Priceline: tripping up

Ageing disrupters always like to pretend they still have plenty of room for expansion. So MasterCard would rather talk about the continued opportunity to replace cash than its gnarlier war with Visa or newer payments companies.

Priceline, for its part, defines its battlefield as the “global accommodation business” where it has only a “single-digit market share”. Even at the age of 20, the online travel agent sees plenty of room to grow.

The spin is undermined by the slowdown which Priceline predicts. Its third-quarter earnings forecast last week sent the stock down 7 per cent. Room nights booked should increase 11-16 per cent year-on-year, Priceline said, a sharp deceleration from the 21 per cent growth in the second quarter. That was its lowest growth on record.

Analysts hope Priceline is lowballing. At least three of them deemed its forecast “conservative”. Understandable, given that the company has beaten its revenue guidance in every quarter bar one over 10 years, according to Bloomberg. But beware the extent of its conservatism: the average beat is only 4 per cent.

So the business is slowing. It could simply ramp up marketing spending. Priceline is holding back, in part because it is seeing costs per click increase in some channels. This is surprising given Google’s decline in CPCs; TripAdvisor, another travel portal has also reported lower CPCs.

If Priceline cannot spend effectively, for whatever reason, settling for lower growth is acceptable. Its market share, especially with its successful European business Booking.com, is still strong, easily leading Expedia at the top of the online travel market. It enjoys the margins of a mature business, 35 per cent at the operating level, and could go higher. Unfortunately, its $85bn enterprise value needs support from a fast-growing business. The management has clearly signalled that no longer exists.