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Priceline’s next trip? Back to earth

August 09, 2012 | Online Travel

The travel business is notorious for ruinous competition. So far Priceline has avoided it. But the prospect that rivals are after its business should bring Priceline’s valuation back further toward Earth.

Priceline has finally booked the Internet travel industry’s ticket back to reality. The company’s previous strong growth and lock on small European hotels convinced shareholders it was worth as much as $38-billion (U.S.) earlier this year. But Priceline’s disappointing second-quarter results, unveiled on Tuesday, as well as dreadful results from rival Orbitz, have burst this bubble.

Out of context, Priceline’s results look impressive enough. Overall revenue grew by a fifth compared to the same period last year. International bookings jumped 44 per cent in local currencies. But both are around half the growth registered in 2011’s second quarter. Worse, Priceline’s executives reckon international bookings will shrink to 23 per cent growth this quarter – slower, if calculated in dollars.

That’s a big problem. Its overseas operations – especially the European hotels business it picked up with its 2005 acquisition of rival Bookings – don’t just account for most of Priceline’s profit. They also enjoy better margins than its U.S. travel business. So any slowdown in growth there will hit overall earnings hard. With both Priceline and Orbitz warning that European travel woes are worsening, this danger looks increasingly likely.

Get the full story at The Globe and Mail

Read also "Priceline reporting slowing growth, wary outlook"

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