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A Detailed Analysis of Priceline’s 2Q15 Results

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Overview

Summers have been the strongest months for travel companies because more people fly during the holiday season. The airline industry has also seen growth in travel demand. Jetblue’s (JBLU) traffic rose by 8.70%, Southwest (LUV) rose by 7.90%, and Alaska Air (ALK) rose by 9%. This leads to better business for OTA (online travel agency) companies like Expedia (EXPE), TripAdvisor (TRIP), and Priceline (PCLN). These companies saw strong quarterly reports. They’ve been able to offset the currency headwinds after strong growth. These airlines are part of many ETFs including the iShares Transportation Average ETF (IYT). IYT has 16.85% of its holdings in airline stocks.

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Priceline’s 2Q15 earnings

Priceline reported strong revenue growth in the second quarter. It beat the effect of the currency headwinds. The company’s revenue grew by 7.40% YoY (year-over-year) to $2.28 billion or $12.45 per share. It was boosted by solid 85% YoY growth in its advertising revenue. The strong summer quarter resulted in strong 9.40% YoY growth in the company’s revenue for the first half of the year.

The company saw 23% YoY growth in its operating expenses for the quarter—driven by higher expenses like advertising, personnel, and depreciation costs. This resulted in a 7.40% YoY fall in the company’s operating income for the quarter. Higher interest expenses also swept away the revenue growth. The company’s bottom line fell by 10% YoY to $517 million at the end of the second quarter. On an adjusted basis, the net income rose to $653 million or $12.45 per diluted share—compared to analysts’ expectations of $625 million or $11.98 per diluted share.

International business growth

The company’s top line has been boosted by growth in the international markets in recent years. This comes as a result of the company’s smart acquisitions that have helped it broaden its market reach in various nations across Europe, North America, South America, the Asia-Pacific region, the Middle East, and Africa. The international market’s revenue grew by 12% YoY for 2Q15. In contrast, the domestic market’s revenue only grew 0.70% YoY.

We’ll discuss the international business growth in more detail in the next part of this series.

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