Fundamental Analysis Priceline Group PCLN
The Priceline Group provides online travel services, operates in over 200 countries and owns six prime brands: Booking.com, priceline.com, KAYAK, agoda.com, rentalcars.com, and OpenTable.
The Company benefits from the worldwide growing trend of online bookings:
The Number of online bookings for hotels, flights or restaurants etc. has more room to grow and will continue to replace the offline bookings because of growing usage of the internet, especially with the adaptation of mobile devices – Booking.com is a top-five travel application in 69 markets around the world.
Priceline’s dominating network of hotel properties and other services is an important competitive advantage for the company and helps to increase its user base, in both developed and emerging markets.
Another important strategy for growth is the vertical integration of Priceline’s services:
Booking.com – a brand for booking online accommodation reservations, most significant brand which generates most of the growth.
priceline.com – hotel, rental car, airline ticket and vacation package reservation service in the United States.
KAYAK – meta-search service allowing consumers to easily search and compare travel itineraries and prices, including airline ticket, accommodation, and rental car reservation information.
agoda.com – accommodation reservation service catering primarily to consumers in the Asia-Pacific region.
Rentalcars.com – worldwide rental car reservation service.
OpenTable -provider of restaurant reservation and information services to consumers and restaurant reservation management services to restaurants.
The substantial part of the company’s success comes mainly from outside of USA:
“Our international business represents the substantial majority of our financial results, and we expect our operating results and other financial metrics to continue to be largely driven by international performance. The size of the travel market outside of the United States is substantially greater than that within the United States. Historically, Internet use and e-commerce activity of international consumers have trailed that of consumers in the United States. However, international consumers are increasingly moving to online means for purchasing travel. Accordingly, recent international online travel growth rates have substantially exceeded, and are expected to continue to exceed, the growth rates within the United States. We expect that over the long-term, international online travel growth rates will follow a similar trend to that experienced in the United States. In addition, the base of hotel properties in Europe and Asia is particularly fragmented compared to that in the United States, where the hotel market is dominated by large hotel chains. We believe online reservation systems like ours may be more appealing to small chains and independent hotels more commonly found outside of the United States. We believe these trends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked. We believe that the opportunity to continue to grow our business exists for the markets in which we operate.”, from 10K 2016
Almost 80% of the revenue comes from derived from travel-related transactions where Priceline doesn’t facilitate payments for the travel services – Agency Revenues. In this case, Priceline collects only a transaction fee which has no direct costs. Priceline’s revenue growth is heavily dependent on the growth of agency revenue.
Dominant market position with the large user base and listed hotel properties generate strong network effect which cannot be replaced without a significant time and expense.
The scalability of the Company’s services and growing user base leads to increasing profit margins which strengthen the competitive advantage of the company, especially in aggressive advertising.
The vertical integration of the company’s services makes all products and services more competitive and therefore it is one of the most important contributors to the economic moat.
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