The Priceline Group
The Priceline Group (PCLN) is a leading player in the online travel services industry. It comprises five primary brands—Booking.com, Priceline.com, Agoda.com, KAYAK, Rentalcars.com—and several ancillary brands. Priceline ended 2013 on a strong note with a 37.7% increase in bookings and rising hotel, rental car, and airline ticket unit growth. The stock has surged more than 1,200% in the last five years and become the first S&P 500 stock to trade over $1,000 a share in September. High-flying momentum stocks including the Priceline Group witnessed a selloff recently, but analysts consider the short-term pullback to be a buying opportunity. Priceline has a robust business strategy, as it continues to participate broadly in online travel growth by expanding its service offerings and markets.
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Priceline is based in Norwalk, Connecticut. The company launched in 1998 and expanded its operations to include Booking.com, Agoda.com, KAYAK, and Rentalcars.com, which are independently managed and operated brands. Priceline offers consumers accommodation reservations (including hotels, bed and breakfasts, hostels, apartments, vacation rentals, and other properties) through the Booking.com, Priceline.com, and Agoda.com brands. In the United States, the company offers consumers reservations for rental cars, airline tickets, vacation packages, and cruises through the Priceline.com brand. It also offers rental car reservations worldwide through Rentalcars.com. Consumers can easily compare airline tickets, hotel reservations, and rental car reservation information from hundreds of travel websites at once through Priceline’s KAYAK websites and mobile applications.
Priceline has been gaining market share from Expedia (EXPE), which dominates the U.S. online travel space. There are other players in the highly competitive space, such as the China-based Ctrip.com International Ltd. (CTRP), Orbitz Worldwide Inc. (OWW), and Tripadvisor Inc. (TRIP). Search engine giant Google (GOOG) recently entered into a deal to license hotel booking software from a Silicon Valley metasearch startup, Room 77, Bloomberg reported, citing a letter from Room 77 to its shareholders. The report noted that Room 77’s co-founder and engineers have joined Google and that Expedia is one of the investors in Room 77. News reports have speculated that Google is strengthening its hotel-search business. In 2010, Google entered the travel space by acquiring the Cambridge, Massachusetts, flight information software company ITA Software for $700 million. It also has a Hotel Finder app that pulls price and availability information from numerous travel sites.
A significant majority of Priceline’s gross profit comes from facilitating accommodation reservations. The company’s revenues are classified into three categories:
- Agency revenues derive from travel-related transactions where Priceline isn’t the merchant of record and where the prices of the travel services are determined by third parties. Agency revenues include travel commissions, GDS reservation booking fees related to certain travel services, and customer processing fees. Substantially all of the revenue for Booking.com is agency revenue comprised of travel commissions.
- Merchant revenues derive from services where Priceline itself is the merchant of record and the transactions are carried out on its own websites. These include transaction revenues earned in relation to accommodations, rental cars, cruises, and other travel services for both Priceline’s opaque Name Your Own Price and price-disclosed models. This model also includes revenue from customer processing fees and other ancillary fees.
- Advertising revenues derive primarily from KAYAK via referrals to travel service providers, and OTAs (other travel agencies), as well as from advertising placements on KAYAK’s websites and mobile apps.