Key for Investors: Priceline’s Debt, Cash, and Profitability

Cash flows

Priceline generated $911.36 million from its operating activities during the first half of the year. However, the currency headwinds and losses in foreign currency contracts caused the cash and cash equivalents at the end of the quarter to fall by 46% YoY (year-over-year) to $1.88 billion. The company’s free cash flows have grown significantly in the past. They’ve been used to fund acquisitions in the last few quarters.

Key for Investors: Priceline’s Debt, Cash, and Profitability

Debt levels

Priceline’s debt has risen significantly in the past few quarters. The company has been aggressively putting money into acquisitions in the past two years. As a result, the company’s cash ratio fell significantly from 3.36 a year ago to 1.65 at the end of second quarter. Priceline’s debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) also rose from 0.89 in 1Q12 to 1.65 in 2Q15. However, Priceline has enough cash to cover its short-term needs.

Improving gross margins, falling returns

Priceline’s gross margins have improved in the last couple of years. The company’s gross margins rose 77.55% in 1Q13 to 91.78% at the end of the last quarter. At the same time, its operating margins have been volatile. They’ve fluctuated from 46% to 23% mainly due to changing selling and marketing expenses—due to the seasonal nature of the business.

Key for Investors: Priceline’s Debt, Cash, and Profitability

However, as the company spends more on advertising, its net margins have fallen. Its returns have also fallen. The company’s return on equity fell from 35.23% to 30% in the last two years. The return on invested capital also saw a similar fall from 25% in 2Q13 to 2% in 2Q15.

Priceline (PCLN) forms 2.77% and Expedia (EXPE) forms 0.52% of the Consumer Discretionary Select Sector SPDR (XLY). TripAdvisor (TRIP) forms 0.36% of XLY. Ctrip (CTRP) is another major competitor.

Priceline has been successful in maintaining strong financial stability, profitability, and margins despite its aggressive growth and expansion. In the next part of this series, we’ll look at the industry outlook to see if Priceline can continue its high growth.