) MSCI The World Index - Price (INDEX) MSCI AC World / Consumer Discretionary -SEC - Price Priceline Group Inc 1138.43 0.00 0.00% 4:00:00 PM VWAP: High: 1378.96 Low: 154.12 Chg: 542.67%
  26. 26. Overview Quality Growth Momentum Valuation Earnings Surprises 26 Data from Factset
  27. 27. Overview Quality Growth Momentum Valuation Valuation: DCF 27 Terminal Value Matrix Growth Rate 2.0% 2.5% 3.0% 3.5% 4.0% WACC 10.62% 120,840 128,279 136,694 146,290 157,335 11.12% 114,217 120,840 128,279 136,694 146,290 11.62% 108,282 114,217 120,840 128,279 136,694 12.12% 102,933 108,282 114,217 120,840 128,279 12.62% 98,088 102,933 108,282 114,217 120,840 Equity Value Per Share Matrix Growth Rate 2.0% 2.5% 3.0% 3.5% 4.0% WACC 10.62% 1,558.22 1,613.96 1,677.03 1,748.94 1,831.72 11.12% 1,457.99 1,505.60 1,559.07 1,619.56 1,688.54 11.62% 1,368.58 1,409.51 1,455.18 1,506.48 1,564.50 12.12% 1,288.37 1,323.76 1,363.03 1,406.85 1,456.07 12.62% 1,216.05 1,246.81 1,280.77 1,318.46 1,360.51
  28. 28. Overview Quality Growth Momentum Valuation Recommendation: Analysts 28 Analyst Ratings Buy 23 Hold 4 Sell 0 Analyst Return Estimates 12m Target Price $1488.08 Last Price $1206.21 Return Potential 23.37% Range $1250 - 1600 Data from Factset
  29. 29. Overview Quality Growth Momentum Valuation Recommendation 29 STRONG BUY • My Target Price: $1455.18 • Analyst Target Price: $1488.08 • Current Price: $1206.21 • Return: 20.64%
  30. 30. Overview Quality Growth Momentum Valuation Questions? 30

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